IDBI Capital Positive On This Net-Debt Free Construction Sector Stock, Recommends Buy For 37% Upside

IDBI Capital has recently published a report on Ahluwalia Contracts (India) Limited (AHLU), where the brokerage maintains its positive outlook on the stock of the company, and recommends "buy" for a target price of Rs 650 apiece. Considering the given target price, the stock is likely to jump up to 37% in 12 months from its current level. It is a small-cap construction sector company. The market cap of the company is Rs 3,188.94 crore.

Stock Outlook & Returns On Investment

On NSE, the stock today last traded at Rs 476.05/share after a 0.66% jump in its share price compared to its previous close. It's 52-week low is Rs 360 recorded on 24 February 2022, and the 52-week high is Rs 563.60 apiece recorded on 11 April 2022, respectively.
 
 The stock over the past 1 week surged 4.42%. In the past 1 month, it surged by 10.11%. Over the past 1 year, it has given a 14.89% positive return. Over the last 3 years, it has given a maximum 67.06% positive returns. However, in the last 5 years, the shares declined, given 24.13% positive returns.

Key Highlights and Investment Rationale

Execution with Cash flow: AHLU has delivered 14% revenue CAGR in the last 5 years. Importantly OCF and FCF has been consistently positive every year in the last 9 years. With orders in hand, we expect revenue CAGR of 17% over FY22-25E and PAT CAGR of 26% and generate FCF yield of 6% in FY25E. 

Balance sheet for growth: AHLU is a Net debt free company and has cash in books of Rs3.5bn (12% of Mkt Cap). With minimal capex requirement we do not foresee increasing debt levels. Its net working capital has never shoot beyond 22% of revenue in the last 10 years. This is led by management's focus on execution with working capital management. 

Order book highest: Order inflow has been subdued for the last 2 years; which is recovering in FY23E & we expect it to close with highest ever order inflow and year end order book in FY23E at Rs73bn (2.3x FY23E revenue). 

Buy for a target price of Rs 650/share

Ahluwalia Contracts (AHLU), a beneficiary of infra and industrial capex in India provides turnkey solution in the construction of vertical structure (building). With an experience of 5 decades and seen multiple capex cycle in India, it has consistently delivered positive operating cash flow. 

"We initiate coverage on AHLU with a BUY rating, and on base case see an TP of Rs650 (14x FY25E EPS), offering an upside of 50%. Order inflow is in cyclical uptrend for AHLU and we expect it to close FY23E with highest ever annual inflow (YTDFY23 it is Rs40bn). Order book in 1HFY23 at Rs76bn provides revenue visibility with more than 70% of book is for clients in East and North part of India," the brokerage has said. 

Key positives in AHLU: management with vast experience, its execution ability with steady cash flow and lean balance sheet to support future growth

Disclaimer

The stock has been picked from the brokerage report of IDBI Capital. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.