Centrum is bullish on Ahluwalia Contracts has recommended buy rating on the stock with a target price of Rs 313 in its research report dated November 17, 2016.
Centrum's research report on Ahluwalia Contracts
ACIL’s strategy to shift from private and focus more on the high margin public sector orders (currently 67% of the order book) has led to an improvement in the EBITDA margin profile. Focus on public sector orders is also likely to keep the company insulated from expected slowdown in private sector order due to demonetization. The government’s increasing focus on social and urban infrastructure has resulted in healthy order bid pipeline. The company has been able to successfully reduce its debt to Rs 89 crore, way before the targeted period of FY18. Post our Q1FY17 Result update (CMP: Rs 301, on Aug. 19, 2016), ACIL touched its 52 week high of Rs 336 on Sept. 6, 2016. However, with the recent market correction the stock now trades at 13.5x FY18E P/E. This valuation is after taking into account the impact of less than expected growth numbers in Q2 and subsequent downgrading of guidance. Therefore, we maintain our BUY rating and value the stock at 16x giving us a target price of Rs 313. Other key positives for ACIL are additional revenue from lease rentals from the Kota Project, lower borrowing cost and the ongoing improvement in working capital cycle.
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