Brokerage firm Anand Rathi Share and Stock Brokers has maintained a 'buy' call on the stock of Ahluwalia Contracts (India) with a target price of ₹513 which is a 29 percent upside for the stock's June 3 closing of ₹398.05 on BSE.
The stock hit its 52-week high of ₹563.50 on BSE on April 11, 2022, and witnessed strong profit-booking thereafter. At present, it is 29 percent below its 52-week high price.
Ahluwalia Contracts' Q4 ordinary income statement stemmed from the contracted order book (muted new orders on keener competition) and inflation-impacted operating profitability. Nevertheless, that did not deter it from generating positive cash flows and further strengthening its net cash status, the brokerage firm pointed out.
"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," said Anand Rathi.
Why buy?
No new orders, assurance could be better: With keener competition and un- willing to compromise on returns only for revenue assurance, the company was devoid of orders for a second straight quarter. Thus, the order book contracted nearly ₹2.6bn quarter-on-quarter (QoQ) to nearly ₹71.2bn. Though good to deliver in the short term, more is required at the earliest to keep momentum going, said the brokerage firm.
Hence, it, citing about ₹70bn of immediate prospects, looks to add ₹25bn-30bn in FY23. It expects competition to ease, and help it attain the targeted additions.
Guidance comforting: On the continuing healthy pace of execution (although Q4 revenue was ordinary, the order book conversion was healthy), and as more orders are targeted sooner than later, FY23 revenue growth is envisaged at 15-20 percent, said the brokerage. It expects margins to return to the past 12-13 percent, but recovery is likely to be gradual.
Net cash status strengthened: A 16-day QoQ shorter working-capital cycle led to the nearly ₹0.9bn QoQ higher net-cash balance (nearly ₹4.3bn on March 31, 2022). Lower unbilled revenue and retention receivables were the key, though partly constrained by lower mobilisation advances, Anand Rathi said.
Valuation: 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 nearly 0.7 percent better, and FY24 is about 5 percent higher. On our revised estimates, the stock (excluding the Kota asset) trades at 10.7 times FY24e EPS. Slow order addition remains a risk, said Anand Rathi.
Disclaimer: This article is based on a report by brokerage firm Anand Rathi. The views and recommendations made above are those of the broking firm and not of MintGenie.
