Result Update June 4, 2013 Rating matrix Rating
:
Hold
Target
:
| 17
IVRCL Ltd (IVRINF)
Target Period
:
12 months
Potential Upside
:
-6%
| 18
WHAT’S CHANGED…
PRICE TARGET........................................................................... Changed from | 26 to | 17 Key Financials | crore
FY12 * FY13E# Net sales 6147.6 3734.0 EBITDA 470.8 247.2 Net profit 18.1 -101.7 * For 15 months ending June 30, 2012 # For 9 months ending March 31, 2013
FY14E 5310.9 427.2 -18.3
FY15E 6492.1 522.2 30.6
Valuation summary FY12* FY13E# 0.6 -3.3 Adj PE(x) NA NA Adj Target PE(x) NA NA EV/EBITDA(x) 6.0 11.8 P/BV(x) 0.2 0.2 RoNW(%) 0.6 -6.2 RoCE(%) 9.0 7.4 * For 15 months ending June 30, 2012 # For 9 months ending March 31, 2013 EPS (|)
FY14E -0.6 NA NA 7.4 0.2 -0.8 6.8
FY15E 1.0 NA NA 0.9 0.2 1.4 8.1
Stock data Mcap Debt (FY13) Cash (FY12) EV 52 week H/L Equity cap Face Value DII Holding (%) FII Holding (%)
| 548 crore | 2,840 crore | 92 crore | 3,296 crore | 55/17 | 61 crore | 2.0 7.2 28.2
Price movement 6,400
80
5,000
60
3,600
40
2,200
20
800 Feb-12
0 May-12
Aug-12
Price (R.H.S)
Nov-12
Feb-13
Nifty (L.H.S)
Analyst’s name Deepak Purswani, CFA
[email protected] Bhupendra Tiwary
[email protected]
EPS (FY14E)............................................................................ Changed from | 0.6 to | -0.6 EPS (FY15E)............................................................................................Introduced at | 1.0 RATING...............................................................................................................Unchanged
Gain on sale of land turns it profitable… IVRCL’s Q3FY13 performance witnessed a marked improvement from the last couple of quarters led by superior execution and margins. Additionally, gain on sale of NCR land parcels (| 34 crore) helped it to report a profit of | 6.1 crore vs. our estimated loss of | 34.8 crore. The order book stands at 27,445 crore (including L-1 bids of | 3498 crore), 5.6x book to bill on a TTM basis. During the quarter, the company announced a definitive agreement to divest its stake in three road projects (Kumarapalayam Tollways, Salem Tollways and Chengapalli Tollways) at a total project cost of | 2200 crore for an undisclosed valuation. While this development is positive, we would keenly watch the utilisation of such funds as well as ramp up on under award projects, which are yet to commence execution due to funding gap. Results ahead of estimates… The Q3FY13 performance was better than anticipated led by superior execution and margins. The topline at | 1492.1 crore was ahead of our estimate of | 1247.7 crore. The EBITDA margin at 8.8% was also above our expectation of 7.4%. The interest expenses at | 132.7 crore was, however, higher by | 19 crore sequentially as it provided for | 16 crore as interest on income tax. Consequently, the company reported a profit of | 6.1 crore (our estimate was loss of | 34.8 crore) due to higher topline and margins. Asset monetisation positive…utilisation of free equity to be seen In Q4FY13, IVRCL announced it has signed a definitive agreement with TRIL Roads Pvt Ltd to divest its stake in three road projects (Kumarapalayam Tollways, Salem Tollways and Chengapalli Tollways), at a total project cost of | 2200 crore. Out of the three road projects, for Chengapalli Tollways, which is under construction, the stake divestment would be 49% (vs. 74% planned earlier). In the other two projects, which are operational, it would be 74%. Stretched working capital to weigh on valuations... IVRCL has continued to display a dismal execution show as 25-30% of its order book (including BOT projects) remains slow moving. While the recent BOT monetisation is a positive development and would be key to meet equity infusion requirement, we await a ramp up on such projects. Furthermore, the stretched working capital could continue to weigh on valuation. Consequently, we have assigned a HOLD rating to the stock with an SOTP target price of | 17/share. Exhibit 1: Financial Performance | crore Net sales EBITDA EBITDA Margin (%) Depreciation Interest PAT
Q3FY13* 1492.1 131.7 8.8 21.7 132.7 6.1
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Q3FY13E* 1274.7 94.9 7.4 20.9 115.2 -34.8
Q4FY12 1596.0 101.0 6.3 26.9 97.3 4.9
Q2FY13 YoY Gr (%) QoQ Gr (%) 1247.2 -6.5 19.6 45.1 30.4 191.9 3.6 250 bps 521 bps 21.8 -19.2 -0.2 113.6 36.3 16.9 -68.1 22.7 NA
Q3FY13 Performance…
Interest expenses at | 132.7 crore were, however, higher by | 19 crore sequentially as it included interest on income tax of | 16 crore, which the company provided during the quarter
The Q3FY13 performance was better than anticipated led by superior execution and margins. The topline at | 1492.1 crore was ahead of our estimates of | 1247.7 crore EBITDA margins at 8.8% were also above our expectation of 7.4%. Interest expenses at | 132.7 crore were, however, higher by | 19 crore sequentially as it included interest on income tax of | 16 crore, which the company provided during the quarter Consequently, the company reported a profit of | 6.1 crore (our estimated loss was | 34.8 crore) due to higher topline and margins
Order book remains healthy but execution ramp up yet to be seen The order book stands at ~| 27,445 crore (including L-1 bids of |3498 crore). We highlight that while the order book to bill ratio works out to 5.6x on a TTM basis, the presence of slow moving orders and captive BOT projects, execution on which stands delayed given the funding gap, is likely to cap execution pick-up Exhibit 2: Order book remains healthy but slow moving orders a grave concern 28,000
5.4
5.6
5.6
5.3
5.8
5.0
5.0 4.6
27,445
24900
26,365
27,131
27,780
25,000
(| crore)
4.6
4.2 3.8 3.4 3.0
21,000 Q3FY12
Q4FY12
Q5FY12
Order Book (| crore)
Q1FY13
Q2FY13
Q3FY13
Order book-to-bill ratio (RHS)
Source: Company, ICICIdirect.com Research
Exhibit 3: Transportation & water segment dominates order book with 69% share 100
(%)
75
The transportation segment (majority of which is captive BOT orders) and water dominate the order book with a 69% share in Q3FY13
50 25
5
5
5
20
20
20
4 19
4 19
6 17
25
35
34
34
35
33
34
35
35
34
36
Q4FY12
Q5FY12
Q1FY13
Q2FY13
Q3FY13
7
42
6
7
8
8
8
0 Q3FY12
Water
Transportation
Buildings
Power
Others
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
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(x)
The order book stands at | 27445 crore
5.4
Exhibit 4: Key assumptions | crore
FY13E#
FY14E
FY15E
Order inflow
4,048
3,600
3,600
Order Book
27,445
25,738
22,940
13.7
20.0
26.7
Execution rate- Average (%)
Source: Company, ICICIdirect.com Research # For 9 months ending March 31, 2013
ICICI Securities Ltd | Retail Equity Research
Page 3
Valuation IVRCL has continued to display a dismal execution show as a third of its order book (including BOT projects) remains slow moving. While the recent BOT monetisation is a positive development and would be key to meet equity infusion requirement, we await a ramp up on such projects. Furthermore, the stretched working capital could continue to weigh on valuation. Consequently, we assign a HOLD rating to the stock with an SOTP target price of | 17/share. Exhibit 5: SOTP valuation Entity
We assign a HOLD recommendation to the stock with a target price of | 17/share based on SOTP valuation methodology
Value (| crore)
Per share (|)
Construction
2,136
70
5x FY14E EV/EBITDA
IVRCL Assets & Holding
1,056
34
At 0.8x FY14E P/B
42
1
(2,716)
(88)
HDO
Less Net debt
Fair Value (|)
518
Comment
Market cap at 20% holding company discount
FY14E Net debt
17
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
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Financial summary Profit and loss statement (| Crore) Total operating Income Growth (%) Op. Expenditure EBITDA Growth (%) Depreciation EBIT Interest Other Income Extraordinary Item PBT Tax Rep. PAT before MI Minority Interest (MI) Rep. PAT after MI Adjustments Adj. Net Profit Growth (%) EPS (|)
Cash flow statement FY12* 6,147.6 NA 5,676.8 470.8 NA 118.9 351.8 505.5 199.9 0.0 46.2 28.2 18.1 0.0 18.1 0.0 18.1 -88.5 0.6
FY13P# 3,734.0 NA 3,486.8 247.2 NA 64.0 183.3 347.9 95.5 0.0 -69.1 32.5 -101.7 0.0 -101.7 0.0 -101.7 NM -3.3
FY14E 5,310.9 NA 4,883.7 427.2 NA 86.3 340.9 418.1 53.1 0.0 -24.1 -5.8 -18.3 0.0 -18.3 0.0 -18.3 NM -0.6
FY15E 6,492.1 22.2 5,969.9 522.2 22.2 103.1 419.2 431.7 64.9 0.0 52.4 21.8 30.6 0.0 30.6 0.0 30.6 -267.0 1.0
Source: Company, ICICIdirect.com Research
FY12* 46.2 0.0 118.9 75.7 505.5 595.1 200.2 685.9 -62.7 -949.6 -66.0 -1,078.3 542.1 301.2 -505.5 337.8 -54.6 143.2 88.5
FY13P# -69.1 0.0 64.0 32.5 347.9 310.2 -76.8 241.2 -30.8 -69.2 8.9 -91.2 202.1 -0.4 -347.9 -146.2 3.9 88.5 92.4
FY14E -24.1 0.0 86.3 2.4 471.3 424.8 83.9 508.6 -60.0 -50.0 53.1 -56.9 50.0 0.0 -420.0 -370.0 81.8 92.4 174.2
FY15E 52.4 0.0 103.1 21.8 496.7 500.5 -184.0 316.5 -80.0 -50.0 64.9 -65.1 200.0 0.0 -436.2 -236.2 15.2 174.2 189.4
FY12*
FY13P#
FY14E
FY15E
0.6 4.5 74.0 0.0 2.9
-3.3 -1.2 70.7 0.0 3.0
-0.6 2.2 70.0 0.1 5.7
1.0 4.4 70.9 0.1 6.2
7.7 0.8 0.3 13 92 78
6.6 -1.9 -2.7 35 247 218
8.0 -0.5 -0.3 20 131 120
8.0 0.8 0.5 19 120 108
0.6 9.0 2.7
-6.2 7.4 0.5
-0.8 6.8 -2.0
1.4 8.1 -0.4
29.6 NA 6.0 0.5 0.2
NA NA 11.8 0.9 0.2
NA NA 7.4 0.6 0.2
17.5 0.1 0.9 0.1 0.2
5.6 1.1 1.9
11.5 1.3 1.8
6.8 1.3 1.7
5.9 1.3 1.6
Source: Company, ICICIdirect.com Research
Balance Sheet (| Crore) Liabilities Equity Capital Reserves & Surplus Shareholder's Fund Borrowings Unsecured Loans Deferred Tax Liability Source of Funds Assets Gross Block Less: Acc. Depreciation Net Block Capital WIP Net Fixed Assets
(| Crore) Net Profit before Tax Other Non Cash Exp Depreciation Direct Tax Paid Other Items CF before change in WC Inc./Dec. In WC CF from Operations Pur. of Fix Assets Pur. of Inv Others CF from Investing Inc./(Dec.) in Debt Inc./(Dec.) in Net Worth Others CF from Financing Net Cash Flow Opening Cash Closing Cash
Key ratios FY12*
FY13P#
FY14E
FY15E
61.4 2,209.1 2,270.5 2,457.9 180.0 -38.9 4,869.6
61.4 2,107.8 2,169.2 2,660.0 180.0 -30.7 4,978.5
61.4 2,087.6 2,149.0 2,710.0 180.0 -38.9 5,000.2
61.4 2,113.8 2,175.1 2,910.0 180.0 -38.9 5,226.3
1,011.4 321.5 689.9 1.5 691.4
1,042.2 385.4 656.8 1.5 658.3
1,102.2 471.7 630.5 1.5 632.0
1,182.2 574.8 607.4 1.5 608.9
Investments
1,584.3
1,653.5
1,703.5
1,753.5
Cash Trade Receivables Loans & Advances Inventory Total Current Asset Current Liab. & Prov. Net Current Asset P&L Account Application of Funds
88.5 1,925.9 1,425.5 272.3 5,568.7 2,974.9 2,593.8 0.0 4,869.6
92.4 1,866.7 1,771.9 268.7 6,127.0 3,460.3 2,666.7 0.0 4,978.5
174.2 1,950.4 1,857.5 305.2 6,287.3 3,622.7 2,664.6 0.0 5,000.2
189.4 2,331.7 2,215.1 383.1 7,319.4 4,455.5 2,863.8 0.0 5,226.3
Source: Company, ICICIdirect.com Research
Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) PE (x) Adjusted PE (x) EV/EBITDA (x) EV/Sales (x) Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio
Source: Company, ICICIdirect.com Research
* For 15 months ending June 30, 2012 # For 9 months ending March 31, 2013
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Page 5
Company Description Established in 1990, IVRCL Ltd is a leading domestic construction company headquartered in Hyderabad. The company operates in four segments, namely water & irrigation, buildings & industrial, transportation and power. IVRCL has a robust order book of ~| 24,900 crore, 5x book to bill on TTM basis. The company also has Hindustan Dorr-Oliver (HDO) as a subsidiary, which executes engineering solutions and EPC projects in liquid-solid separation applications. Exhibit 6: Recommendation History 100 80 60 40 20 0 Jul-12
Sep-12
Oct-12
Dec-12
Jan-13
Price
Target Price
Mar-13
Apr-13
Jun-13
Source: Reuters, ICICIdirect.com Research
Exhibit 7: Recent Releases Date 3-Apr-12 12-Apr-12 16-May-12 30-Aug-12 12-Nov-12 15-Feb-13
Event Q4FY12 Result Preview Q4FY12 Result Preview Q4FY12 Result Update Q5FY12 Result Update Q1FY13 Result Update Q2FY13 Result Update
CMP 69 74 47 39 40 29
Target Price 56 72 44 39 35 26
Rating Sell Hold Hold Hold Hold Sell
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 6
ICICIdirect.com coverage universe (Construction) Sector / Company HCC (HINCON) IVRCL (IVRINF) NCC (NAGCON) Simplex Infra (SIMCON) Supreme Infra (SUPINF) Unity Infra (UNIINF)
CMP M Cap (|) TP(|) Rating (| Cr) 13 12 Sell 764 18 26 Sell 537 31 38 Buy 797 100 136 Buy 495 208 254 Buy 348 29 30 Hold 215
EPS (|) P/E (x) EV/EBITDA (x) P/B (x) RoE (%) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E -1.9 -2.5 -1.8 NA NA NA 12.0 13.6 12.1 0.8 0.9 1.0 -15.7 -9.0 -9.4 0.6 -3.3 -0.6 29.6 NA NA 6.0 11.8 7.4 0.2 0.2 0.2 0.6 -6.2 -0.8 1.4 2.4 2.4 2.9 1.7 1.7 7.6 7.5 6.5 0.4 0.4 0.3 1.5 2.6 2.5 24.8 18.0 11.3 4.1 5.7 9.1 4.4 4.9 5.8 0.5 0.4 0.4 12.0 7.8 4.8 54.8 65.5 70.7 3.1 2.6 2.4 4.2 3.9 3.6 0.9 0.7 0.6 24.7 23.0 20.0 12.7 14.0 12.5 2.3 2.1 2.3 3.7 3.3 4.0 0.3 0.3 0.3 15.5 14.8 11.7
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
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RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093
[email protected] ANALYST CERTIFICATION We /I, Deepak Purswani CFA, PGDM (FINANCE) Bhupendra Tiwary MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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