Wednesday, April 1, 2009

IVRCL Infra Value Pick

IVRCL Infrastructures The fall in interest rates and commodity prices and the improving availability of funds are some good signs for infrastructure and construction companies. Nonetheless, it is prudent to be selective. Among companies, analysts prefer IVRCL Infrastructures & Projects, a leading player in the water and irrigation segments (account for over 60 per cent of total revenue), which has better visibility in terms of continuous flow of orders and is less leveraged (debt-equity of 0.7 times). As about 90 per cent of these projects are government-sponsored, the company has been a key beneficiary of increased capital expenditure on irrigation projects. The company generates about 30 per cent of revenues from the transportation sector, wherein the order book stood at about Rs 1,257 crore in December 2008. The company is constructing three road projects on a BOT basis (worth Rs 1,080 crore), which are expected to be commissioned by May 2009. Analysts value these projects at about Rs 20 per share of IVRCL, based on future cash flows. IVRCL's total order book is about Rs 15,000 crore, which is four times its FY08 revenue and provides good visibility. Thus, revenues should grow at 30 per cent, while earnings are likely to increase by 25 per cent over the next two years. Besides its core business, the company also has an exposure in the real estate business through its subsidiary IVR Prime (62.3 per cent stake) and industrial water treatment and environment equipment segment through a 70 per cent controlling stake in Hindustan Dorr Oliver, (a listed domestic company). Meanwhile, based on estimated FY10 projections, IVRCL Infrastructure's stock is trading at a PE of 6.4 times and 0.87 times its book value of Rs 155 per share. Source : Business-standard