Buy IVRCL Infra; tgt Rs 473: Emkay

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Buy IVRCL Infra; tgt Rs 473: Emkay

The stock is currently trading at 11.2x FY09E EPS of Rs 16.9 and 7.9x FY10E EPS of Rs 24.1 (adjusting for the value of non-contracting business). We value the stock on the SOTP based valuation of Rs 473 per share, valuing the core contracting business at Rs 361 per share (15x FY10E EPS).

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Emkay Research has maintained buy rating on IVRCL Infrastructure with price target of Rs 473, in its report dated 1st August, 2008.

"IVRCL Infrastructures & Projects Ltd. (IVRCL) reported strong set of Q1FY09 results. Following are the key highlights of the results:

The revenue for the quarter was marginally ahead of the estimates at Rs 9.3 billion, a growth of 37.1% over last year. Water & Environment segment continues to be the key contributory to the revenue with almost 45% of the revenue from this segment. Building structures, power and transportation segment each contributed about 19-20% to the revenues.

EBITDA margins at 8.8% were better than our expectations and marginally below last year's margin by 10 bps. 93% of the company's order book has PVC and that seems to have led to the protection of margins for the company. Out of the orders covered with escalation clauses, about 70% of the contracts have star rated terms, in about 20% of the projects escalation are linked to index of specific commodities and 10% of the projects have WPI linked escalation clauses. It should be noted that the company generally reports lower margins in the first quarter than the full year numbers.

The adjusted PAT for the quarter was at Rs 434.9 million which was ahead of our estimates for two key reasons viz. a) Interest cost for the quarter was at Rs 193.9 million against our estimates of Rs 220 million and b) Effective tax rate was at 20.9% against our estimates of 33%. It should be noted that the company continues to claim Sec. 80IA benefit in some of its projects, while in our estimates we have build in full tax rate. The benefit taken in the quarter amounts to Rs 60 million".

Valuation:

"The stock is currently trading at 11.2x FY09E EPS of Rs 16.9 and 7.9x FY10E EPS of Rs 24.1 (adjusting for the value of non-contracting business). We value the stock on the SOTP based valuation of Rs 473 per share, valuing the core contracting business at Rs 361 per share (15x FY10E EPS), BOT portfolio at Rs 49 per share, stake in IVR prime at Rs 54 per share and Hindustan Dorr Oliver at Rs 9 per share. We maintain our 'BUY' rating on the stock".

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