IVRCL Q2FY12: Signs of relief, accumulate
- Revenue/EBITDA show signs of improvement: IVRCL’s Q2FY12 sales were flat at Rs10.4bn. On account of lean working, sub-contracting and material costs have also come down; thus, indicating, an improvement in EBITDA margins. The company has taken one-time hit of Rs70m for an advance given to the subcontractor. Despite that, core EBITDA margins at 9.0% were higher by 223bps YoY.
- High interest leads to 65% dip in PAT: Interest cost was high at Rs65m QoQ and YoY due to increase in debt levels on account of high interest rates (13%). The debt incresed on account of further funding needs of subsidiaries to the extent of Rs3bn. The tax rate was lower like the previous quarter and PAT de-grew by 65% YoY in Q2FY12 at Rs81m.
- Order book position, 16% from captives: Current order book and L1 projects stand at Rs250bn. IVRCL has received orders aggregating to Rs70bn in Q2FY12. Captive order book is Rs40bn in Roads and L1 is Rs56bn.
- Remerging BOTs with itself: IVRCL, after taking a hit in terms of funding BOTs, has decided to bring back the value to the parent and thus,is merging BOTs with parent. Post this, dilution in IVRCL will be to the extent of 14.3%. Post merger, BOTs and land parcels would be sold gradually and the target is to make IVRCL an asset like company as before.
Valuation: FY12 and FY13 earnings have been marginally upgraded on the back of lower tax rate and better execution. At the CMP, the stock discounts FY13E core earnings by 8.7x (20% discount to Prabhudas Lilladher's coverage universe valuations). Accumulate for a price target of Rs42
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