>AHLUWALIA CONTRACTS INDIA LIMITED (DOLAT CAPITAL)

High Performance - Delivered!!!

Ahluwalia Contracts India Ltd. (ACIL) is a premium player in contracting and caters to industrial, real estate and infrastructure segment. A healthy order book of Rs.41.5 Bn provides revenue visibility of 3.6 years. Increased contribution from Government Contracts (32% of order book) enhances certainty in the order book. ACIL has been awarded the time critical Commonwealth Projects which exhibits its quality and timely execution skills. With proven execution skills, strong promoter pedigree and sound financials with positive free cash flows, webelieve that ACIL is attractively place d. We initiate coverage with a BUY recommendation and a 12 months price target of Rs.108 which discounts its FY11E EPS of Rs.15.5 by 7x.

Investment Rationale

Huge opportunity in infrastructure segment: ACIL is actively bidding for Urban Infrastructure Projects (especially projects under the JNNURM scheme) and is currently associated with projects like Metro Rail in Mumbai, Delhi and Bangalore, Airport development in Ranchi etc. Under the JNNURM scheme, projects worth Rs.692 Bn are to be allocated over the next 3 years thereby providing ACIL a substantial opportunity landscape in the Urban Infrastructure space.

Healthy order book position to enhance revenue visibility: ACIL has a current order book of Rs.41.5 bn (3.6x FY 09 E sales) catering to residential, commercial retail, hospitality and healthcare segment. The company is currently executing time critical commonwealth projects worth Rs. 8.9 Bn (20% of order book) thereby exhibiting its credibility of timely execution. Going forward, ACIL will increase focus on infrastructure and Government projects which would perk
up the order book quality. ACIL, currently, has an order pipeline worth Rs.10 bn.

Out of woods.....poised for high growth: The Company has recently received its long pending payment from Emaar MGF for commonwealth games village project which has addressed the short term concerns, thereby infusing sufficient liquidity in the project and ramping up execution.We expect ACIL to clock a revenue and net profit CAGR of 30.3%and 23.6% respectively between FY 09E and 11E.The company has been generating positive free cash flows in the past 2 years. We expect it to continue generating positive free cash flow in the next two years.

Valuations: At CMP, the stock trades at 7.9x its FY10E earning and 5.4x its FY11E earning. We initiate the coverage with a BUY recommendation and a 12 months price target of Rs.108 which discounts its FY11E EPS of Rs.15.5 by 7x.

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