Ahluwalia Contracts (India) (ACIL), for Q3FY18, reported decent numbers. Revenue grew 1% y-o-y to Rs 361 crore, growth was muted on the back of GST impact (adjusting for the same, revenue would have been up by 9-10%). Execution of better margin orders led to EBITDA margin expansion of 413bps to 17.3%. Good operational performance aided net profit growth of 20% to Rs 29 crore. As of Dec 31, 2017, debt was at Rs 61 crore (vs Rs 63 crore as of Sept 30, 2017). For FY18, the management has maintained revenue growth guidance of 15-20% and EBITDA margin guidance to 13-14%. It expects order inflows worth Rs 1,300 crore in FY18 and Rs 1,600 crore in FY19. ACIL touched its 52-week high of Rs 426 (on Dec 27, 2017). The stock has corrected to Rs 371 levels (return ~4% since the update) and trades at a P/E of 16.6/14.1x on FY19E/20E basis. ACIL’s cautious bidding approach and execution of better margin orders have enabled EBITDA margin expansion for the quarter. Owing to the competitive intensity being high, we have maintained our EBITDA margin estimates of 13% over FY18-20. The company has a healthy bid pipeline and its focus on higher ticket size projects (+Rs 500 crore) could aid future growth. We maintain our ‘accumulate’ rating and value the company at 16x FY20E EPS giving a target price of Rs 421.
So far, during FY18, ACIL has received orders worth Rs 1,260 crore, taking the order book to Rs 3,575 crore (as of Dec 31, 2017). Over the last few months, competitive intensity has been high owing to regional players coming in. ACIL has thus adopted a cautious bidding approach in order to safe guard margins and is now looking at higher ticket size orders (where competition is low at present). Given the opportunities and competitive intensity, we expect the company to maintain margin of 13% over FY18E-20E. As of Dec 31, 2017 debt stands at Rs 61 crore. We anticipate ACIL to be a debt-free company by FY20E. We believe for now the company would not be requiring any major capex Rs 20 crore – regular capex estimated, however, the same could differ owing to the requirements of any big ticket orders. We expect lower capex requirement and better order execution to generate healthy cash flows which could aid debt reduction and improve the working capital cycle. In addition, the company has some assets in the real estate segment, which it would look to monetise once the market stabilises.