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    Buy Ashoka Buildcon, target price Rs 127: Anand Rathi

    Synopsis

    Mindful of the altered risk profile (owing to Covid-19), the brokerage has lowered the PE valuation multiple for the EPC business to 8 times, from 10 times earlier.

    Buy-sale1
    Anand Rathi has given a buy rating to Ashoka Buildcon with a target price of Rs 127. The share price moved up by 6.35 per cent from its previous close of Rs 59.10. The last traded stock price is Rs 62.85.

    Though it missed its full-year guidance on revenues and inflows (systemic issues earlier, Covid in Q4), Ashoka Buildcon more than delivered on cash flows, says the brokerage. A steep reduction in standalone net debt couldn’t have come at a better time, and leads us to believe that the existing HAM projects are unlikely to suffer for want of funds.

    Besides, a lighter balance sheet means it would benefit from any pick up in awarding. The SBI-Macquarie exit overhang remains, but seems more than priced in. Proven execution capabilities and a well-set balance sheet compel us to retain our buy rating, with a lowered target price of Rs 127 (from Rs 169) on pruning the EPC PE multiple from 10 times to 8 times, and on lowered earnings.

    Investment Rationale

    In order to better reflect the potential (as accounting losses in the asset ownership business masks EPC performance), the brokerage introduces standalone financials (earlier, consolidated). According to brokerage estimates, the stock is available at a PE of 4 times FY22e.

    The shift to standalone financials takes into account the fact that accounting losses in the asset-ownership business (owing to its typical long-gestation nature) masks the performance of the EPC vertical. The newly introduced standalone financials, though, takes into account any equity infusion or stop-gap funding that the standalone entity would need to take care of.

    Ashoka Buildcon-AnandRathiJune182020

    The brokerage has introduced FY21e and FY22e standalone financials: revenues respectively of Rs 36 billion and Rs 46 billion. Net income during FY21 is estimated at Rs 2.8 billion, and Rs 3.7 billion in FY22.

    The brokerage's consolidated estimates give a loss of Rs 0.8 billion in FY21 and a profit of Rs 1.2 billion in FY22. Mindful of the altered risk profile (owing to Covid-19), the brokerage has lowered the PE valuation multiple for the EPC business to 8 times, from 10 times earlier.

    On the brokerage’s new estimates, the sum-of-parts-based target price of RS 127 a share (from Rs 169 earlier) has been derived using an 8 times PE multiple for FY22e construction earnings ( Rs 80 a share; adjusted for interest income from Ashoka Concessions), the discounted -cash -flow -driven/investment valuation for the road-asset portfolio (Rs 46; after a 20 per cent holding company discount) and CGD on an investment basis Re 1; a 20 per cent holdco discount assigned).

    According to the brokerage, at the ruling price, the stock trades at PERs of 5 times FY21e and 4 times FY22e standalone earnings (adjusted for interest income from subsidiaries). On an EV/EBITDA basis, the stock quotes at 2.9 times FY21e and 2.4 times FY22e standalone EBITDA

    Risk: Any prolonged impact of Covid-19.

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1584.22 crore, up 23.73 per cent from last quarter sales of Rs 1280.36 crore and down -.79 per cent from last year's same quarter sales of Rs 1596.81 crore. The company reported net profit after tax of Rs 145.24 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 54.3 per cent stake in the company as of March 31, 2020 while FIIs held 5.5 per cent, DIIs 31.6 per cent and public and others 8.6 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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