Shares of Ashoka Buildcon, one of the leading highway developers in India, have underperformed the broader infra space over the last 1, 2, and 5 years, despite its order book multiplying 2x over FY19–23, said brokerage firm HDFC Securities.
The company ended FY23 with an outstanding order book (OB) of ₹158.1 billion (2.5x FY23 standalone revenue). Business-wise it said, the OB is well-diversified with EPC (39.7%), HAM (17.9%), T&D (17.2%), buildings (15.9%), railways (8.9%), and other sectors (0.5%).
Geographically, the southern region makes the largest contribution at 28%, followed by central (19.8%), overseas (18.6%), west (15.2%), south (6.7%), north (5.9%), and northeast (5.8%), according to the brokerage.
The brokerage noted that Ashoka Buildcon has a strong financial position at the standalone level, with a gross debt of ₹10 billion and a net debt of ₹8.1 billion as of March 2023, with a gross debt-to-equity ratio of 0.3x, indicating a healthy financial position.
Ashoka Buildcon has entered into a definitive agreement to monetise three assets: Chennai ORR, Jaora Nayagaon, and CGD assets, for a total cash consideration of ₹11 billion. Besides this, the brokerage expects ₹18 billion of realisation from HAM assets and ₹15 billion from BOT assets.
Adjusting for the ₹13 billion payout to SBI Macquarie, the total inflow for the company is expected to be ₹31 billion, which is higher than the current market cap of ₹29 billion. This implies that standalone EPC business value is not reflected in the current stock price, it said.
Given these factors, including a strong order book, improving visibility on asset monetisation, and likely cash inflow from asset monetisation ( ₹31 billion) exceeding market cap ( ₹29 billion), HDFC Securities has revised its target price to ₹189 apiece, maintaining a 'buy' rating on the stock. This new target price reflects an upside of 72% for the stock from its previous closing price of ₹110.
Meanwhile, the company achieved a provisional commercial operation date (PCOD) for two NHAI-HAM assets in FY23. Further, it entered into a SPA with Mahanagar Gas Ltd. to sell its entire 51% equity stake valued at ₹5.3 billion in its subsidiary, Unison Enviro Private Ltd.
Also, it achieved financial closure for one of its HAM projects. Furthermore, one of its step-down subsidiaries received ₹974 million, inclusive of interest towards a full and final settlement in respect of all claims from NHAI, as per the brokerage.
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