Buy Ahluwalia Contracts; target of Rs 486: HDFC Securities

HDFC Securities' research report on Ahluwalia Contracts

AHLU 4QFY18 net revenue came in at Rs 4.5bn (-5.3%YoY, +23.7%QoQ) which was only  marginally below our estimates. Company delivered strong 13.3% EBITDA margins  in  FY18  (vs. 12.2% YoY). This has been achieved by mix of better cost control and improvement in labour market supply.  AHLU is continuously striving to become leaner and is working on increasing productivity  and  efficiency.  We  remain  hopeful  of a further 50-100bps margin  expansion  over  the  next  2 years. Balance sheet is robust with a negligible gross debt of Rs 290mn which translates into a net D/E of -0.2x.  With stable execution growth, healthy margins, negligible finance costs and low  capex  intensity we expect healthy FCFE generation over FY19-20E. AHLU has  declared  a  dividend  for the 1st time in 6 years and this could be a visible  trend in the future.

Outlook

We maintain BUY with a SOTP of Rs 486/sh (EPC segment  at  486/sh  (EPC  segment  at 10x Mar-20E EV/EBITDA, Kota BOT – 1x P/BV).