The company is set to benefit from the likely order inflows due to growing infrastructure demand.
The order book has been significantly enhanced to around Rs30 billion, thereby providing revenue visibility for next two to two and a half years. Order inflows in the last three months have been to the tune of Rs8.3 billion.
It is also adequately hedged against raw material price hikes with variable pricing clauses in most of its projects. We have incorporated some decline in operating margins because of potential impact on the remaining projects.
Going forward, recent spurt in the steel prices in last quarter of FY08 may have a negative impact on profitability.
To factor in the hike in steel prices in the last quarter as well as expected increases in the costs going forward, we have downgraded operating margin assumptions. We now expect margins to remain at about 13% in FY09 and FY10.
At the current market price of Rs425, the stock is trading at 7.6x and 6.0x on P/E multiples and 3.7x and 3.0x on EV/EBITDA multiples on FY09 and FY10 estimates.
We continue to maintain positive bias for the company and recommend BUY with a reduced price target of Rs955 as against Rs1,048 earlier.