Ashoka Buildcon Hit 52W High; HDFC Sec Sees 70% Upside: Here’s Why

The shares of Ashoka Buildcon opened today on the BSE at Rs 112.10 apiece and clocked a fresh 52-week-high of Rs 119.70 during the morning deals logging a gain of 6.77%. The scrip has gained 32.21% on a YTD basis so far in 2023, however, the brokerage firm HDFC Securities sees over 70% potential upside on the stock from its current market price.

"Ashoka Buildcon (ASBL) has underperformed the broader infra space over the last 1Y/2Y/5Y, despite its order book multiplying 2x over FY19-23. (1) ASBL has a well-diversified OB at ~2.5x FY23 standalone revenue which provides revenue visibility over the medium term. (2) At the standalone level, the company had gross/net debt of INR 10/8.1bn (gross D/E 0.3x) as of Mar'23 vs. INR 5.6/4.2bn as of Mar'22. (3) Healthy asset monetization pipeline, total proceeds over the next three years could cumulatively exceed the current market cap. (4) Standalone EPC business valuation is not priced in the current market cap. Given the strong OB, improving visibility on asset monetization, and likely cash inflow from asset monetization (INR 31bn) exceeding market cap (INR 29bn), we increase our SOTP valuation to INR 189/sh (9x Sep-25E EPS, asset value repriced higher). We maintain our BUY rating," said the research analysts of HDFC Securities in a note.

"ASBL ended the year with an outstanding order book (OB) of INR 158.1bn (~2.5x FY23 standalone revenue). Business-wise, the OB is well-diversified with EPC/HAM/T&D/buildings/railways/others 39.7/17.9/17.2/15.9/8.9/0.5%. Region-wise, the maximum contribution is from the south at 28%, followed by central/overseas/west/south/north/northeast at 19.8/18.6/15.2/6.7/5.9/5.8%. During the year, it won projects worth INR 94.5bn," the brokerage said.

"ASBL achieved PCOD for two NHAI-HAM assets. Further, ASBL entered into a SPA with Mahanagar Gas Ltd to sell its entire 51% equity stake valued at INR 5.3bn in its subsidiary - Unison Enviro Private Ltd. Also, it achieved financial closure for one of its HAM projects. Furthermore, one of its step-down subsidiaries received INR 974mn, inclusive of interest towards full & final settlement in respect of all claims from NHAI," the brokerage note further stated.

"ASBL has signed a definitive agreement to monetize three assets, viz. Chennai ORR, Jaora Nayagaon and CGD assets for a total cash consideration of INR 11bn. Besides this, we expect INR 18bn of realization from HAM assets and INR 15bn from BOT assets. Adjusting for the INR 13bn payout to SBI Macquarie, the total inflow for ACL is expected to be INR 31bn, which is higher than the current market cap of INR 29bn.

This implies that standalone EPC business value is not reflected in the current stock price. After the mutual termination of ACL BOT assets sale by KKR and ASBL, the market is circumspect on ASBL asset sale going through. We believe as asset monetization proceeds come in, this overhang will get diluted and lead to significant stock rerating," HDFC Securities said in a note.

HDFC Securities has recommended to buy Ashoka Buildcon for a target price of INR 189 which implies a potential upside of around 70% from the current market price.

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