IDirect_Q3FY13

7/29/2019 IDirect_Q3FY13

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February 15, 2013

ICICI Securities Ltd | Retail Equity Research

Result Update

WHAT’S CHANGED…

PRICE TARGET.............. .................................... ......................... Changed from | 35 to | 26

EPS (FY13E) ............................................................................ Changed from | 2.7 to | -4.5

EPS (FY14E) ............................................................................. Changed from | 0.7 to | 0.6

RATING............................................................................................................... Unchanged

Improvement only if asset monetisation

materialises…IVRCL’s Q2FY13 performance was dismal on account of cost overruns,

which were booked during the quarter leading to higher losses. While the

topline at | 1247.2 crore was higher than expected, EBITDA margins at3.6% were below our expectation of 7.4% led by cost overrun of | 57

crore and service tax demand of | 8 crore booked during the quarter.

While the company had a robust order book of ~| 24,900 crore, 5x book

to bill on TTM basis, the dreary execution on account of slow moving

orders and stretched working capital remain a cause for concern. We

believe that BOT asset monetisation, which has been long pending,

remains the key to debt reduction and easing of working capital. We

maintain our SELL rating as we believe that stretched working capital and

levered balance sheet will continue to weigh on valuations.

Dismal margins lead to higher losses…

The topline at | 1247.2 crore was ahead of our estimates given better

execution than expected. The EBITDA margins at 3.6% were below ourexpectation of 7.4% owing to cost overrun of | 57 crore during the

quarter. It also booked service tax demand of | 8 crore. Adjusting for the

cost overruns and service tax, margins were at 8.8%. During the quarter,

IVRCL also wrote off debtors worth | 11 crore while it recovered bad

debts worth | 12 crore. Consequently, the company reported a loss of

| 68.1 crore (our estimates loss of | 43.7 crore).

Order book healthy but execution remains a concern…

IVRCL has bagged orders worth ~| 650 crore in Q2FY13 and the order

book was at ~| 24,900 crore. We highlight that while the order book to

bill ratio works out to 5x on TTM basis, there is presence of slow moving

orders & captive BOT projects execution on which does not seem

possible given funding gap at the current level of levered balance sheet.Stretched working capital to weigh on valuations...

IVRCL has continued to display a dismal execution show as 1/3rdrd of its

order book (including BOT projects) remains slow moving. While the

management has maintained its intention for BOT monetisation to meet

equity infusion, the same has been pending for the last couple of

quarters. We highlight that stretched working capital would continue to

weigh on valuation till such asset monetisation fructify. We maintain SELL

rating on the stock with an SOTP target price of | 26/share.

Exhibit 1: Financial Performance| crore Q2FY13* Q2FY13E* Q3FY12 Q1FY13 YoY Gr (%) QoQ Gr (%)

Net sales 1247.2 1047.0 1183.2 994.7 5.4 25.4

EBITDA 45.1 77.5 75.1 69.9 -39.9 -35.4

EBITDA Margin (%) 3.6 7.4 6.3 7.0 -273 bps -341 bpsDepreciation 21.8 20.6 22.9 20.4 -4.7 6.6

Interest 113.6 105.8 95.8 101.1 18.5 12.3

PAT -68.1 -43.7 6.8 -39.6 LP NA

Source: Company, ICICIdirect.com Research

IVRCL Ltd (IVRINF)

| 29

ting matrix

ing : Sell

get : | 26

get Period : 12 months

ential Upside : -10%

y Financials

crore FY11 FY12 * FY13E# FY14E

t sales 5560.9 6143.1 3362.5 6222.8

ITDA 424.0 466.3 207.9 534.4

t profit 157.9 18.1 -138.0 19.7

or 15 months ending June 30, 2012

For 9 months ending March 31, 2013

luation summary

FY11 FY12* FY13E# FY14E

S (|) 5.9 0.6 -4.5 0.6

j PE(x) NA NA NA NA

j Target PE(x) NA NA NA NA

/EBITDA(x) 5.3 6.6 16.7 7.6

BV(x) 0.4 0.4 0.4 0.4

NW(%) 8.2 0.6 -8.6 0.9

CE(%) 11.6 9.0 5.4 8.3

or 15 months ending June 30, 2012

For 9 months ending March 31, 2013

ock data

cap | 890 crore

bt (FY12) | 2,638 crore

sh (FY12) | 88 crore

| 3,439 croreweek H/L | 75/29

uity cap | 61 crore

ce Value | 2.0

Holding (%) 7.2

Holding (%) 28.2

ce movement

0

20

40

60

80

Feb-13Nov-12Aug-12May-12Feb-12

800

2,200

3,600

5,000

6,400

Price (R.H.S) Nifty (L.H.S)

alyst’s name

eepak Purswani, CFA

[email protected]

hupendra Tiwary

[email protected]



ICICI Securities Ltd | Retail Equity Research Page 2

Q2FY13 Performance…

IVRCL’s Q3FY13 performance was dismal on account of cost

overruns, which were booked during the quarter leading to higher

losses. The topline at | 1247.2 crore was ahead of our estimates given

better execution than expected

EBITDA margins at 3.6% were below our expectation of 7.4% owingto cost overrun of | 57 crore during the quarter. The company also

booked service tax demand of | 8 crore. Adjusting for the cost

overruns and service tax, margins were at 8.8%. During the quarter,

IVRCL also wrote off debtors worth | 11 crore while it recovered bad

debts worth | 12 crore

Consequently, the company reported a loss of | 68.1 crore (our

estimates loss of | 43.7 crore) due to lower margins and higher

interest expenses.

Order book remains healthy, but slow moving orders a grave concern

IVRCL has bagged orders worth ~| 650 crore in Q1FY13 and order

book stands at ~| 24,900 crore. We highlight that while the orderbook to bill ratio works out to 5x on TTM basis, there is the presence

of slow moving orders and captive BOT projects execution on which

does not seem possible given the funding gap

Exhibit 2: Order book remains healthy but slow moving orders a grave concern

2 1 , 7

0 0

2 6 , 0

0 0

2 5 , 0

0 0

2 7 , 7

8 0

2 7 , 1

3 1

2 6 , 3

6 5

2 4 9 0 0

5.0

5.3

5.45.6

4.6

4.6

3.8

0

7,000

14,000

21,000

28,000

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q5FY12 Q1FY13 Q2FY13

( | c

r o r e )

3.0

3.4

3.8

4.2

4.6

5.0

5.4

5.8

( x )

Order Book (| crore) Order book-to-bill ratio (RHS)


Exhibit 3: Transportation & water segment dominates order book with 69% share

38 39 37 34 35 35 34

29 24 29 35 34 34 35

2219

22 20 20 19 195 7 7 6 7 4 4

6

5

5 5 5 8 8

0

25

50

75

100

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q5FY12 Q1FY13 Q2FY13

( % )

Water Transportation Buildings Power Others


EBITDA margins at 3.6% were also below our expectation

of 7.4% owing to cost overrun of | 57 crore during the

quarter

The order book stands at | 24900 crore

Transportation segment (majority of which is captive BOT

orders) and water dominate the order book with a 69%

share in Q2FY13




Exhibit 4: Key Assumptions

| crore FY12* FY13E# FY14E

Order inflow 9,474 6,000 6,350

Order Book 27,131 27,226 27,350

Execution rate- Average (%) 24.1 12.4 22.8


* For 15 months ending June 30, 2012

# For 9 months ending March 31, 2013

Change in estimates

We have incorporated Q2FY13 performance into our estimates. We now

build in higher losses for FY13 given the dismal performance during the

quarter.

Exhibit 5: Change in estimates

| crore Previous Revised % change Previous Revised % change

Revenues 3362.5 3362.5 0.0 6222.8 6222.8 0.0

EBITDA 266.1 207.9 -21.9 534.4 534.4 0.0

Margin (%) 7.9 6.2 8.6 8.6

PAT -82.8 -138.0 NM 20.2 19.7 -2.3

FY13E# FY14E






Valuation

IVRCL has continued to display a dismal execution show as 1/3rd of its

order book (including BOT projects) remains slow moving. While the

management has maintained its intention for BOT monetisation to meet

equity infusion, the same has been pending for the last couple ofquarters. We highlight that stretched working capital would continue to

weigh on valuation till such asset monetisation fructify. We maintain SELL

rating on the stock with an SOTP target price of | 26/share.

Exhibit 7: Valuation metrics

Sales

(| crore)

Sales Gr

(%)

EPS

(|)

EPS Gr

(%)

Adj P/E

(x)

P/BV

(x)

RoNW

(%)

RoCE

(%)

FY11 5560.9 1.5 5.9 -25.2 NA 0.4 8.2 11.6

FY12* 6143.1 10.5 0.6 -90.0 NA 0.4 0.6 9.0

FY13E# 3362.5 -45.3 -4.5 -863.3 NA 0.4 -8.6 5.4

FY14E 6222.8 85.1 0.6 -114.3 NA 0.4 0.9 8.3

Source: Company, ICICIdirect.com Research * For 15 months ending June 30, 2012


We assign a SELL recommendation on the stock with a

target price of | 26/share based on SOTP valuation

methodology

Exhibit 6: SOTP Valuation

Entity Value (| crore) Per share (|) Comment

Construction 3,206 104 6x FY14E EV/EBITDA

IVRCL Assets & Holding 858 28 At 0.7x FY14E P/B

HDO 56 2Market cap at 20% holding company

discount

Less Net debt (3,320) (108) FY14E Net debt

Fair Value (|) 801 26





Financial summary

Profit and loss statement

(| Crore) FY11 FY12* FY13E# FY14E

Total operating Income 5,560.9 6,143.1 3,362.5 6,222.8

Growth (%) 1.5 10.5 -45.3 85.1

Op. Expenditure 5,136.9 5,676.8 3,154.6 5,688.4

EBITDA 424.0 466.3 207.9 534.4

Growth (%) -17.9 10.0 -55.4 157.1

Depreciation 75.8 118.9 63.1 92.9

EBIT 348.3 347.3 144.8 441.5

Interest 262.7 505.5 322.6 453.4

Other Income 147.1 204.5 55.3 49.8

Extraordinary Item 0.0 0.0 0.0 0.0

PBT 232.6 46.2 -122.5 37.9

Tax 74.7 28.2 15.5 18.2

Rep. PAT before MI 157.9 18.1 -138.0 19.7

Minority Interest (MI) 0.0 0.0 0.0 0.0

Rep. PAT after MI 157.9 18.1 -138.0 19.7

Adjustments 0.0 0.0 0.0 0.0

Adj. Net Profit 157.9 18.1 -138.0 19.7

Growth (%) -25.2 -88.5 -863.3 -114.3

EPS (|) 5.9 0.6 -4.5 0.6


Cash flow statement


Net Profit before Tax 232.6 46.2 -122.5 37.9

Other Non Cash Exp 0.0 0.0 0.0 0.0

Depreciation 75.8 118.9 63.1 92.9

Direct Tax Paid 165.1 75.7 15.5 18.2

Other Items 223.6 505.5 339.4 503.2

CF before change in WC 366.9 595.1 230.8 516.2

Inc./Dec. In WC -165.9 200.2 49.4 -333.4

CF from Operations 201.0 685.9 280.2 182.8

Pur. of Fix Assets -194.7 -62.7 -40.0 -80.0

Pur. of Inv -30.9 -949.6 -100.0 -300.0

Others -212.8 -66.0 16.8 49.8

CF from Investing -438.4 -1,078.3 -123.2 -330.2

Inc./(Dec.) in Debt 465.1 542.1 210.0 640.0

Inc./(Dec.) in Net Worth 0.0 301.2 0.0 0.0

Others -248.9 -505.5 -322.6 -457.1

CF from Financing 216.2 337.8 -112.6 182.9

Net Cash Flow -21.2 -54.6 44.4 35.5

Opening Cash 164.4 143.2 88.5 132.9

Closing Cash 143.2 88.5 132.9 168.4


Balance Sheet


Liabilities

Equity Capital 53.4 61.4 61.4 61.4

Reserves & Surplus 1,934.0 2,209.1 2,071.1 2,087.1

Shareholder's Fund 1,987.4 2,270.5 2,132.5 2,148.4Borrowings 1,629.5 2,457.9 2,667.9 3,307.9

Unsecured Loans 466.3 180.0 180.0 180.0

Deferred Tax Liability 8.7 -38.9 -38.9 -38.9

Source of Funds 4,091.8 4,869.6 4,941.5 5,597.5

Assets

Gross Block 924.2 1,011.4 1,051.4 1,131.4

Less: Acc. Depreciation 232.4 321.5 384.5 477.4

Net Block 691.8 689.9 666.8 653.9

Capital WIP 26.0 1.5 1.5 1.5

Net Fixed Assets 717.8 691.4 668.4 655.5

Investments 634.7 1,584.3 1,684.3 1,984.3

Cash 143.2 88.5 132.9 168.4

Trade Receivables 1,929.8 1,925.9 1,473.6 1,937.3

Loans & Advances 953.2 1,425.5 1,350.8 1,703.9

Inventory 273.2 272.3 284.7 291.4

Total Current Asset 5,452.3 5,568.7 5,042.0 5,976.2

Current Liab. & Prov. 2,713.0 2,974.9 2,453.1 3,018.5

Net Current Asset 2,739.3 2,593.8 2,588.9 2,957.8

P&L Account 0.0 0.0 0.0 0.0

Application of Funds 4,091.8 4,869.6 4,941.5 5,597.5


Key ratios

FY11 FY12* FY13E# FY14E

Per share data (|)

EPS 5.9 0.6 -4.5 0.6

Cash EPS 8.8 4.5 -2.4 3.7

BV 74.4 74.0 69.5 70.0DPS 0.6 0.0 0.0 0.1

Cash Per Share 5.4 2.9 4.3 5.5

Operating Ratios (%)

EBITDA Margin 7.6 7.6 6.2 8.6

PBT / Total Operating income 4.2 0.8 -3.6 0.6

PAT Margin 2.8 0.3 -4.1 0.3

Inventory days 17 13 40 17

Debtor days 127 92 246 100

Creditor days 103 78 193 76

Return Ratios (%)

RoE 8.2 0.6 -8.6 0.9

RoCE 11.6 9.0 5.4 8.3

RoIC 5.4 2.7 0.5 -2.8Valuation Ratios (x)

PE (x) 4.8 48.1 NA 44.1

Adjusted PE (x) NA NA NA NA

EV/EBITDA (x) 5.3 6.6 16.7 7.6

EV/Sales (x) 0.5 0.5 1.0 0.7

Price to Book Value 0.4 0.4 0.4 0.4

Solvency Ratios

Debt/EBITDA 4.9 5.7 13.7 6.5

Debt / Equity 1.0 1.1 1.3 1.5

Current Ratio 2.0 1.9 2.1 2.0


* For 15 months ending June 30, 2012





Company Description

Established in 1990, IVRCL Ltd is a leading Indian construction companyheadquartered in Hyderabad. IVRCL operates in four segments namelywater & irrigation, buildings & industrial, transportation and power. It has

a robust order book of ~| 24,900 crore, 5x book to bill on TTM basis. It

also has Hindustan Dorr-Oliver (HDO) as a subsidiary, which executesengineering solutions and EPC projects in liquid-solid separationapplications.

Exhibit 8: Recommendation History

0

20

40

60

80

100

Feb-13Jan-13Nov-12Oct-12Aug-12Jul-12May-12Apr-12

Price Target Price

Source: Reuters, ICICIdirect.com Research

Exhibit 9: Recent Releases

Date Event CMP Target Price Rating

15-Feb-12 Q3FY12 Result Update 60 56 Hold

3-Apr-12 Q4FY12 Result Preview 69 56 Sell

12-Apr-12 Q4FY12 Result Preview 74 72 Hold

16-May-12 Q4FY12 Result Update 47 44 Hold

30-Aug-12 Q5FY12 Result Update 39 39 Hold

12-Nov-12 Q1FY13 Result Update 40 35 Hold


ICICIdirect.com coverage universe (Construction)CMP M Cap

(|) TP(|) Rating (| Cr) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

HCC (HINCON) 17 15 Sell 1,010 -1.9 -2.5 -1.8 NA NA NA 12.0 13.6 12.1 0.8 0.9 1.0 -15.7 -9.0 -9.4

IVRCL (IVRINF) 29 26 Sell 904 0.6 -4.5 0.6 48.1 NA 44.1 6.6 16.7 7.6 0.4 0.4 0.4 0.6 -8.6 0.9

NCC (NAGCON) 41 45 Hold 1,040 1.4 2.3 2.3 13.0 7.8 8.1 8.3 8.3 7.3 0.5 0.5 0.5 1.5 2.5 2.3

Simplex Infra (SIMCON) 162 262 Buy 802 18.0 17.1 23.9 10.9 11.5 8.2 5.8 5.6 5.2 0.8 0.8 0.7 7.8 7.1 8.8

Supreme Infra (SUPINF) 212 330 Buy 359 54.8 64.2 85.2 4.4 3.8 2.8 4.7 4.0 3.4 1.3 1.0 0.8 24.7 22.6 23.1

Unity Infra (UNIINF) 36 53 Buy 266 14.0 12.5 10.5 2.7 3.0 3.6 3.5 3.5 3.6 0.4 0.4 0.4 14.8 11.8 9.0


Sector / Company

EPS (|) P/E (x) EV/EBITDA (x) P/B (x) RoE (%)



ICICI Securities Ltd Retail Equity Research Page 7

CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

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Buy: > 10%/ 15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

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ICICIdirect.com Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)

Mumbai – 400 093

[email protected]

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Documents

IDirect_Q3FY13