Dolat Capital

Ahluwalia Contracts (Buy)

CMP: ₹245.40

Target: ₹300

Ahluwalia Contracts (India) Ltd (ACIL) posted 17.2 per cent y-o-y growth (highest Q2 growth in last 7 years) in its Q2FY16 standalone sales to ₹280 crore (6.6 per cent lower than our expectations). The growth in sales was driven by better execution in its key business segments and projects. ACIL boasts of strong fundamentals (27.2 per cent revenue CAGR during FY15-17E).

The operating profit margin improved by 56 bps to 12.5 per cent (160 bps above our expectation), aided by 134 bps y-o-y reduction in employee cost to 5.9 per cent (as a per cent of revenue). The profit before tax grew sharply by 56.2 per cent y-o-y to ₹25.8 crore aided by higher other income (up 27.8 per cent y-o-y to ₹3.2 crore) and lower interest cost (down 19.3 per cent y-o-y to ₹7.5 crore). The growth in PAT was restricted to 17.4 per cent y-o-y to ₹19.1 crore (19.2 per cent ahead of estimates) due to higher tax rate of 26 per cent v/s 1.6 per cent in Q2FY15.

We reiterate our ‘buy’ rating due to current pick-up in execution will drive strong growth in profitability.

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