IVRCL

IVRCL Infrastructures & Projects (IVRCL) has mitigated the risk of slower pace of project execution in Andhra Pradesh through robust order intake in other segments such as roads. Stability in operating profit margins and significant progress in subsidiary-held BOT projects are also likely to help earnings traction. Investors with a two-year perspective can consider investing in the stock. At the current market price of Rs 177, the stock discounts its likely per share earnings for FY-12 by 13 times. Investors can consider accumulating the stock in small lots on declines linked to broad markets.
IVRCL ended the year on a modest note as sales for FY-10 grew 10 per cent and net profits declined 6.6 per cent as a result of higher interest and tax charges. However, the company demonstrated improvement in revenue and earnings growth in the quarter ended March 2010. More positively, after almost eight quarters, the company's operating profit margins at 10.5 per cent, moved to double-digit once again. As commodity prices have been creeping up again, clearly, better project mix, rather than lower input costs have resulted in the profit margin improvement.
IVRCL suffered from project hold-ups last year. The pace of execution in Andhra Pradesh, a key contributor to revenues, suffered setbacks as a result of political problems within the State. To combat this, IVRCL diversified into other regions and business segments. It ramped up significantly its presence in road projects through its subsidiary IVRCL Assets & Holdings. Parent IVRCL executes road contracts for the subsidiary. This reduced its order backlog in Andhra Pradesh to 16 per cent of the total Rs 24,500 crore of orders to be executed. This figure stood at 24 per cent in the December quarter. Besides, as a good number of road projects have been recently commissioned, revenue from this stream is likely to ramp up significantly for the group in the upcoming quarters. Some of the irrigation projects in Madhya Pradesh were also stalled pending clearances. These have now been resolved.
As a result of slower pace of execution and resultant increase in working capital, interest cost for FY-10 shot up by 25 per cent. With improvement in execution, this concern too would be addressed. IVRCL's funding requirements for its subsidiary may not be too high given that all but two of the projects are pending financial closure.
The biggest positive for IVRCL in recent times is its strong order intake. The company's order intake increased three-fold to Rs 5,760 crore in the March 2010 quarter over a year ago period as a result of bagging a number of road projects. With these, the current order book at 4.4 times FY-10 sales is far higher than the average three times seen in recent years.
via BL