Top Brokerage Recommends Buy This Small Cap Infra Stock, Sees Aggressive 86% Upside

In a recent report, leading brokerage company HDFC Securities placed "buy" on Ashoka Buildcon Limited with a target price of Rs 680. Considering the given target price and the current market price, the brokerage expects possible returns of 86%. Ashoka Buildcon is a small-cap infrastructure sector company engaged in the business of construction and infrastructure facilities on an EPC and BOT basis. It is also involved in the sale of RMC (ready-mix concrete). It has a market cap of Rs 2,031.03 crore.

Stock Outlook & Returns

The shares of Ahoka Buildcon on NSE last traded at Rs 72.35 per share, 0.48% below its previous close of Rs 72.85 per share.

The stock in terms of return on investments has not performed well in the past 5 years. It fell 3.34% in 1 week, 4.74% in 1 month, and 8.76% in 3 months, respectively. Over a year, the stock has fallen 30.3%, in 3 years 23.07% and in 5 years 48.36%, respectively.

Both the 52 week high, the stock recorded in 2022. Its 52-week high was recorded on 5 January 2022 at Rs 108.60 and its 52-week low on 25 May 2022 at Rs 69, respectively.

Q2FY23 highlights

Revenue: INR 12.8bn (+39.6/-13.4% YoY/QoQ, a 4.9% miss). EBITDA: INR 1.1bn (+6.1/-22.6% YoY/QoQ, a 19.8% miss).

EBITDA margin: 8.7% (-276/-103bps YoY/QoQ, below our estimate of 10.4%, owing to older project bid aggressively moving into revenue recognition).

Depreciation: INR 182mn (+10.1/+8.6% YoY/QoQ).

Interest cost: INR 361mn (+72/+82.5% YoY/QoQ).

Other income: INR 297mn (-49.7/-4.9% YoY/QoQ).

APAT: INR 655mn (-31.5/-37.3% YoY/QoQ, a 32.7% miss). ASBL has guided for H2FY23 revenue to grow by 20-25% YoY with EBITDA margin of 9-9.5%.

Robust OB, well-diversified

The OB as of Sep'22 stood at INR 149bn (~3.3x FY22 revenue). The OB is well-diversified with roads/T&D/railways/buildings/others contributing 55.4/15/10/19.2/0.3% of the order backlog. ASBL has received orders worth ~INR 30bn FYTD23. ASBL has a robust bid pipeline of INR 650bn. While ASBL has its clear focus on national and state highways, it is diversifying its portfolio into power T&D, railways, and buildings as well.

Balance sheet likely to be asset-light by FY23 end

With approvals pending only from a few stakeholders, Chennai ORR and 5 BOT assets deals are expected to be completed by Q4FY23. The Jaora BOT asset sale also is expected in FY23. The standalone gross/net debt stood increased marginally to INR 8.7/6.5bn as of Sep'22 vs. INR 8.6/6.4bn as of Jun'22. The balance equity requirement for HAM assets as of Sep'22 stands at INR 2.5bn, of which INR 1.4bn would be funded in the remaining year FY23 and INR 0.8/0.3bn in FY24/25. ASBL has guided for a capex of INR 240-250mn in H2FY23.

Buy for target price of Rs 134/share

Ashoka Buildcon (ASBL) reported revenue/EBITDA/APAT of INR 12.8/1.1/0.7bn, missing our estimates on all fronts. The Chennai ORR and 5 BOT assets sale deals are expected to be closed by Q4FY23 along with the Jaora BOT asset sale. ASBL has received orders worth ~INR 30bn FYTD23, taking the FYTD23 order book (OB) to INR 149bn (~3.3x FY22 revenue). The standalone gross/net debt increased marginally to INR 8.7/6.5bn, as of Sep'22. The balance equity requirement for HAM assets as of Sep'22 stands at INR 2.5bn, of which INR 1.4bn would be funded in the remaining year FY23 and INR 0.8/0.3bn in FY24/25. "ASBL has guided for a capex of INR 240-250mn in H2FY23. It also guided for H2FY23 revenue to grow at 20-25% YoY. We maintain BUY, with a reduced TP of INR 134/sh (9x Sep-24E EPS rollover)," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. 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 check with certified experts before making any investment decision.