Order inflow for the company has been fairly robust with the order book close to Rs60 billion. Bulk of this comprises hydro power related projects (58-59%), followed by irrigation (17-18%) and remaining is spread across transportation and micro-tunneling.
Revenue growth for the company on a standalone basis for 9MFY08 has been below our expectations due to larger proportion of high gestation hydro power projects executed in the corresponding period as well as lower order inflow.
We expect operating margins of 13.8% for FY09. Margins for 9MFY08 were higher due to higher proportion of hydro power projects executed in this period.
At the current market price of Rs.400, the stock is trading at 23x and 18.7x on P/E multiples on FY08 and FY09 estimates. Adjusted with the subsidiary and land bank valuations, it is trading at very attractive valuations.
We recommend BUY on the stock with a revised price target of Rs727 based on the sum of DCF value of the core business, subsidiary valuation and land development valuations arrived through NPV methodology as against Rs964 earlier.