FY20/21e EPS down 8/6% due to project-specific issues; long-term prospects are intact; TP cut to Rs 416
Ahluwalia Contracts’ (ACIL’s) Q4FY19 execution was affected by project-specific issues pertaining to a couple of NBCC projects; this restricted topline growth to 9% y-o-y while PAT was flat y-o-y. Order intake remained buoyant with FY19 order inflow of ~`47 bn (`11.7 bn in FY18). Robust order book (book-to-bill of 3.4x) and a lean balance sheet (net cash position) underpin our bullish stance on ACIL. While we are cutting FY20/21e earnings by 8%/6% in light of these project-specific issues, we remain positive on ACIL’s long-term prospects. Maintain Buy with a revised TP of `416 (`430 earlier) at an unchanged 16x earnings as we roll forward the valuation to September 2020e.
Execution and margins hit by one-offs
Delays in getting approvals for the Charbagh station project (`5.4 bn) and Mohammadpur redevelopment project led to muted revenue growth. Ebitda margin inched down 30bps to 11.6% due to licence fee equalisation for the Kota project (`80 mn impact) and impairment worth `25 mn taken on sale of flats. Management expects margins to bounce back to around 13.5% in FY20.
Order book maintains trajectory
ACIL had a blockbuster year with order intake worth about `47 bn in FY19 (~`12 bn in Q4FY19). It ended the year with an order book of about `60.4 bn (book-to-bill of 3.4x); in addition, it is L1 in `2 bn worth of projects. Besides, the company’s bid pipeline is about `50 bn. Management expects large opportunities in social infrastructure and Metro rail segments.
Outlook is buoyant
While we are cutting FY20/21e earnings by 8%/6% due to uncertainty around the start of work on the Charbagh railway station project, we believe the company’s long-term story remains intact.