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Last Updated : Nov 16, 2012 01:29 PM IST | Source: Moneycontrol.com

Hold IVRCL; target of Rs 39: Emkay

Emkay Global Financial Services has recommended hold rating on IVRCL with a target of Rs 39 in its November 12, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on IVRCL with a target of Rs 39 in its November 12, 2012 research report.

“IVRCL infra reported the first steady state quarter in its new avatar, results were below expectation. Execution continues to remain challenging. Revenues at Rs 9.9bn (-5%yoy) dissappoints v/s exp. of Rs11.4bn. Management highlighted that clearances of infrastructure projects continues to pose challenges which is impacting execution. EBITDA stood at Rs 0.7bn -25% yoy, Margins declining 193bps yoy to 7%, surprised negatively, which we believe should have sustained over 9% especially owing to merger. Interest expense at Rs 1bn at 10% as a percentage of sales is exorbitantly high. Interest coverage at 1.2x appears stretched. Loss at Rs0.4bn came in much lower than exp.”

“IVRCL infra has bagged orders worth Rs 15bn in Q1FY13E taking overall order backlog to Rs 265 bn providing 5.3x visibility on FY12 revenues. With continuing challenges in achieving the clearance on the execution front, we believe the revenue growth will remain muted over the coming years. Cut FY13/14E revenues by 11%/16% respectively IVRCL infra has been trying to divest stakes in BOT’s over the last couple of years, IVRCL has achieved very little success, only 1 BOT project divested and the negotiations on others projects continue to drag. We believe the company will find divestment of other under development or construction projects extremely challenging owing to the chequered history of the group. In a macro backdrop, where financial institutions are posing increased restriction, the buyers will remain extremely cautious.”

“Although the backlog remains healthy at 5.3x FY12 E&C revenues, the execution remained challenging during the last 9 months. Interest coverage at 1.2x makes the business model extremely vulnerable to any slow down or contraction in margins that what we have assumed. Divestment of BOT’s or Land bank holds the key. Downgrade the standalone FY13E/14E earnings by -91%/-56% reduce our rating to hold with a target price of Rs 39,” says Emkay Global Financial Services research report.

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First Published on Nov 16, 2012 01:23 pm