>ASHOKA BUILDICON

For 3QFY2012, on a consolidated basis, Ashoka Buildcon (ABL) reported a healthy set of numbers on all fronts, in-line with our estimates. Order book as of 3QFY2012 stood at `4,312cr (4.2x FY2011 E&C revenue) with the company bagging a BOT project (`1,100cr) and power T&D order (`400cr) during the quarter. We maintain our Buy rating on the stock.


Robust performance as expected: ABL’s top line witnessed robust growth of 49.3% to `352.9cr, in-line with our estimate of `360.6cr. The E&C segment witnessed strong yoy growth of 52.8% to `300.4cr, higher than our expectation of `268.4cr, while the BOT segment reported 30.1% yoy growth to `66.3cr, lower than our estimate of `92.2cr. On the EBITDAM front, ABL’s margins came at 19.6%, lower than our estimate of 21.3%, owing to lower margins in the BOT segment, led by major and regular maintenance work in two projects. Interest cost came in at `27.3cr, a jump of 70.6% yoy/10.9% qoq. Despite lower EBITDAM, ABL posted decent performance at the earnings level, owing to robust top-line growth and reported PAT growth of 17.3% to `19.5cr, in-line with our estimate of `21.0cr.


Outlook and valuation: NHAI has done a commendable job by handing out ~4,500km so far in the current fiscal and is looking on track to achieve 80% of its target of awarding, ~7,300km in FY2012. Further, in the long run, the road segment continues to offer a number of opportunities for road-focused players such as ABL. We have valued ABL on an SOTP basis – by assigning 5.0x EV/EBITDA to its standalone business (`104/share) and valued its BOT projects on NPV basis (`141/share) to arrive at a target price of `245, which implies an upside of 26.4% from current levels.



Robust top-line performance, in-line with estimate
ABL’s top line witnessed robust growth of 49.3% to `352.9cr (`236.4cr), in-line with our estimate of `360.6cr. The E&C segment witnessed strong yoy growth of 52.8% to `300.4cr, higher than our expectation of `268.4cr, while the BOT segment reported 30.1% yoy growth to `66.3cr, lower than our estimate of `92.2cr.


During the quarter, the company almost completed two projects (Durg and Jaora Nayagaon). While toll collection on Durg project is likely to start from 4QFY2012 end, Jaora Nayagaon project has two sections already operational and tolling on the third section is expected to commence from 4QFY2012-end. Therefore, ABL is expecting the remaining under-construction projects (Sambalpur Baragarh, PNG, Belgaum Dharwad projects) to drive its E&C revenue growth going ahead.



BOT toll revenue
On the toll collection front, for 3QFY2012, ABL witnessed 70.5% yoy/4.2% qoq growth. This growth was on the back of addition of Belgaum Dharwad project and pickup in toll collections of Jaora Nayagaon project, which started toll collections on the second section from May 2011.


Under-construction BOT projects – Update 

Decent growth at the earnings level despite lower EBITDAM
During the quarter, ABL’s margins came at 19.6%, lower than our estimate of 21.3%, owing to lower margins in the BOT segment, led by major and regular maintenance work in two projects. Going ahead, we are factoring EBITDAM of 21.7% and 23.1% for FY2012E and FY2013E, respectively, as maintenance charges booked in this quarter pertained to ~9 months. Interest cost came in at `27.3cr, a jump of 70.6% yoy/10.9% qoq. Despite lower EBITDAM, ABL posted decent performance at the earnings level, owing to robust top-line growth and reported PAT growth of 17.3% to `19.5cr, in-line with our estimate of `21.0cr.



Outlook
History has shown that a world-class road network is a basic requirement for any economy hopeful to maintain high economic growth rates. However, India’s road network is barely adequate to maintain its current growth trajectory – indicating an urgent attention towards the same and putting it on the priority list. Positively, political will to acknowledge and address these issues in now visible. Records till date are mixed for road development in India – with PMGSY doing reasonably well and NHDP lagging behind on meeting its targets. However, matters have improved gradually on NHDP’s end with positive developments happening and with experience gained on both sides – government agencies and private sector. Some issues have been addressed on the ground and at the policy level. But still the sector faces a number of issues – for instance, land acquisition, environment clearance and dispute on certain aspects on the Model Concession Agreement. Having said that, the pace of awarding has definitely picked up considerably as compared to the past, though lower than targets. Therefore, there are a number of opportunities for the private sector, especially for road-focused players like IRB, ABL and ITNL.


However, we believe ABL is little differently placed than its peers on account of its leverage position. In recent times, ABL has won large orders, which has resulted in huge premium commitments to NHAI (~`220cr) and equity contributions from ABL’s side, which we believe would further stretch its leverage (net D/E is expected to rise from 1.4x in FY2011 to 3.0x by FY2013E). Also, the current cash flow generation from BOT projects and the EPC segment would not fully suffice the equity requirements for under-development projects. Hence, we believe the only options for ABL would be to raise equity, which seems extremely tough in current times, and/or raise debt for equity funding of its subsidiaries, which we have factored in after considering ~50% of requirement been met from internal accruals/refinancing of operational projects. Management is confident of raising US$100mn-150mn through private equity by March 2012. We believe tying up of funds is the biggest catalyst markets would watch out for in case of ABL and any delay in that would negatively impact its stock performance on the bourses.


Valuation
We have valued ABL on an SOTP basis – by assigning 5.0x EV/EBITDA to its standalone business (`104/share) (lower multiple as compared to IRB/ITNL given the scale of operation) and valued its BOT projects on NPV basis (`141/share) (it should be noted we have been conservative than management on revenue estimates (toll receipts) for under-construction projects, keeping an eye on revenue yield given the current competitive environment) – to arrive at a target price of `245, which implies an upside of 26.4% from current levels. We maintain our Buy rating on the on the stock with an SOTP target price of `245.



RISH TRADER