FY23 Revenue Growth Is Expected At 15-20%, Buy This Small-Cap Construction Stock

Anand Rathi has given a buy call to Ahluwalia Contracts (India) Ltd. On Friday, 03 June 2022, the Ahluwalia Contracts (India) closed at the current market price of Rs 412.80, gaining 4.05%. It was opened at Rs 400.75, whereas its previous close was Rs 396.75.

Q4 ordinary income statement

According to the brokerage Ahluwalia Contracts (India)'s Q4 ordinary income statement stemmed from a combination of contracted OB (muted new orders on keener competition) and inflation-impacted operating profitability. Nevertheless, that did not deter it from generating positive CFs and further strengthening its net cash status. Access to a war chest in a rising interest environment, we believe, would work in its favour and, thus, it is poised to benefit from opportunities on offer. Consequences of irrational bidding in the recent past by some, management believes, would curb competition, and keep it sanguine of adding in time to keep growing. The recent correction renders the stock attractive. This, and its strong net cash status, proven execution and bright prospects make us retain our Buy call. 

No new orders, assurance could be better

On keener competition and un-willing to compromise on returns only for revenue assurance, Ahluwalia Contracts (India) was devoid of orders for a second straight quarter. Thus, the OB contracted ~Rs2.6bn q/q to ~Rs71.2bn (incl. L1 of ~Rs12.5bn). Though good to deliver in the short term, more is required at the earliest to keep momentum going. Hence, it, citing ~Rs70bn of immediate prospects, looks to add Rs25bn-30bn in FY23. It expects competition to ease, and help it attain the targeted additions.

Guidance comforting

On the continuing healthy pace of execution (though Q4 revenue was ordinary, the OB conversion was healthy), and as more orders targeted sooner than later, FY23 revenue growth is envisaged at 15-20%. It expects margins to return to the past 12-13%, but recovery is likely to be gradual.

Net cash status strengthened

A 16-day q/q shorter working-capital cycle led to the ~Rs0.9bn q/q higher net-cash balance (~Rs4.3bn on 31st Mar'22). Lower unbilled revenue and retention receivables were the key, though partly constrained by lower mobilisation advances. 

Valuation & Risks

On a combination of slightly lower revenue estimates (on no new orders in Q4), pruned depreciation (on revised capex assumptions) and finance costs (changed debt assumptions), FY23e earnings are ~0.7% better, and FY24 are ~5% higher. On our revised estimates, the stock (excl. the Kota asset) trades at 10.7x FY24e EPS. According to the brokerage, the key risk would be Slow order addition.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.