Recommendation From Roads & Highways Sectors

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

Ashoka Buildcon 

CAPITALISING ON INFRASTRUCTURE GROWTH 

HERE IS WHY
Strong order book
Government’s impetus to
infrastructure development
Divestment of stake in ACL 

Ashoka Buildcon infrastructure company operates through two segments, namely, engineering, procurement and construction (EPC) business for roads and power distribution projects. The company also constructs roads and highway on Build, Operate and Transfer (BOT) basis through ABL and also through its subsidiary ACL. The company’s order mix as on April 2018 is dominated by road division with 63 per cent of total order book, followed by power T&D (20 per cent) and road EPC (17 per cent). 

On the financial front, Ashoka Buildcon’s standalone revenue for the quarter came in at Rs 702.32 crore, registering 6.6 per cent QoQ increase. The company's EBITDA for the quarter remained largely flat at Rs 80.8 crore as compared to last quarter of same year with a corresponding margin contraction of 59 bps. Its EBITDA margin for the quarter stood at 11.5 per cent. The company’s net profit jumped more than 100 per cent QoQ during the quarter to Rs 105.4 crore.

 

Looking at the annual financial performance, Ashoka Buildcon’s standalone revenue rose almost 20 per cent in FY18 to Rs 2446 crore. Also, its EBITDA for FY18 rose 13 per cent YoY to Rs 293 crore. Notably, the company’s net profit surged almost 29 per cent YoY to Rs 237 crore. On the valuation front, the company is available at P/E of 18.2x on standalone earnings of FY18. 

Going forward, government’s impetus to infrastructure development in the country is benefiting the infrastructure players in the country. The NHAI is targeting to award 8000 KM in FY19 as against 7400 KM in FY18. Most of these orders will be issued through HAM and EPC models, which would aid revenue growth of infrastructure players such as Ashoka Buildcon having strong execution capabilities. 

During the first quarter of FY19, the company bagged 5 HAM projects worth Rs 5,539 crore, which resulted in total order book of Rs 11,912 crore. Till July 2018, the company has bid for orders worth Rs 60,000 crore, of which it expects to win Rs 6,000 crore order in road and Rs 2,000 crore in power division. This strong order book gives healthy revenue visibility for the next 3-4 years. On a standalone basis, the company has light balance sheet with a net debt-free balance sheet. This gives indication that Ashoka Buildcon would not have any trouble for equity funding. In terms of BOT projects, the company expects traffic growth of almost 7-8 per cent and 11-12 per cent growth in toll collection in FY19E. 

Recently, the company has won arbitration award worth almost Rs 384 crore for Pune-Shirur project. Also, it has won arbitration award of Rs 38.4 crore for the Dewas Bypass Road project, which also includes right to collect additional toll for 1,384 days. Besides, it has received a five-year extension for Katni project. Ashoka Buildcon is looking to transfer ACL stake to an InvIT. This stake sale through InvIT can help the company to utilise the proceeds to fund HAM projects. 

Considering the strong execution capability, robust order book, coupled with strong traction in infrastructure activity, we recommend a BUY on the stock.