IVRCL Infra, one of the leading construction players with irrigation space as its forte, has a strong Business Model in place to tap potential $500 billion of infrastructure investments in India over Eleventh Five-year Plan.
We believe that the current market price of IVRCL does not adequately reflect the true potential of the company.
The stock is currently trading at very attractive valuations (1x P/BV on FY2010) especially after considering that the company is expected to post 27.8% and 12.8% CAGR over FY2008-10E in Top-line and Bottom-line, respectively.
We reiterate a BUY on the stock as we believe the risk-reward ratio is extremely favourable with a SOTP Target Price of Rs201.
Further, with Congress likely to be in power again in Andhra Pradesh (AP) we expect it to act as a near-term catalyst for the stock.
We have assigned P/E of 8x FY2010E EPS of Rs19.7 for its core Construction business, its majority stake in HDO and IVR Prime have been valued at current market levels assigning a 30% holding company discount. These two combined stakes contribute Rs14/share to our target price.
We have valued the BOT projects at 1.5x P/BV which together contribute Rs29/share to our target price.