Buy Ahluwalia Contracts (India); target of Rs 288: Prabhudas Lilladher

Prabhudas Lilladher's research report on Ahluwalia Contracts (India)

Ahluwalia Contracts (ACIL) posted a decent set of results with revenues falling 21.1% YoY (vs PLe 44% decline) despite challenging environment. Even with several cost control measures, margins were weak due to write-offs & provisions for doubtful debts (~Rs55mn) during the quarter. Labour availability at 40-45% pre-covid levels (up from 20% in June’20) continue to hamper execution as projects currently operate at ~45% efficiency levels. Management cited caution on execution and delays in payments primarily in West Bengal and Bihar state government projects as Covid-19 cases have risen sharply and fear for diversion of state funds is increasing. ACIL is among few EPC companies which have turned around with significant improvement in profitability through sound business strategy, focus on asset –light business model, prudent selection of orders (state & central agencies) and better working capital management. At CMP, the stock trades at a P/E of 25.7x/8.9x on FY21E/FY22E EPS and is trading at an EV of 10.2x/4.6x FY21E/FY22E EBITDA.

Outlook

Given execution surprise in 1Q, we have revised our FY21E/FY22E earnings estimates by 34% / 9.4%. We maintain BUY rating on the stock with a revised TP of Rs288 (earlier TP Rs264).

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