But This Construction Stock For +21% Upside Suggested By IDBI Capital

IDBI Capital one of India's leading broking houses has suggested buying the stock of Ircon International or Indian Railway Construction Limited with a target price of Rs 58. From the current share price of Rs 48, the brokerage expects a potential upside of +21% for the stock.

Q2FY22 results of IRCON

In its research report, the brokerage has stated that "IRCON international (IRCON) Q2FY22 PAT came 10% higher than our estimate. This is led by higher other income. H1FY22 revenue increased by 71% YoY and IRCON targets FY22E Revenue at ~Rs60-70bn but expects softness in margin. Based on guidance, H2FY22 implies revenue to increase by 1% to 29% YoY. But due to the expectation of weak margin we have cut EPS for FY22E/23E by 9%/10% (exhibit 8). H1FY22 Order book at Rs349bn provides revenue visibility at 6x TTM Revenue. YTDFY22 order inflow (won on competitive bidding) is at Rs27bn and additionally, the company emerged as L-1 bidder in a project worth Rs86bn. We have rolled forward TP to FY24E at Rs58, valued at PER of 10x (earlier Rs56). Company has announced a second interim dividend of Rs0.7/sh (first was Rs0.45/sh). We have modeled a total dividend of Rs2.9 for FY22E (implying div. yield of 6%). Maintain BUY rating on the stock."

Key highlights and investment rationale for IRCON international (IRCON) according to IDBI Capital

Q2FY22 Snapshot: IRCON Revenue was up 47% YoY at Rs14bn. EBITDA stood at Rs1bn (+49% YoY/ +39% QoQ) with EBITDA margin at 6.9%. Q2FY22 PAT at Rs1.3bn (+74% YoY, +57% QoQ). This is led by higher other income at Rs0.8bn vs Rs0.5bn YoY. Segment-wise, Domestic EBIT margin was higher QoQ/ YoY. But International EBIT was at loss due to a one-off.

L1 in Rs86bn project: H1FY22 IRCON's Order book stood at Rs349bn equals 6x TTM Revenue with 88%/ 5%/ 7% of order book from Railway/ Highway/ Other. In other, it has a solar power segment worth Rs26bn via e-Reverse auction with a Viability Gap Funding (VGF). Equity investment in solar project is expected at Rs4bn and IRCON has the option to unlock the value at IRR of 14%. Geography wise international order book at 4% and domestic at 96%.

FY22E PAT guidance at Rs4.8bn: IRCON targets FY22E Revenue/ PAT at ~Rs60-70bn/ Rs4.8bn. And PAT margin is expected at 8-9% for H2FY22. Company re-iterated it's FY23E revenue target of Rs100bn.

Disclaimer

The above is picked from the brokerage report of IDBI Capital. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.