Buy Vascon Engineers; target of Rs 48: Kotak Securities

Kotak Securities' research report on Vascon Engineers

Net revenue for the quarter grew at 15.4% yoy to Rs 939 mn driven by 19.8% yoy growth in EPC business at Rs 835 mn while real estate revenue declined by 11.2% yoy to Rs 104 mn. Adjusted for Ind AS 115 impact, the revenue from real estate segment grew by 78% yoy to Rs 208.5 mn. EBITDA margins for the quarter also declined by 110 bps yoy on account of loss reported in the real estate segment due to higher fixed cost to market launch pipeline, lower revenue recognition due to accounting changes and losses recognized in Windermere sale. VEL witnessed strong external EPC order inflows of Rs 1.9 bn which took its external order book to Rs 7.87 bn. VEL targets to add Rs 5 bn of new orders in FY19E based on current BG limits which seems to be achievable based on Q1FY19 order inflows and future pipeline.

Outlook

The company is positive on its business segments and expects new sales booking from the next phase of launches in Katvi, Forest Edge, Coimbatore, etc. Further, strong EPC order book would drive revenue for EPC segment. We have revised our estimates lower for FY19E and FY20E factoring in lower revenue from real estate segment and lower order inflows guidance for EPC segment. The stock is trading at FY19E and FY20E PE of 11.4x and 7.5x based on revised EPS of Rs 2.4 and Rs 3.6 respectively. We maintain Buy on VEL with revised SOTP based target price of Rs 48 (Vs Rs 52 earlier).