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CRISIL maintains valuation grade of 5/5 to ARSS Infra

Published on Wed, Nov 30, 2011 at 17:28 | Source : Moneycontrol.com

Updated at Wed, Nov 30, 2011 at 17:32

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ARSS Infra

BSE | NSE 30/05/12

Are Mutual Funds betting on ARSS Infra?

CRISIL Research has come out with its report on ARSS Infrastructure Projects . The research firm has maintained the fundamental grade of 2/5 to the company in its November 29, 2011 report.

ARSS Infrastructure Projects Ltd's (ARSS') Q2FY12 results were better than CRISIL Research's expectations. Although revenue registered growth of 9.8% y-o-y, EBITDA margin improved by ~420 bps y-o-y to 28.6%, which was better than our expectation. Stretched working capital cycle resulted in high debt and higher interest cost, which impacted earnings growth. Order intake during the quarter was subdued with the company receiving orders worth ~Rs 4.0 bn; current order book is ~Rs 37 bn (2.7x TTM revenues), which provides revenue visibility for ~30 months. We are maintaining our earnings estimates and fundamental grade of 2/5.

Q2FY12 result analysis
� Revenues increased by 9.8% y-o-y to Rs 2,203 mn. H1FY12 revenues increased by 18.2% y-o-y to Rs 6.6 bn due to timely execution of projects.

� EBITDA margin increased by ~420 bps y-o-y to 28.6%. H1FY12 margin grew by 309 bps to 24.1%, which is higher than our expectation. Margin expansion is attributed to increased contribution from the high-margin railway segment.

� PAT registered subdued growth of 2.0% y-o-y to Rs 171 mn. Higher interest cost resulting from stretched working capital offset expansion in operating margin. Net working days during H1FY12 stood at 263 compared to 163 in H1FY11. H1FY12 PAT grew by 10% y-o-y to Rs 557 mn with margin of 8.5%, down by 66 bps y-o-y.

Key development; strong order intake in H1FY12
� During the quarter, the company received orders worth ~Rs 4.0 bn only. However, for H1FY12, order inflow was strong with inflow of ~ Rs 11 bn compared to Rs 13.6 bn during FY11.

� The company sold its 50% equity stake in a bus terminal project in Orissa, which is under its subsidiary company. Deal size is not yet known.

� The promoter revoked 6.23% of his shareholding from IFCI Ltd. The shares were pledged in April 2011 as collateral for a term loan.

Valuations: Current market price has strong upside
We continue to use the price-to-earnings method to value ARSS' contracting business. We have assigned a multiple of 7x FY13E earnings and arrived at a fair value of Rs 570 per share. Based on the current market price, our valuation grade is 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.