ctigroup on ivrcl infra

Initiating at Buy; established player – We initiate coverage of IVRCL shares with
a Buy / Medium Risk (1M) rating. IVRCL is an established construction
company with a strong presence in water supply, roads, buildings, power T&D,
etc. We believe it is well positioned to benefit from the government's planned
five-year ~US$358bn infrastructure outlay, up 133% vs. previous five years.

Dominant player in fast-growing water segment – IVRCL, along with subsidiary
Hindustan Dorr Oliver, has skill sets spanning irrigation to effluent treatment
and desalination projects. It is a leading player in the water segment, which
forms > 50% of revenues. The planned ~US$30bn of investments in irrigation
over the next five years should provide an attractive growth opportunity.

Recent foray into real estate – IVRCL through its 80%-owned subsidiary, IVR
Prime Urban Developers, has plans to develop ~2,478 acres (75.5mn sq ft)
through a mix of commercial and residential projects. IVRCL's construction
skills should bolster the quality, credibility and scale-up of the business.

EPS CAGR of 35% over FY07-10E – We expect earnings growth of 35% CAGR
over FY07-10E driven by strong revenue growth and stable margins.

Trading at ~23% discount to SOTP; Buy – We value IVRCL on an SOTP basis
given its broad business profile. We value the core construction business at
Rs311 (PE of 16x FY09E), BOT projects at Rs25, HDO stake at Rs15 and IVR
PUDL stake at Rs147 per share. The stock trades at a ~23% discount to our
target price of Rs499.