Order inflows, execution, margins all improve at Ashoka Buildcon

Ashoka Buildcon, among the younger generation of infrastructure firms, scored well on two key areas, order inflows and execution, during the December quarter


Strong order inflows of Rs2,214 crore during the quarter moved up the total order backlog to about one-and-a-half times the revenue for fiscal year 2015-16.
Strong order inflows of Rs2,214 crore during the quarter moved up the total order backlog to about one-and-a-half times the revenue for fiscal year 2015-16.

Ashoka Buildcon Ltd, among the younger generation of infrastructure firms, scored well on two key areas—order inflows and execution—during the December quarter.

Strong order inflows of Rs.2,214 crore during the quarter moved up the total order backlog to about one-and-a-half times the revenue for fiscal year 2015-16. What’s more, the orders are fairly diversified, covering power transmission and distribution (T&D) as well as roads. Things are likely to get better in the first half of 2016-17, as work starts on pending orders.

More important, however, and unlike most infrastructure firms that have been weighed down by project delays and rising interest costs, Ashoka Buildcon’s 34% jump in net revenue when compared with a year ago shows strong execution strength. It was, though, a tad lower than forecasts on the Street. Perhaps the higher mix of power T&D within construction projects was the reason. However, a steady traffic growth across existing BOT (build-operate-transfer) road projects put revenue growth on the fast track.

That apart, the quarter’s sweet spot was the 605 basis point jump in operating margin from the year-ago period, to 29.2%. This was in spite of a drop in profitability on some of the construction segment projects.

According to Anand Rathi Institutional Research, “Gradually stabilizing operations at operational road assets resulted in the BOT segment clocking its highest margin (~74%) in the last eight quarters.” Also, costs, both on account of raw material and employees, dropped as a percentage of sales, boosting margins. Operating profit, too, rose by a huge 68% to Rs.176 crore, which, however, was in line with expectations.

The only niggling factor is the 37% rise in interest outgo when compared with a year back. The management attributed this to the projects under execution in the power T&D segment. Analysts too concede that this could be a passing cloud. Investor confidence is mirrored in the 6.5% rise in Ashoka Buildcon’s stock price on Monday, after the results were announced on Friday.

The stock declined 0.88% on Wednesday. Markets were closed on Tuesday for a public holiday.

The writer does not own shares in the above-mentioned companies.

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