PINC recommends `Buy` on Ashoka Buildcon

October 24, 2011

PINC Research has recommended `Buy` on Ashoka Buildcon with a price target of Rs 363 as against the current market price (CMP) of Rs 240 in its report dated Oct 14, 2011. The broking house gave the following rationale:

What`s the theme:

Ashoka Buildcon (ABL), with an experience of ten years in BOT road projects, currently has 23 projects in its portfolio, with 16 projects being operational. The company is among the few BOT developers that has seen a complete life cycle of a project and has handed over four BOT assets back to the government. ABL also has a strong in-house EPC arm, which executes in-house and third-party contracts.

What will move the stock:

1) Post the IPO, ABL is aiming for the next league with an aggressive but calculated bidding strategy. In FY11, the company won projects of more than Rs 30 billion. We expect it to maintain a market share of 3.5% in NHAI bidding in FY12-13. 2) No dilution likely in the medium term; ABL would require equity of Rs 8 billion in the next three years, which is likely to be met from internal accruals and securitization of the existing projects.

Where are we stacked versus consensus:

Our FY12 and FY13 earnings estimates are Rs 21.6 and Rs 25.7, 12.1% and 15.3% lower than consensus estimates respectively. We expect top-line growth of 12.5% and 19% to Rs 20.1 billion and Rs 23.3 billion in FY12 and FY13 vs. consensus forecasts of 46.8% and 21.5% to Rs 19.1 billion and Rs 23.2 billion, respectively. We value BOT (on a DCF basis) at FY12E and FY13E equity multiples of 1.6x and 1.1x, respectively. Our SOTP-based target price is Rs 363, where BOT is valued at Rs 208 and EPC at Rs 155 (9x FY12E earnings). The stock offers an upside potential of 51% at our SOTP-based target price of Rs 363 vs. consensus target of Rs 344.

What will challenge our target price:

1) Lower IRR owing to further increase in interest rates; 2) Lower traffic growth; 3) Slowdown in execution of current orders; and 4) Adverse impact on tolling charges from any changes in government policy.


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