IVRCL Infrastructure is a rapidly growing infrastructure company with irrigation as its forte. IVRCL has got exposure to the segments of irrigation, buildings, roads and power, all in the infrastructure domain.
The company has bagged orders aggregating to the tune of Rs598 crore. The orders bagged are related to the verticals of transportation, buildings construction, and water and power-related works, and are spread across various states.
The largest of the work orders is worth Rs163 crore, and is related to the construction of the mechanized lining for a canal, awarded by the Maharashtra Krishna Valley Development Corporation, and is expected to be completed over a period of 24 months.
All the orders are expected to be completed within a time-frame of 17-24 months. The outstanding order book of IVRCL stands at Rs14,498 crore (3.0x its FY2009 revenues).
We have valued the stock using the SOTP methodology. The construction segment has been valued at a P/E of 14x FY2011E earnings (premium to its peers due to a superior business model and excellent execution capabilities), and contributes Rs338 to our target price.
The Road BOT portfolio and IVRCL’s stake in IVR Prime and Hindustan Dorr-Oliver have been valued on a P/B and a discount-to-market valuation basis (20%), contributing Rs29 and Rs32, respectively, to our target price.
At Rs372, the stock trades at a 15.4x FY2011E P/E and 2.0x FY2011E P/BV, on a standalone basis.
Due to the recent run-up in the stock price and a limited upside to our target price from the current levels, we are recommending an ACCUMULATE rating on the stock, with a target price of Rs399, which translates into a potential upside of 7.3%.