Institutional Equity Research Infrastructure & Construction India AGLL IN; ASBL.BO February 2, 2015 3QF15 result review HOLD High interest costs dent profitability Current price (2 Feb) Rs 147 Target price Rs 146 Upside/(downside) % (0) Earning estimate Revised Market data Mkt capitalisation Rs bn 23.2 Average daily vol '000 546.0 52-week H/L Rs 164 / 56 Shares O/S mn 158.5 Free float mn 51.5 Promotor holding % 67.5 Foreign holding % 3.7 Face value Rs 5.0 Price performance (%) 1m 3m 6m 1yr Nifty (abs) 4.8 5.7 15.7 44.5 Stock (abs) (4.6) 5.0 14.7 157.3 Relative to Index (9.4) (0.7) (1.0) 112.9 For 3QF15, Ashoka Buildcon (ABL) reported a poor set of numbers. This poor performance came primarily on the back of a slowdown in execution and higher interest costs, leading to disappointment at the earnings level. In the BOT segment, the company grew ~4 5% YoY in average traffic (adjusted to 5 6% toll rake hike in 1HF15) across its key projects. Construction revenues came in at Rs3.5bn in 3QF15, which was flat YoY. Consolidated net sales grew 8.9% YoY to Rs4,556mn (SSLe of Rs4,864mn), led by strong BOT performance. EBITDAM at 23.1% (SSLe of 22%) was higher on the back of higher share of BOT revenues. Adjusted PAT came at Rs13mn (down 96% YoY) due to high interest costs and effective tax rate. The company has an order book of Rs33.8bn (down by 22% YoY) as of 3QF15, thereby converting into an OB-to-sales of 1.9x trailing E&C revenues. We now expect ABL to report Rs23.2bn and Rs24.7bn in topline in F16e and F17e, respectively. We maintain HOLD rating on the stock with a SOTP-based TP of Rs146. Traffic growth of ~4 5% YoY in BOT segment: The BOT segment reported Rs1bn in revenues in 3QF15, indicating a growth of 42% YoY. The average traffic growth hovered ~4 5% YoY (adjusted for the toll rate hikes in 1HF15) for most of its operational BOT projects. On the back of commencement of partial toll collection for its Sambalpur Baragarh project from 1 st October 2014, the company reported toll revenues of Rs84mn for the project in 3QF15. Performance 200 (Rs) 150 100 (%) 150 100 50 Construction revenues growth was YoY: The construction segment revenue was flat YoY rising to Rs3.5bn (SSLe of Rs3.8bn) in 3QF15, led by execution in underconstruction projects such as Dhankuni Kharagpur, Sambalpur Baragarh and Chennai ORR. Going forward, we anticipate the company would report Rs16.2bn and Rs17.9bn in construction revenues in F16e and F17e, respectively, led by pick up in execution in its underdevelopment and newly awarded projects. 50 0 0 (50) Feb-14 May-14 Aug-14 Oct-14 Jan-15 Ashoka Buildcon (LHS) Rel. to Nifty (RHS) Source: Bloomberg, SSLe Equity investment of ~Rs1bn over the next two years: ABL needs to invest ~Rs1,090mn in its three underdevelopment BOT projects over the next two years. Of this, Rs600 650mn would be funded by SBI Macquarie, while the rest would be funded via internal accruals from operational projects and construction business. Maintain HOLD, TP of Rs146: We have used the SOTP method to evaluate the stock. We have valued ABL on an SOTP basis, assigning 6.0x EV/EBITDA to its standalone business (Rs80/share), which is a 25% discount to its three-year average and have valued its BOT projects on an NPV basis (Rs66/share). At the CMP, the stock trades at a P/BV of 1.7x F16e and 1.6x F17e earnings and trades at EV/EBITDA of 10x F16e and 9.3x F17e EBITDA. We maintain HOLD rating on the stock with an SOTP-based TP of Rs146. Viral Shah +91 22 4227 3388 viral.shah@sbicapsec.com Pranjal Sanghvi +91 22 4227 3428 pranjal.sanghvi@sbicapsec.com Financial Summary Y/E Mar (Rsmn) F13 F14 F15e F16e F17e Net sales 18,527 17,949 19,303 23,168 24,715 growth (%) 23.5 (3.1) 7.5 20.0 6.7 EBITDA margin (%) 20.1 22.0 25.7 25.7 26.7 Adjusted net profit 999 1,131 730 1,027 1,058 EPS (Rs) 5.3 6.2 4.6 6.5 6.7 growth (%) (32.5) 15.7 (25.1) 40.7 3.1 P/E (x) 27.5 23.7 31.7 22.5 21.9 EV/EBITDA (x) 12.7 13.7 11.6 10.0 9.3 Dividend yield (%) 0.5 0.6 0.8 0.8 0.8 RoE (%) 9.5 9.8 5.7 7.6 7.3 RoCE (%) 1.2 1.4 1.7 2.0 2.0 SBICAP Research on Bloomberg SBICAP <GO>, www.securities.com Please refer to our disclaimer given at the last page.
Net sales grew 8.9% YoY on the back of strong execution of its under construction and operational projects in the BOT segment space EBITDAM stood at 23.1% led by higher contribution from the BOT segment Higher-than-expected interest costs dent profitability Quarterly Financials Y/E Mar (Rs mn) 3QF15 3QF14 YoY (%) 2QF15 QoQ (%) 3QF15e Var. (%) Net sales 4,556 4,185 8.9 4,314 5.6 4,864 (6.3) Operating Expenses 3,192 2,989 3,030 3,454 Employee benefits exp. 187 142 207 233 Other Expenses 122 103 142 107 EBITDA 1,054 950 10.9 935 12.7 1,070 (1.5) EBITDAM (%) 23.1% 22.7% 21.7% 22.0% Depreciation and amort. 376 294 369 454 EBIT 678 656 3.2 566 19.6 616 10.0 EBITM (%) 14.9% 15.7% 13.1% 12.7% Other income 34 51 56 66 Interest expenses 795 318 516 532 Extraordinary/Exceptional 0 0 0 0 Profit before tax (83) 389 106 150 Tax expense 139 166 145 51 Effective tax rate (%) (167.1) 42.7 137.0 34.0 PAT (223) 223 (199.9) (39) 468.5 99 Minority Interest (236) (112) (97) (21) Reported net profit 13 336 58 120 Non-recurring items 0 0 0 0 Adj. net profit 13 336 (96.2) 58 (78.0) 120 (89.3) NPM (%) 0.3% 8.0% 1.3% 2.5% EPS (Rs) 0.1 2.1 (96.2) 0.4 0.8 (89.3) Segmental revenue breakup Particulars 3QF15 3QF14 YoY (%) 2QF15 % chg(qoq) 9MF15 9MF14 % chg(yoy) Construction segment 3,528 3,533 (0.2) 3,400 3.8 12,138 9,923 22.3 BOT segment 1,028 703 46.2 970 6.0 3,084 2,080 48.3 Total Income 4,556 4,237 7.5 4,370 4.3 15,223 12,003 26.8 Construction segment 512 537 (4.7) 436 17.5 1,588 1,397 13.7 BOT segment 575 465 23.7 555 3.6 1,936 1,408 37.5 EBITDA 1,087 1,002 8.5 991 9.7 3,524 2,805 25.6 Construction segment (%) 14.5 15.2 (69)bp 12.8 170bp 13.1 14.1 (99)bp BOT segment (%) 55.9 66.1 (1014)bp 57.3 (133)bp 62.8 67.7 (494)bp EBITDAM(%) 23.9 23.6 22bp 22.7 118bp 23.1 23.4 22bp Construction segment 157 59 164.8 137 15.0 379 189 100.3 BOT segment 638 259 146.3 380 68.1 1,398 754 85.3 Financial expenses 795 318 149.8 516 54.0 1,778 944 88.3 Construction segment 109 69 59.1 103 5.4 318 199 60.0 BOT segment 267 226 18.2 265 0.6 843 686 22.9 Depreciation & Amortisation 376 294 27.8 369 2.0 1,161 885 31.3 Construction segment 246 409 (39.9) 196 25.7 891 1,009 (11.7) BOT segment (330) (20) 1541.8 (90) 267.5 (306) (32) 853 PBT (84) 389 (121.6) 106 (179.3) 585 977 (40.1) Construction segment 161 276 (41.6) 107 49.9 541 685 (21.0) BOT segment (148) 61 (344.6) (49) 199.6 (104) 155 (167.0) PAT (after MI) 13 336 (96.1) 58 (77.6) 437 840 (48.0) February 2, 2015 2
BOT Revenues Project Name (Rs mn) 3QF15 3QF14 YoY (%) 2QF15 % chg(qoq) 9MF15 9MF14 % chg(yoy) Indore -Edalabad 258 186 38.4 256 0.7 795 577 37.8 Ahmednagar-Aurangabad 52 48 8.3 47 10.9 147 138 6.8 WaingangaBridge 66 59 11.3 57 15.6 186 169 9.5 DewasBypass 47 48 (1.1) 46 1.7 145 154 (6.0) KatniBypass 43 40 8.9 47 (9.3) 140 124 13.4 Pune-Shirur$ - 56 (100.0) 27 (100.0) 99 160 (38.3) Nagar -Karmala^ - - - - - - - - Jaora -Nayagaon** 341 325 4.9 323 5.5 980 942 4.0 Bhandara 136 121 12.0 120 13.3 382 346 10.4 Belgaum Dharwad # 162 147 10.4 155 4.8 481 441 9.0 Durg 170 152 12.0 152 11.8 482 439 9.9 Dhankuni- Kharagpur@ 532 490 8.7 520 2.2 1,585 1,501 5.6 Pimpalgaon-Nashik-Gonde 231 98 0.0 219 5.7 619 297 - Sambalpur Baragarh## 84 - na - na 84 - na Others * 131 63 108.9 122 7.2 397 163 144.2 Total 2,253 1,832 23.0 2,091 7.7 6,523 5450.4 19.7 $ Toll collection disturbed in 3QFY11 & 4QFY11, Toll on one toll plaza discontinued, ## Sambalpur-Baragarh started partial tolling from 1st Oct'14 # Toll collection adjusted in Capital WIP, Toll collection started from May 2011 * Others include Anawali Kasegaon, Dhule Bye pass, Nashirabad & Sherinala, ** Toll on 2nd section started in May 2011 and 3rd from 15 Feb 2012 Conference call highlights The management expects NHAI to award projects worth 4500kms on an EPC basis and 1500kms on a BOT basis during the current financial year. As per the management, NHAI has awarded projects worth 1700kms till date (majorly on EPC basis). The management believes that the competitive intensity for projects on an EPC basis is very high and would taper down going forward. During the quarter, ABL has completed refinancing Rs3,240mn in debt with ICICI Bank for the Bhandara BOT project, resulting in an interest rate reduction of 1.5% to 11.5%. The company has declared an interim dividend of Rs0.7/share during Q3. For 3QF15, ABL s order book stood at Rs33.8bn (a decline of 22% YoY), thereby converting it into an order book-to-sales-ratio of 1.9x E&C revenue. Power T&D segment contributes 56% of total order book, while remaining 44% is contributed by the road segment. In the BOT segment, the company grew ~4 5% YoY in average traffic across its key projects. However, Bhandara and Durg registered a healthy traffic growth 6 7% YoY. The traffic growth in Sambalpur Baragarh project is lower than anticipated, mainly due to ban in mining activity and currently stands at Rs9 10L/day (partial toll collection). The construction activity on Chennai ORR project is progressing ahead of schedule and it is expected to complete six months ahead of schedule. February 2, 2015 3
Change in estimates We have slightly lowered our earnings estimates for F15e/16e, based on high interest cost in 9MF15. This has resulted in an EPS downward revision of 26.5% and 7.4% to Rs4.6 and Rs6.5 for F15e and F16e, respectively. Change in estimates (Rs mn) Revised Old Change (%) F15e F16e F15e F16e F15e F16e Revenue 19,303 23,168 19,256 23,119 0.2 0.2 EBIDTA 4,961 5,954 4,949 5,941 0.2 0.2 PAT 730 1,027 993 1,109 (26.5) (7.4) EPS (Rs) 4.6 6.5 6.3 7.0 (26.5) (7.4) Valuation We have used the SOTP method to evaluate the stock. We have valued ABL on an SOTP basis, assigning 6.0x EV/EBITDA to its standalone business (Rs80/share), which is a 25% discount to its three-year average and have valued its BOT projects on NPV basis (Rs66/share). At the CMP, the stock trades at a P/BV of 1.7x F16e and 1.6x F17e earnings and at an EV/EBITDA of 10x F16e and 9.3x F17e EBITDA. We maintain HOLD rating on the stock with a SOTP-based TP of Rs146. SOTP valuation Particulars Segment Driver Multiple ABL's value (Rs mn) ABL's value (Rs/ share) Proportionate stake (%) Basis Ashoka's construction business Construction 2,416 6 14,497 92 62.9 EV/EBITDA of 6x one year rolling forward earnings Net debt (1,934) (12) Standalone net debt as on Total 12,563 80 54.5 M h 31 2014 Ashoka Concession Road BOT projects Pune Shirur Toll 120 100 120 1 0.5 NPV at CoE of 14% Nagar Aurangabad Toll 153 100 153 1 0.7 NPV at CoE of 14% Nagar Karmala Toll 665 100 665 4 2.9 NPV at CoE of 14% Wainganga Toll 765 50 382 2 1.7 NPV at CoE of 14% Sherinala Toll 111 100 111 1 0.5 NPV at CoE of 14% Indore Edalabad Toll 2,249 100 2,249 14 9.8 NPV at CoE of 14% Dewas Bye Pass Toll 170 100 170 1 0.7 NPV at CoE of 14% Katni Bye Pass Toll 369 100 369 2 1.6 NPV at CoE of 14% Karnataka State highway Annuity (287) 51 (146) (1) (0.6) NPV at CoE of 14% Total 4,072 26 17.7 ACL Road BOT Projects Bhandara Toll 1,405 51 717 5 3.1 NPV at CoE of 14% Belgaum Dharwad Toll 1,283 100 1,283 8 5.6 NPV at CoE of 14% Pimpalgaon-Nasik-Gonde Toll 4,912 26 1,277 8 5.5 NPV at CoE of 14% Sambalpur Baragarh Toll 2,058 100 2,058 13 8.9 NPV at CoE of 14% Durg Toll 1,599 51 815 5 3.5 NPV at CoE of 14% Jaora-Nayagaon Toll 6,745 38 2,543 16 11.0 NPV at CoE of 14% Dhankuni-Kharagpur Toll 613 100 613 4 2.7 NPV at CoE of 14% Chennai outer ring road Annuity 863 50 431 3 1.9 NPV at CoE of 14% Total 9,737 62 42.2 ABL's share @ 66% 6,426 41 27.9 Grand Total 23,062 146 100.0 Source: SSLe February 2, 2015 4
1- year forward P/E band 1-year forward P/B band 50 2.0 40 1.7 (x) 30 20 (x) 1.4 1.1 10 0.8 0 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 0.5 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Source: Bloomberg, Company, SSLe Order book assumption (Rsmn) F13 F14 F15e F16e F17e Order inflow 4,487 17,729 23,646 26,221 28,124 Order book 35,680 35,460 40,779 44,857 49,343 Sales 18,527 17,949 18,327 22,143 23,639 Book to Bill (x) 1.9 2.0 2.2 2.0 2.1 Source: SSLe Operating expense assumption As % of sales F13 F14 F15e F16e F17e Construction material cost 21.9 20.4 20.0 20.0 19.0 Sub contracting charges 37.4 35.1 35.0 35.0 35.0 Others 12.5 13.7 11.0 11.0 11.0 Cost of material sold 2.9 3.1 2.8 2.8 2.8 Employee costs 2.7 3.2 2.9 2.9 2.9 Administrative cost 2.6 2.4 2.6 2.6 2.6 Total cost 79.9 78.0 74.3 74.3 73.3 February 2, 2015 5
Financials- Consolidated Income Statement Balance Sheet Y/E Mar (Rsmn) F13 F14 F15e F16e F17e Y/E Mar (Rsmn) F13 F14 F15e F16e F17e Net sales 18,527 17,949 19,303 23,168 24,715 Cash & Bank balances 517 945 386 327 751 growth (%) 23.5 (3.1) 7.5 20.0 6.7 Other Current assets 9,940 11,499 12,642 14,475 15,123 Operating expenses 14,808 14,003 14,342 17,214 18,116 Investments 2,824 2,847 2,847 2,847 2,847 EBITDA 3,719 3,945 4,961 5,954 6,599 growth (%) 14.4 6.1 25.7 20.0 10.8 Net fixed assets 1,761 1,784 1,784 1,784 0 Depreciation &amortisation 1,324 1,389 1,696 1,967 2,117 Goodwill & intangible assets 109,339 118,087 122,076 122,860 125,194 EBIT 2,395 2,556 3,265 3,987 4,482 Other non-current assets 0 0 0 0 0 Other income 215 246 232 278 297 Total assets 124,380 135,162 139,735 142,293 143,915 Interest paid 1,395 1,335 2,515 2,659 2,725 Extraordinary/Exceptional items (157) (157) - - - Current liabilities 8,247 9,737 10,011 11,526 11,874 PBT 1,058 1,310 982 1,606 2,054 Borrowings 24,535 31,926 34,926 36,926 38,926 Tax 685 688 334 546 698 Other non-current liabilities 78,304 76,225 77,179 75,430 73,594 Effective tax rate (%) 64.7 52.5 34.0 34.0 34.0 Total liabilities 111,086 117,888 122,115 123,882 124,394 Net profit 373 622 648 1,060 1,355 Minority interest 469 353 82 (33) (297) Share capital 527 790 790 790 790 Reported Net profit 842 974 730 1,027 1,058 Reserves & surplus 9,981 11,839 12,384 13,226 14,099 Non-recurring items 157 157 - - - Shareholders' funds 10,507 12,628 13,174 14,016 14,889 Adjusted Net profit 999 1,131 730 1,027 1,058 Minority interest 2,787 4,645 4,446 4,395 4,631 growth (%) (20.0) 34.4 (25.1) 40.7 3.1 Total equity & liabilities 124,380 135,162 139,735 142,293 143,915 Key Financials ratios Cash Flow Statement Y/E Mar F13 F14 F15e F16e F17e Y/E Mar (Rsmn) F13 F14 F15e F16e F17e Profitability and return ratios (%) Pre-tax profit 1,058 1,310 982 1,606 2,054 EBITDAM 20.1 22.0 25.7 25.7 26.7 Depreciation 1,324 1,389 1,696 1,967 2,117 EBITM 12.9 14.2 16.9 17.2 18.1 Chg in working capital 1,214 (70) (869) (318) (300) NPM 5.4 6.3 3.8 4.4 4.3 Total tax paid (685) (688) (334) (546) (698) RoE 9.5 9.8 5.7 7.6 7.3 Other operating activities 451 339 82 (33) (297) RoCE 1.2 1.4 1.7 2.0 2.0 Operating CF 3,362 2,280 1,557 2,676 2,875 RoIC 0.8 0.8 0.4 0.6 0.6 Capital expenditure (69,385) (10,161) (5,685) (2,751) (2,667) Per share data (Rs) Chg in investments (772) (23) 0 0 0 O/s shares (mn) 157.9 157.9 157.9 157.9 157.9 Other investing activities EPS 5.3 6.2 4.6 6.5 6.7 Investing CF (70,157) (10,184) (5,685) (2,751) (2,667) FDEPS 5.3 6.2 4.6 6.5 6.7 FCF (66,023) (7,881) (4,128) (75) 208 CEPS 13.7 15.0 15.4 19.0 20.1 BV 66.5 80.0 83.4 88.8 94.3 Equity raised/(repaid) (26) 263 - - - DPS 0.8 0.9 1.2 1.2 1.2 Debt raised/(repaid) 7,466 7,391 3,000 2,000 2,000 Dividend (incl. tax) (127) (148) (185) (185) (185) Valuation ratios (x) Other financing activities 59498 825 754 (1800) (1600) PE 27.5 23.7 31.7 22.5 21.9 Financing CF 66,812 8,331 3,569 15 215 P/BV 2.2 1.8 1.8 1.7 1.6 EV/EBITDA 12.7 13.7 11.6 10.0 9.3 Net chg in cash & bank bal. 17 428 (559) (60) 424 EV/Sales 2.5 3.0 3.0 2.6 2.5 Closing cash & bank bal 517 945 386 327 751 Other key ratios D/E (x) 2.3 2.5 2.7 2.6 2.6 DSO (days) 42.8 38.5 45.2 45.8 48.4 Du Pont Analysis - RoE NPM (%) 5.4 6.3 3.8 4.4 4.3 Asset turnover (x) 0.1 0.1 0.1 0.2 0.2 Equity multiplier (x) 11.8 11.2 10.7 10.4 9.9 RoE (%) 9.5 9.8 5.7 7.6 7.3 February 2, 2015 6
Recommendation History 180 160 140 120 100 80 60 40 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 (Rs) BUY HOLD SELL Stock Price Target Price Date Stock Price TP Rec. 4-Jun-14 144 155 BUY 17-Nov-14 129 146 HOLD 2-Feb-15 147 146 HOLD Source: Bloomberg, SSLe SBICAP Securities Limited Corporate Office: Mafatlal Chambers, A-Wing, 2nd Floor, N. M. Joshi Marg, Lower Parel, Mumbai -400013. Tel.: 91-22-42273300/01 Fax: 91-22-42273335 Email: sbicapresearch@sbicapsec.com www.sbismart.com KEY TO INVESTMENT RATINGS (w.e.f. February 2013) Guide to the expected return over the next 12 months. 1=BUY (expected to give absolute returns of 15 or more percentage points); 2=HOLD (expected to give absolute returns between -10 to 15 percentage points); 3=SELL (expected to give absolute returns less then - 10 percentage points) DISCLAIMER We, Viral Shah, MBA (Finance) Analyst, Pranjal Sanghvi, CFA (ICFAI) Research Associate, authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. This report has been prepared based upon information available to the public and sources, believed to be reliable. We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. SBICAP Securities Limited (SSL),a full service Stock Broking Company and a member of National Stock Exchange of India Ltd. 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