Hold Ahluwalia Contracts; target of Rs 128: PINC Research

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Hold Ahluwalia Contracts; target of Rs 128: PINC Research

PINC Research has recommended hold rating on Ahluwalia Contracts India with a target of Rs 128, in its May 31, 2011 research report.

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PINC Research has recommended hold rating on Ahluwalia Contracts India with a target of Rs 128, in its May 31, 2011 research report.

"Ahluwalia Contracts (ACIL) reported a mixed result for the quarter. The positive being improvement in execution with 52% QoQ growth in Sales at Rs5.8bn (PINCe Rs3.9bn), however operating margins dipped to 6.4% on account of higher overheads, labour and employee costs. Material prices likely to have dented EBITDA margin by 1% on a yearly basis, ACIL ended the year with EBITDA margin of 9.3%."

"Dues of Rs0.6bn from CWG work have been converted to work receipt and transferred to debtors from inventory. We understand that the cost associated with the work has been already charged and any inflow (minus the retention money) would directly impact the bottomline positively. Debtors day for the year end FY11 could be higher as a result. Order book currently stands at ~Rs34bn, of which real estate contribute ~55-60%. Fixed price contracts, which has been a cause of concern for operating margin, consist of 15-20%. Owing to higher cost of raw materials (15-20% of OB is fixed price contract) and increasing overheads we have revised our operating margin for FY12E to 9.8% from 11%. Consequently, PAT stands reduced at Rs805mn for FY12E from Rs910mn earlier. Higher OB inflow and revival in real estate might result in upward revision of est. The management has guided for Rs20bn of revenue in FY12 against our estimate of Rs18.3bn."

"At CMP the stock is trading at PE of 8.9x and 7.1x of FY12E and FY13E earnings. Our EPS for FY12 is reduced to Rs12.8 from earlier Rs14.5, our target price stands reduced to Rs128 (10x FY12E earning of Rs12.8) from Rs145. We believe ACIL is better placed than its peers in terms of balance sheet and execution capabilities, but would like to see how order inflow and operating margin pan out in the near term. This quarter has provided some relief towards execution which if maintained could lead to upgrade of our estimates, we thus maintain our 'HOLD' recommendation We reduce our estimates and target price to Rs 128, maintain HOLD," says PINC Research report.

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