Progress in financial closure and strong orders balanced Ashoka Buildcon’s Q1 against ordinary income. Its recent success in financial closure for four of five hybrid annuity projects and as recent orders have a fair share in EPC orders, the construction division should now be much better. For BOT toll operations, the enduring momentum in gross toll-collection hold promise. Consequently, this suggests better cash-flows ahead. On the sturdy balance sheet, reassuring toll growth and strong revenue assurance, we retain our ‘Buy’ rating.
With its maiden CGD project in Ratnagiri (Maharashtra) on the verge of commissioning, the company has further strengthened its portfolio by securing four projects (two each in Karnataka and Maharashtra). Besides, it is eyeing opportunities in railway electrification and substation transmission. The strategy is aimed at growth alternatives and to de-risk and diversify. We tweak our estimates to factor in strong order accretion. Consequently, Ebitda estimate is raised 7% for FY19e (and ~10% on FY20e).
Earnings are also revised owing to a change in accounting treatment for partner’s stake in Ashoka Concessions. At the ruling price, the stock trades at EV/Ebitda (excl. investments) of 8.1x FY19e and 6.5x FY20e. Risk: any slower-than-anticipated pace of project execution. Negative operating leverage combined with the larger proportion of the lower-margin Power T&D compressed margins 117bps y-o-y to 11.9%. Adjusting for the `112m claim amount booked in Q1, the margin contraction was an even steeper 264bps y-o-y. With the highways’ share set to go up in the coming quarters (as new orders are taken up for execution, especially hybrid annuities) and with the rising scale of operations the margin is expected to be better.