Prabhudas Lilladher's research report on Ahluwalia Contracts (India)
Ahluwalia Contracts (ACIL) posted a strong quarterly performance with execution rising 4.1% YoY (vs PLe 23% decline) led by rise in labour availability. Labour availability stands 80% pre-covid levels (up from 60% in Sep’20). Margins were weak despite healthy execution and several cost control measures primarily due to provision of Rs50mn towards receivables and similar trend is expected to continue in 3Q and 4Q. Considering uncertainty regarding pandemic, management cited caution on execution. However, management indicated that working capital has improved as disbursements have started from state authorities primarily in West Bengal and Bihar and expects normalcy by Dec’20. ACIL is among few EPC companies which have turned around with significant improvement in profitability through sound business strategy, focus on asset light business model, prudent selection of orders (state & central agencies) and better working capital management. Given strong 1H, we have revised our FY21 earnings estimate from Rs636mn to Rs783mn. At CMP, the stock trades at a P/E of 20.3x/ 8.6x on FY21E/ FY22E EPS and is trading at an EV of 9x/ 4.4x FY21E/ FY22E EBITDA.
Outlook
We maintain BUY rating on the stock with a TP of Rs288 (Same as earlier).
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