Investment counter: IVRCL Infra

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Higher focus on road projects and geographical diversification after the group restructured itself is now paying IVRCL Infrastructures (IVRCL) rich dividends. On Tuesday, IVRCL Group won the largest toll-based road project of Rs 3,100 crore from the National Highways Authority of India (NHAI), involving construction of 122.06 km of road from the Maharashtra-Goa border to the Goa-Karnataka border.

After the restructuring of the group companies and business portfolio, IVRCL’s 80.5 per cent-owned, listed arm IVRCL Assets & Holdings (earlier known as IVR Prime) acts as a developer/owner of all infrastructure assets, whereas the construction, or the EPC work, is undertaken by IVRCL Infrastructures. So, like other BOT (build-operate-transfer) assets, while the new project will be developed and owned by IVRCL Assets, IVRCL will undertake construction work estimated to be worth about Rs 2,200 crore (spread over three-four years).

Strong revenue visibility
IVRCL is among the leading players in the infrastructure space, having a presence in growing segments like water, irrigation and roads projects. Including the new project win, its order book now stands at about Rs 25,500 crore, which is 4.7 times its 2009-10 consolidated revenues and provides the highest revenue visibility among infrastructure companies.

SUM OF THE PARTS
Per share value (Rs) Low High
IVRCL core business 158 264
IVRCL assets 38 89
Hindustan Dorr 13 21
Total 210 374
E: Analyst estimates
ROBUST EARNINGS
In Rs cr FY10 FY11E FY12E
Revenues 5,492 6,800 8,100
OPM (%) 9.7 9.5 9.6
Net profit 211 280 338
EPS (Rs) 7.7 10.0 12.2
PE (x) 22.3 17.2 14.1
E: Analyst estimates

On the back of its strong order book and higher contribution from IVRCL Assets, the company is expected to witness a growth of about 25 per cent annually in consolidated earnings over the next two years.

IVRCL Assets now has 11 projects costing Rs 11,150 crore, including two water projects. Out of this, three projects are operational, six are in development stages and two of them are expected to become operational in the current month.

While IVRCL Assets reported revenues of Rs 165 crore and a net loss of Rs 31.7 crore in 2009-10, it should mark a turnaround in the current year on account of higher revenues from new and existing projects.

“We are expecting IVRCL Assets to clock a turnover of Rs 1,000 crore and it will turn profitable this year,” says Sudhir Reddy, CMD, IVRCL.

Further, IVRCL Assets also plans to monetise its land bank of over 3,300 acres spread across major cities. The company is looking to earn revenues of about Rs 75 crore this year and a total of about Rs 500 crore over three years.

Investment rationale
The company is in the growth phase, having strong order book, operational BOT assets and plans to diversify into other infrastructure segments. Notably, concerns regarding its exposure to Andhra Pradesh have also eased with the region now contributing just 16 per cent to IVRCL’s order book.

Considering its stake in the listed subsidiaries, analysts value the stock between Rs 210 and Rs 374 a share on the sum of part valuations basis. In this backdrop of strong earnings growth and immense potential in the sector, at Rs 170.90, the stock is a good opportunity for long-term investors.


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