Brokerages expect this road developer to double return

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26 Aug, 2025 12:21

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Brokerage houses continue to be bullish on road-developer Ashoka Buildcon after a mixed July-September quarter.

Kotak Institutional Equities has upgraded the stock to buy from neutral, though it cut has target from Rs 210 to Rs 180, implying a 91 percent potential upside from the current level.

"Q2FY20 was a mixed quarter with in-line execution but weak on traffic growth. The delay in opening bids from NHAI was compensated by uptick in state highways projects," the brokerage said.

The company's standalone balance-sheet was strong and it was well-equipped to take care of pending equity investments, Kotak said.

The brokerage house expects revenue growth to improve in the second half of FY20, as the infrastructure developer got two more HAM (hybrid annuity model) projects and transmission & distribution and railways segment revenues would pick up from Q3FY20.

Ashoka Buildcon has reported a 17 percent year-on-year growth in the second quarter profit at Rs 72.7 crore on revenue of Rs 822.31 crore, which increased by 7.6 percent despite prolonged monsoon.

The growth was driven by slightly better-than-expected execution.

Profitability was driven by EBITDA margin expansion and higher other income. Its earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 18.5 percent year-on-year to Rs 122.88 crore and margin expanded by 138bps YoY to 14.94 percent in quarter ended September 2019.

"Ashoka Buildcon (ABL) delivered Q2FY20 revenue/EBIDTA/APAT beat of 1/20/39 percent respectively," said HDFC Securities, which has maintained a buy on ABL with a reduced SOTP of Rs 206 (from Rs 220 earlier), implying 119 percent potential upside from current levels.

"The target price cut is driven by our re-classification of interest income on ABL funding support to ACL as non-recurring over long term. We value the EPC business at 12x FY21E EPS."

Numbers were strong in Q2FY20 but the stock was still languishing at lows, HDFC Securities said, adding concerns on ABL going for cash settlement in case of SBI Macquarie stake in ACL getting a distressed valuation was a key overhang.

"Though there is no mandatory cash settlement, at best asset swap, which may be stake dilutive and incur non-cash diminution of investment value for ABL in ACL. Standalone debt has reduced by Rs 120 crore QoQ to Rs 460 crore," it said.

HDFC Securities sees delay in SBI Macquarie deal closure, dip in traffic revenue from built-operate-transfer (BOT) projects and delay in appointment dates as main risks.

ABL expects six-eight months time frame for ACL BOT monetisation (against March 2020 earlier).

"For ABL to at least realise 1x P/BV, ACL should receive Rs 2,730 crore as equity valuation against consensus sell side valuation of around Rs 2,000 crore for these assets. The Rs 7.3 billion shortfall may bring down ABL book value of investment from Rs 1,200 crore to Rs 470 crore (0.4x P/BV)," HDFC Securities said.

The stock has lost more than 20 percent in last three months. However, it was quoting at Rs 94.35, up Rs 0.10, or 0.11 percent, on the BSE at 1143 hours.

Ashoka Buildcon has cut its FY20 revenue guidance from 25-30 percent YoY growth earlier to 20-25 percent due to extended monsoon and land acquisition issues in few projects. Order inflow is maintained at Rs 4,000-6,000 crore.

Its order book on September 30, 2019 stood at Rs 7,486 crore (excluding orders worth Rs 2,262 crore which includes letter of award received from HAM Tumkur–ShivamogaIV, L-1 for Bundelkhand Expressway and order received from SRIT, smart city), Ashoka Buildcon said.

Of the total order book, contribution from roads BOT and roads EPC is 51 percent and 24.2 percent, respectively, power T&D is 9.6 percent and railways is 14.3 percent.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.