Accumulate IVRCL; target of Rs 47: Emkay

“IVRCL post the merger with IVRAH reported its quarterly results which were not comparable owing to merger related adjustments effected for the quarter. Revenues at Rs 11.9bn (+6%yoy) came inline. Road segment contributed more than 40% to revenues which is gathering pace. EBITDA stood at Rs 1.08bn +30% yoy owing to 169bps expansion in margins. EBITDA margins at 9.1% expanded owing to merger with IVRAH (Earlier EPC margins were booked partially at IVRCL level and partially at IVRAH books). PBT inline at Rs102mn grew 2x yoy.”

“IVRCL infra has already divested its 51% stake in Sion Panvel BOT recognising a gain of Rs1.2bn in Q5FY12. Divestment proceeds have been already realized by IVRCL. IVRCL has also lined up 3 more south based BOT asset for divestment in the next round. 2 of these projects are operational (Salem & Kumarapalyam) and 1 project is under implementation (Chengapalli). IVRCL Infra is also looking to divest 1 more under construction a road BOT project (Raipur Bilaspur) which was bagged recently; however even after sale IVRCL will continue to remain EPC contractor for the project.”

“Though IVRCL execution issues in all the sectors where IVRCL has exposure are unlikely to resolve in the near term, we believe that the company would start witnessing execution pick up in transportation vertical by Q4FY13.Monetization of BoT asset would help in resolving the funding needs which will give better execution visibility to the transportation order book which stands at Rs 92bn as on June-12. We restate the standalone IVRCL FY13E/14E earnings by -27%/-26%, Change the computation of our fair value at Rs 47. Core E&C contributes 45%, BOT portfolio Road contributes ~36% and the remaining from other investments. Upgrade IVRCL to accumulate with a Target Price of Rs 47,” says Emkay Global Financial Services research report.

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