The Annual Report of IVRCL for FY08 reflected strong business model, excellent order inflow and in line growth in performance of its subsidiaries. This was coupled with higher working capital as well as higher borrowings.
Water and irrigation segment continues to remain the key growth driver for the company. It contributed almost 50% of the total revenues in FY08 and is almost 64% of the current order book.
The company has successfully executed key projects such as Phase III of Sripada Sagar Project in AP on EPC basis, water carrier system for Neyveli Lignite’s Power plant in Rajasthan, water treatment system for NTPC, water distribution system in Bikaner City and several other projects for various clients.
Having significant expertise in executing water related projects, IVRCL is well positioned to remain as the front runner in the upcoming water sector opportunities. In order to tap niche water projects, company has also set up Advanced Water Technologies Division to tap niche water projects.
With the planned investment of Rs1991 billion in the water supply and sanitation in the 11th five year plan, we expect IVRCL to remain the key beneficiary. We expect water segment to continue to contribute more than 50% of the total revenues for the company going forward.
IVRCL has a robust order book of Rs150 billion diversified across water (Rs98bn), building (Rs 31bn), power (Rs 10bn) and transportation (Rs 9bn). With a robust order book and expected order inflows, we expect revenues to grow at a CAGR of 31% between FY08-FY10.
At current price, stock is trading at 17.6x and 14.2x its P/E multiples on FY09 and FY10 estimates respectively. Net of BOT valuations, stock is trading at very attractive valuations of 12.6x and 10.1x its P/E multiples on FY09 and FY10 estimates respectively.
We have fine tuned our estimates to incorporate higher working capital cycle as well as higher borrowings. Correspondingly our target valuation for the company gets changed to Rs460 share as against Rs474 earlier. We continue to remain positive on the company and maintain our BUY recommendation.