Vascon Engineers Ltd (VEL) has presence in construction and development of residential and commercial real estate projects with a history of over 25 years. After having a rough patch between FY13 and FY15, the company has embarked on a decisive restructuring exercise. We feel the company could be a good turnaround story in FY19e with focus on affordable housing in both its EPC and real estate business.
The four-pronged strategy of turnaround is: (i) Focus on increasing the order book of EPC business. The company has capability to execute 8 million sq ft of projects/Rs 10 bn in value p.a. as compared to potential revenue of Rs 3 bn in FY18e. It has already increased its EPC order book from Rs 5.2 bn in Mar’17 to Rs 7.2 bn at the end of H1FY18; (ii) Reviving the real estate business under the new CEO of Real estate division, by focusing on affordable housing in a big way; (iii) Liquidation of non-core investments to the tune of Rs 2 bn in its subsidiaries & other businesses to fund future growth plans; and (iv) Exiting loss-making services business in its 85% held subsidiary called GMP Technical Solutions. This has the potential to swing PBT by Rs 100-150m between FY17 and FY19e.
On an overall basis, we expect revenue and earnings to grow at a CAGR of 26% and 231%, respectively, between FY17-20E. We expect 1257 bps improvement in Ebitda margins in FY17-20e. Based on the detailed working of individual businesses, we arrive at a SOTP price target of `60. We initiate coverage with a Buy recommendation.