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G. Madhan

FRESH exposures can be considered in the stock of IVRCL Infrastructures and Projects. The robust order-book position, continued focus on the water segment and the improving fundamentals augur well for the company's earnings growth. Considering the last four trailing quarters, the stock trades at around Rs 178, at 10 times its per share earnings.

Growth triggers: The company's future growth hinges on executing large infrastructure projects. The order-book stands at Rs 1,700 crore, with completion periods ranging from six months to three years. As of March 2004 and March 2003, it was Rs 1,493 crore and Rs 1,475 crore respectively. The company has pre-qualified itself for projects worth more than Rs 2,000 crore and also has a strike rate of 10-15 per cent in its bids. These factors should help bolster the revenue stream.

The company continues to focus on bagging projects involving water transportation. For instance, of the total order-book position, water supply projects add up to a sizeable 70 per cent. The second major constituent of the order-book is the road projects. The company is executing two road projects worth Rs 391 crore. Construction of buildings, industrial structures and power projects make up rest of the order book.

Impressive performance: IVRCL recorded impressive performance over the nine months ending December 2003. Net sales and net profits during the period grew over 100 per cent. At the operating level, the profits rose 96 per cent to Rs 53.7 crore. Profit margins, however, fell by two percentage points to 9.6 per cent. A sharp increase in the raw materials expenditure, as a proportion of sales, appears to have dented the operating margins. At the net level, the margins rose to 3.8 per cent (against 2.9 per cent earlier).

Challenges: The company recently roped in two foreign institutional investors — Citicorp International Financial Corporation and ChrysCapital II, Mauritius — to invest Rs 78 crore through the preferential route at Rs 125 per share. This expanded the company's equity capital from Rs 10.6 crore to Rs 16.8 crore.

On the one hand, this will help the company augment its net worth and enable it to pre-qualify and, in turn, bid for big-ticket projects; the proceeds will be used to retire debt and funding working capital. On the other hand, the earnings growth may not necessarily support the sharp increase in the equity. Also, any sharp rise in the cost of key materials — steel and cement — can affect the company's margins.

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