Broker's call: Ahluwalia Contracts (Buy)
Target: ₹550
CMP: ₹401
We met the management of Ahluwalia Contracts (ACIL) to understand the current business environment and get an update on key issues. ACIL continues to see robust prospects in healthcare, data centres, industrial structures apart from government buildings and metros. Competitive intensity continues to be elevated and ACIL remains very selective in bidding for projects.
While there are near-term headwinds of high input costs, ACIL expects to maintain 15-20 per cent growth levels with margins recouping to historical levels of 12-12.5 per cent (85 per cent of the backlog has PVC). The promoter family remains closely involved in business with well-defined responsibilities and a clear understanding of future roles.
ACIL plans to expand its presence in adjoining verticals such as airports, data centres, industrial and metros (stations/depots). Current opportunities include data centres for the Adani Group and Techno Electric, expansion at Vedanta’s Jharsuguda facility, STP project in Mumbai, and airports at Imphal and Gwalior.
Promoter pledges towards ACIL’s funding limits reduced from 15.9 million shares in December 2020 to 10.6 million shares (28.6 per cent of promoter holding of 55.3 per cent) in December 2021 and ACIL targets further pledge reduction of 5 million shares in the coming months.
ACIL is also actively working with its banks to get better terms in financing (lower margin money requirement and commission costs).
We believe the management’s inflow guidance of ₹2,500 crore for FY23 is conservative and likely to be exceeded given the strong opportunities.