Hold Ahluwalia Contracts; target of Rs 145: PINC Research

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Hold Ahluwalia Contracts; target of Rs 145: PINC Research

PINC Research has maintained hold rating on Ahluwalia Contracts (ACIL) with a target of Rs 145 in its February 15, 2011 research report.

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PINC Research has maintained hold rating on Ahluwalia Contracts (ACIL) with a target of Rs 145 in its February 15, 2011 research report.

"Ahluwalia Contracts (ACIL) Q3FY11 performance saw execution pressure from slow down in real estate market (sales down 11% YoY), coupled with spike in operating and labour cost, which eroded margins by 265bps (8.8% vs 11.5% YoY). The weak performance is expected to continue over the next few quarters as real estate market stabilise. About 60% of the orders are from commercial and residential segment."

"In Q2FY11 end 56.5% of the net order backlog of ACIL comprised of commercial and residential segment. The management indicated severe slowdown in execution towards few realty projects. The trend is likely to continue over the next few quarters. We cut our sales estimates by 19.5%% and 19.6% respectively for FY11E and FY12E. Due to lower execution and higher operating, labour and admin cost EBITDA margin is expected to remain under pressure. We bring down our margin estimates to 10.8% FY11E and 11% FY12E. 9MFY11 EBITDA margin stands at 10.8% vs 12.6% YoY. PAT cut by 28.5%% and 29.1% respectively for FY11E and FY12E. Gross order book stands at Rs 55 billion (net OB is estimated ~Rs 35 billion up 15% QoQ). The management mentioned that new orders from govt have dried. ACIL earns better margin in govt orders. The net dues of Rs 600 million from CWG contract continues and are included in inventory of ~Rs 2.4 billion. ACIL will take a final decision regarding the treatment of the same during the current quarter; the amount is most likely to go in for arbitration."

"At CMP the stock is trading at PE of 11.5x and 9.3x FY11E & FY12E earnings. The hang on the stock is real estate slowdown and receivables from Emaar MGF. We believe the CWG issue is largely factored in the price but the full impact of the real estate slowdown on FY12 number is yet to be clearly understood. On a relative basis ACIL is better placed due to healthy balance sheet and its ability to ramp up execution, historically it has demonstrated excellent returns. But considering the near term growth and margin issue we downgrade the stock to HOLD with a target price of Rs 145," says PINC Research report.

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To read the full report click on the attachment