AnandRathi
Ahluwalia Contracts (Buy)
CMP: ₹302.15
Target: ₹375
The ongoing liquidity squeeze in the wider market seems to have also affected public authorities. Mindful of the keener competition and budgetary allocations (especially at state levels), the company plans to selectively scrutinise public opportunities. It expects the weak liquidity with public authorities to persist for 3-4 quarters. To tide over this, it intends to look at private orders, mostly institutional.
Management maintained its FY20 about 15 per cent revenue growth guidance. For the core construction business, the about 13.5 per cent margin guidance holds. The company expects to incur about ₹40 crore capex in FY20.
The FY19 Q1 inflows were about ₹260 crore, enabling the company to close the quarter with a about ₹6,000 crore OB (3.7x TTM revenues). Subsequently, inflows of about ₹170 crore have been seen. Besides these, it is L1 for orders of about ₹700 crore. While the OB consists of slow-moving orders ( about ₹1,060 crore), excl. these, it is capable of delivering the guided-to growth.
Valuation: Factoring in the limited clarity regarding construction commencing on the about ₹500 crore Charbagh railway re-development project, we lower our FY20e earnings about 6 per cent (and about 5 per cent for FY21). On the lowered estimates, the stock trades at PER (excl. the Kota asset) at 13.8x FY20e and 11.1x FY21e.
Risk: Any slower-than-expected project execution.