CMP: Rs. 199.00; Buy at
Rs. 195 - 200 levels.
Medium to Long term Target: Rs. 215; STOP LOSS – Rs. 183.00; Market Cap: Rs. 1,047.75 Cr; 52 Week High/Low: Rs. 283.00 / Rs. 181.08
Medium to Long term Target: Rs. 215; STOP LOSS – Rs. 183.00; Market Cap: Rs. 1,047.75 Cr; 52 Week High/Low: Rs. 283.00 / Rs. 181.08
Total Shares: 5,26,50,860 shares; Promoters : 3,54,81,587 shares –67.39 %; Total Public holding : 1,71,69,273 shares – 32.61 %; Book Value:
Rs. 147.97; Face Value: Rs. 10.00; EPS: Rs. 21.49; Div: 00.00 % ; P/E: 9.26
times; Ind. P/E: 21.45; EV/EBITDA: 5.70.
Total Debt: Rs. 282.42 Cr; Enterprise Value: Rs. 1,330.17 Cr.
ASHOKA BUILDCON LTD: The Company was incorporated in 1976 and is based in Nashik,
Maharashtra - India. Ashoka Buildcon Limited operates as an infrastructure
development company in India. It focuses on developing and building
infrastructure facilities on design, build, finance, operate, and transfer
(DBFOT) basis in highways; and engineering, procurement, and construction (EPC)
basis in highways and the power sector. The company is also involved in the sale
and installation of software solutions. The company operates in four divisions:
Build, Operate, and Transfer (BOT); EPC;
RMC and Bitumen; and Toll Collection Contract. The BOT division builds and
operates roads and bridges on Built Operate and Transfer basis. It has interest
in 21 BOT road projects including road projects in Maharashtra, Madhya Pradesh,
Chhattisgarh, Karnataka, and Orissa. The EPC division is involved in the
engineering, design, procurement, and construction of roads, bridges,
distribution transformers, electricity substations, commercial buildings,
industrial buildings, and institutional buildings for third parties. This
division also constructs, maintains, and repairs roads and bridges for BOT
division. The RMC and Bitumen division manufactures and sells ready-mix
concrete, bitumen, and pre-cast concrete poles. The Toll Collection Contract
division collects tolls on roads and bridges owned and constructed by third
parties. Ashoka Buildcon ltd
is compared with Praj Industries Ltd, Infotech Enterprises Ltd, Marg Ltd.
Investment Rationale:
Ashoka Buildcon ltd came with an IPO on September 2010
with an issue price of Rs. 324/share and rise about Rs. 225 Cr with an
objective to meet working capital requirements, investment in capital
equipment, prepayment & repayment of project loans of the company, to fund
certain subsidiaries for prepayment and repayment of their loans. Ashoka
Buildcon and GVR Infra Projects, a consortium (50:50) emerged as the lowest
bidder for the road project in Chennai. The project was by Tamil Nadu Road
Development Company Ltd (TNRDC) for their project namely Development of Chennai
Outer ring Road Phase II from Nemilicheri in NH 205 to Minjur in Thiruvottiyur
– Ponneri – Panchetti (TPP) Road for Design, Build, Finance, Operate &
Transfer (DBFOT) basis at Chennai, in the state of Tamil Nadu. The project is
on annuity basis with a Concession period of 20 years & TNRDC’s cost of the
project is around Rs. 985.44 Cr. The Public
works department, PWD (Maharashtra) has withdrawn the toll collection rights from
Ashoka Buildcon Ltd for Ahmednagar Karmala road project which was under BOT
Scheme (with toll rights) prematurely, which were to expire on November 04, 2015.
Ahmednagar Karmala project was envisaged in 1991 with reference interest rate linked
to RBI published rate. Based on an index of lending rates (published by leading
banks) which have been in downward trend, PWD has recalculated the concession termination
date as Nov 4, 2012. Toll collection which was in effect on 17th November
2012 has already been discontinued. The notification states that the lending
interest rates have been changed by the RBI and consequently as per contract provisions,
the concession period in view of new lending rates reworked, has ended before
Nov 14, 2012. This termination will negatively
impacted on near term profitability of the Project which contributes around
4.5 % or Rs.16/share in the overall fair value of Rs 350/share. The project has
an expected toll collection of Rs. 2.75 Cr in FY13E which is 8.6 % of the
overall toll collection for Ashoka Buildcon & Adjusted PAT from this
project for FY14E stood at Rs 2.00 Cr which is 13 % of FY14E consolidated APAT.
Considering it was a debt free mature project in its portfolio the profit contribution
to the overall consolidated PAT is much higher. Ashoka Buildcon ltd’s 2 other projects also faces the risk of early
termination. The PWD (Maharashtra) is in the process of expanding the
existing 2 lane state highways network at 10 or 11 stretches to 4 lanes. PWD (Mah)
has already awarded a part of Ahmednagar Karmala Tembhurni stretch to Supreme
infrastructure in Dec-10 for expanding the stretch to 4 lanes. Management
indicated that there are two more projects in its portfolio which are based on
similar concession agreement i.e. Pune Shirur and Sherinallah put together
commands another Rs 10/share or 3 % of value in Some Of The Part valuation.
Total Value at risk owing to such a decision is 7.5 % of overall SoTP owing to such
a move. One can buy based on cheap valuation with a target price of Rs 215.
Outlook and Valuation:
Ashoka Buildcon’s subsidiary Ashoka
Concessions Ltd received the first tranche of the $150 million investment being
made by two private equity funds – Macquarie SBI infrastructure Fund and SBI
Macquarie Infrastructure Trust. The company will use these funds as equity in
various projects under construction. The PWD (Mah) has awarded 6 projects so
far to ABL from these 2 projects have already achieved termination i.e. Dhule
bypass & Anwali Kasegaon on a natural course. Company’s management highlights
that 2 projects out of the remaining 3 i.e. Pune Shirur and Sherinallah are
based on similar concession agreement & both of these projects might face
early termination risk after the termination of Nagar Karmala project. Both put
together commands 3 % of SoTP or Rs 10/share. In terms of overall revenue
contribution to the toll collection Sherinallah and Pune shirur commands 10 %
and 6 % in terms of profitability based on FY14E. Sudden removal of tolling
rights for Ahmednagar Karmala came in as a surprise. The project comprises 5 %
of the company’s fair value based on FY14E target price. Such an event can at
max be replicated on two other projects as guided by the management. Overall Ashoka
Buildcon Ltd even after the termination of Nagar Karmala is still collecting
toll at 3 other projects from PWD (Mah). At the current market price of Rs. 199.00, the stock is trading at a PE of 8.96 x FY13E and 7.96 x FY14E respectively. The company can post Earnings per share (EPS) of Rs. 22.20 in FY13E and Rs. 25.00 in FY14E. One can buy Ashoka Buildcon with a target price of Rs. 215.00 for Medium to Long term investment.
| KEY FINANCIALS | FY11 | FY12 | FY13E | FY14E |
|---|---|---|---|---|
| SALES (Rs. Crs) | 1,302.00 | 1,500.00 | 1,903.30 | 2,307.60 |
| NET PROFIT (Rs. Crs) | 100.80 | 124.80 | 116.80 | 131.60 |
| EPS (Rs.) | 19.10 | 23.70 | 22.20 | 25.00 |
| PE (x) | 10.70 | 8.60 | 9.20 | 8.20 |
| P/BV (x) | 1.20 | 1.00 | 0.90 | 0.80 |
| EV/EBITDA (x) | 9.10 | 8.20 | 9.50 | 9.60 |
| ROE (%) | 14.90 | 13.00 | 10.70 | 10.80 |
| ROCE (%) | 11.00 | 7.80 | 3.70 | 3.00 |
I would buy ASHOKA BUILDCON with a price target of Rs. 215.00 for the medium to long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 183.00 on your every purchase.
