Solution Manual for Financial Accounting, 11th Edition by Robert Libby, Patri...
Ivrcl
1. 1QFY2011 Result Update | Infrastructure
August 10, 2010
IVRCL Infrastructure BUY
CMP Rs170
Performance Highlights Target Price Rs216
Y/E March (Rs cr) 1QFY11 1QFY10 % chg (yoy) 4QFY10 % chg (qoq) Investment Period 12 Months
Net sales 1,106 1,110 0.3 1,890 (41.5)
Operating profit 100.8 99.6 1.2 198.4 (49.2) Stock Info
Net profit 28.1 35.3 (20.4) 85.3 (67.0) Sector Infrastructure
Source: Company, Angel Research Market Cap (Rs cr) 4,551
IVRCL Infrastructure (IVRCL) reported flat yoy top-line performance for Beta 1.4
1QFY2011, which was below our and street estimates. The company lost around 52 Week High / Low 212/144.1
Rs250cr in revenue for the quarter on account of three projects. Management has
Avg. Daily Volume 341,421
maintained its guidance of Rs6,700cr–Rs7,100cr, which implies growth run rate
for the next three quarters at ~30%, even at the lower end of the guidance, which Face Value (Rs) 2
we believe is an uphill task. Therefore, we prune our estimates. However, given BSE Sensex 18,220
the company’s past excellent track record and robust order book rendering
revenue visibility, we maintain our Buy rating on the stock. Nifty 5,461
Reuters Code IVRC.BO
Top line below estimates, OPM in line with expectations: IVRCL reported a flat
Bloomberg Code IVRC@IN
top-line performance at Rs1,106cr. On the operating front, the company posted
margin of 9.1%, a tad above our estimates of 8.6%. Below-estimate top-line
performance, cascaded at the bottom-line level, which came in at mere Rs28.1cr.
Shareholding Pattern (%)
Outlook and valuation: IVRCL has a robust order book of Rs23,275cr (4.3x Promoters 9.6
FY2010 revenue), which lends revenue visibility. Robust order booking over the MF / Banks / Indian Fls 33.4
last few quarters ensures IVRCL’s dependence on AP orders has come down FII / NRIs / OCBs 55.8
significantly (from 28% to current 17%). IVRCL’s performance is disappointing on Indian Public / Others 10.8
the execution front, but we expect execution to pick up as the issues are temporary
in nature. We have valued IVRCL on an SOTP basis. The company’s core
construction business is valued at a P/E of 14x FY2012E EPS of Rs11.6 Abs. (%) 3m 1yr 3yr
(Rs162/share), while its stake in subsidiaries IVR Prime (Rs37/share) and
Sensex 5.1 21.4 22.5
Hindustan Dorr-Oliver (Rs17/share) has been valued on an Mcap basis, post
IVRCL (1.2) 11.1 (10.5)
assigning 20% holding company discount. Therefore, on the back of IVRCL’s
excellent execution track record, robust order book to sales ratio and comfortable
valuations, we maintain Buy on the stock with a Target Price of Rs216.
Key financials (Standalone)
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net sales 4,882 5,492 6,493 8,071
% chg 33.4 12.5 18.2 24.3
Adj. net profit 225.6 211.8 249.7 313.0
% chg 7.1 (6.1) 17.9 25.4
EBITDA (%) 8.6 9.7 9.3 9.4
FDEPS (Rs) 8.4 7.8 9.2 11.6
Shailesh Kanani
P/E (x) 20.4 21.7 18.4 14.7
022-40403800 Ext:321
P/BV (x) 2.5 2.4 2.2 1.9
shailesh.kanani@angeltrade.com
RoE (%) 13.2 11.4 12.4 13.8
RoCE (%) 12.7 13.6 13.0 13.9 Aniruddha Mate
EV/Sales (x) 022-40403800 Ext:335
1.2 1.2 1.1 0.9
aniruddha.mate@angeltrade.com
EV/EBITDA (x) 14.0 11.9 11.3 9.6
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1
2. IVRCL Infrastructure |1QFY2011 Result Update
Exhibit 1: 1QFY2011 performance (Standalone)
Y/E March (Rs cr) 1QFY11 1QFY10 % chg(yoy) 4QFY10 % chg(qoq) FY2010 FY2009 % chg
Net Sales 1,106.4 1,109.6 (0.3) 1,890.4 (41.5) 5,492 4,882 12.5
Total Expenditure 1,005.7 1,010.0 (0.4) 1,692.0 (40.6) 4,961 4,460 11.2
Operating Profit 100.8 99.6 1.2 198.4 (99.4) 531 422 26.0
OPM (%) 9.1 9.0 - 10.5 - 9.7 8.6 -
Interest 45.3 38.5 17.5 52.5 (13.8) 163.9 130.6 25.5
Depreciation 15.7 13.0 20.6 14.0 12.1 54.3 47.3 14.8
Non Operating Income 0.9 3.9 (77.6) 2.0 (55.9) 15.5 29.9 (48.2)
Non recurring items - - 0.0 - 0.0 (140.9) - 0.0
Profit Before Tax 40.6 51.9 (21.7) 133.8 (69.6) 187.7 273.8 (31.4)
Tax 12.5 16.6 (24.5) 48.6 (74.2) 117.7 47.8 146.2
Reported PAT 28.1 35.3 (20.4) 85.3 (67.0) 70.0 226.0 (69.0)
PAT (%) 2.5 3.2 - 4.5 - 1.3 4.6 -
Adjusted PAT 28.1 35.3 (20.4) 85.3 (67.0) 210.9 226.0 (6.7)
Adj. PAT (%) 2.5 3.2 - 4.5 - 3.8 4.6 -
Adj. FDEPS 1.0 1.3 (20.4) 3.2 (67.0) 7.8 8.4 (6.7)
Source: Company, Angel Research
Exhibit 2: 1QFY2011 actual vs. Angel estimates
(Rs cr) Actual Estimates Variation (%)
Revenue 1,106.4 1,368.0 (19.1)
EBITDA margin (%) 9.1 8.6 50.7bp
PAT 28.1 35.6 (21.1)
Source: Company, Angel Research
Top line below estimates…
IVRCL posted a flat top-line performance at Rs1,106cr for 1QFY2011, which was
19.1% below our expectations and 21% below the street’s expectations. The company
lost around Rs250cr in revenue for the quarter on account of execution-related issues in
the MP and AP projects and the IOC tankage project.
Exhibit 3: Quarterly revenue trend Exhibit 4: Quarterly EBITDA trend
2,000 75.0
1,800 250.0 12.0
65.0
1,600 55.0 10.0
1,400 200.0
1,200 45.0 8.0
150.0
1,000 35.0 6.0
800 25.0 100.0
600 15.0 4.0
400 50.0
200 5.0 2.0
0 (5.0) - -
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
EBITDA (Rs cr, LHS) EBITDAM (%, RHS)
Sales (Rs cr, LHS) Growth (yoy %, RHS)
Source: Company, Angel Research Source: Company, Angel Research
August 10, 2010 2
3. IVRCL Infrastructure |1QFY2011 Result Update
…but margins broadly in line with expectations
IVRCL reported EBITDA margin of 9.1% for 1QFY2011. However, due to
disappointing top-line performance and increased debt levels, the bottom line
reported a 20.4% decline to Rs28.1cr. We believe there would be a revival in
bottom-line growth once execution picks up. This is the consecutive fourth quarter
of a declined performance by the company. Management has guided a
bottom line of ~Rs260cr for FY2011, which would require catching up as only
Rs28.1cr of profit has been made until 1QFY2011.
Exhibit 5: Quarterly bottom-line trend
90.0 6.0
80.0
5.0
70.0
60.0 4.0
50.0
3.0
40.0
30.0 2.0
20.0
1.0
10.0
0.0 -
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
PAT (Rs cr, LHS) PATM (%, RHS)
Source: Company, Angel Research
August 10, 2010 3
4. IVRCL Infrastructure |1QFY2011 Result Update
Outlook and valuation
IVRCL’s flat performance on the top-line front in 1QFY2011 was on account of
three projects and related client-side issues, barring which the company would
have booked additional revenue of Rs250cr. While IVRCL’s past execution track
record stands testimony to its execution capabilities, its robust order book renders
revenue visibility. Hence, we expect the company to revert on its growth trajectory
and do not see any concerns on the execution front. Management has maintained
its guidance of Rs6700cr–Rs7100cr on a standalone basis for FY2011, which
implies growth run rate for the next three quarters at ~30%, even at the lower end
of the guidance, which we believe is an uphill task. Hence, we prune our estimates
marginally.
Exhibit 6: Change in estimates
FY2011E FY2012E
(Rs cr) Earlier estimates Revised estimates Variation (%) Earlier estimates Revised estimates Variation (%)
Revenue 6,663.0 6,493.2 (2.5) 8,293.7 8,071.3 (2.7)
EBITDA margin 9.3 9.3 0.0 9.4 9.4 0.0
PAT 259.7 249.7 (3.8) 325.2 313.0 (3.8)
Source: Company, Angel Research
We have valued IVRCL on an SOTP basis. The company’s core construction
business is valued at a P/E of 14x FY2012E EPS of Rs11.6 (Rs162/share), while its
stake in subsidiaries IVR Prime (Rs37/share) and Hindustan Dorr-Oliver
(Rs17/share) has been valued on an Mcap basis, post assigning 20% holding
company discount. At the CMP of Rs170, the stock is trading at 14.7x FY2012E
EPS and 1.9x FY2012E P/BV on a standalone basis, adjusting for its subsidiaries at
10.1x FY2012E EPS and 1.3x FY2012E P/BV. Hence, on the back of the
company’s excellent execution track record, robust order book to sales ratio and
comfortable valuations, we maintain Buy on IVRCL with a Target Price of Rs216.
Exhibit 7: SOTP valuation summary
Business segment Methodology Remarks Rs cr Rs/share
Construction P/E 14x FY2012E earnings 4,382 162
IVRAH Mcap 20% holding company discount 988 37
Hindustan-Dorr Mcap 20% holding company discount 466 17
Total - - 5,836 216
Source: Company, Angel Research
Exhibit 8: Key assumptions
(Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Order inflow 4,674 8,403 8,625 12,312 13,184 15,009
Revenue 2,346 3,661 4,882 5,492 6,493 8,071
Order backlog (Y/E) 8,100 12,800 16,600 23,440 30,131 37,069
Order book to sales ratio (x) 3.5 3.5 3.4 4.3 4.6 4.6
Source: Company, Angel Research
August 10, 2010 4
5. IVRCL Infrastructure |1QFY2011 Result Update
Exhibit 9: Angel EPS forecast v/s consensus
Angel forecast Bloomberg consensus Variation
FY2011E 9.2 10.9 18.0
FY2012E 11.6 13.4 15.6
Source: Company, Angel Research
Investment arguments
Robust order book renders strong revenue visibility: IVRCL has a robust order book
of Rs23,275cr (4.3x FY2010 revenue), which lends revenue visibility. In-house
projects form around Rs5,500cr of the company’s overall order book. Robust order
booking over the last few quarters ensures that the company’s dependence on AP
orders has come down significantly (from 28% to current 17%). IVRCL had issues
on the execution front due to its high AP exposure, but given the fact that the issues
are resolving, we expect the company to be back on its growth trajectory.
Exhibit 10: Robust order book (%)
3 .6
3 6 .5
5 1 .5
6 .7
1 .7
Irrigation Buildings Power Transportation Oil & Gas
Source: Company, Angel Research
Value unlocking at IVRAH, the next trigger: IVRCL Assets Holding (IVRAH) started
tolling Jalandhar-Amritsar road in May 2010. The Chennai water project also
started in August 2010. In FY2011, all of the company’s old BOT projects would
start generating revenue to fund its future investments. Management has given
guidance of increased revenue of Rs1.4cr/day from these BOT projects once they
are fully operational. IVRAH would be requiring equity infusion of
Rs1,300cr–1,400cr over the next three years and is planning to raise money. We
believe value unlocking at the subsidiary level will act as a near-term catalyst for
IVRCL’s growth.
August 10, 2010 5
11. IVRCL Infrastructure |1QFY2011 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement IVRCL Infra
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
August 10, 2010 11
