We had recently met the management of Ahluwalia Contracts Limited (ACL) that is one of the leading EPC service provider in the construction sector in India.
The company is primarily in the business of construction of wide range of structural building and manufacture of ready mix concrete.
They have business interests in varied segments including IT parks, retail, multi-storeyed housing complexes, industrial complexes, luxury hotels, hospitals and Commonwealth Games Village and Stadium.
It has an order backlog of Rs42,000 million (4.7x FY08 revenue) as of January’09. The order book has the highest concentration towards residential projects, which is currently facing headwinds on the back of high interest rates and slackness in demand.
Kota BOT project for the development of bus depot and commercial complex is expected to start within 30 days as the requisite approval for the layout is expected in next 15 days.
ACL has bid for 8-multi level parking projects, each with a ticket size of Rs1,200-1,500 million. These bids have not been opened yet and the company accepted the fact that this is due to delay in decision making at the Governments end.
Uncertainty looms over the Commonwealth housing project as Emaar MGF is finding it difficult to execute this project due to liquidity issues at its end and this has also affected the payments to ACL (Emaar MGF has awarded the construction work to ACL).
ACL has not halted the work as of now and has sufficient liquidity to continue work for next 3-4 months.
ACL is seeing working capital cycle getting extended from 75 days to 90 days due to clients delaying payments. Also the cost of financing working capital has come down to 11.5-12% range.
ACL expects high financing cost to impact margins by 100-150bps for FY09. The capex planned for FY09 was Rs750 million and now the company expects to close the financial year with Rs500 million in capex.
This is due to postponement of purchasing new equipments on the back of overall slowdown in construction activity.
During Q2FY09 its revenue grew by 18.8% q-o-q to Rs3017.5 million while its EBIDTA increased by 25.3% q-o-q to Rs357.8 million and its profit after tax grew by 12.8% q-o-q to Rs145.2 million.
Margins q-o-q have been under pressure due to high working capital financing cost and lower other income.
During H1FY09, its revenue grew by 55% y-o-y to Rs5557.2 million while its EBIDTA increased by 45% y-o-y to Rs643.5 million and its profit after tax grew by 32.5% y-o-y to Rs273.8 million.
At the current market price of Rs35, the stock is available at 4.3x FY08 earnings of Rs8.2.