IVRCL reported a 33% y-o-y increase in net sales to Rs13,217 million, led by a faster execution of projects and a robust order book of Rs138 billion as on 2 June, 2008. The water and irrigation segment, maintaining its dominance, constituted around 55% of the order book.
As per the planning commission’s estimates, infrastructure spending in the irrigation and water supply and sanitation sectors, in which the company has a strong presence, is expected to more than double during the Eleventh Five Year Plan.
This reinforces an extremely positive outlook for IVRCL, which has already seen a CAGR of 34% in order backlog over the last three years. However, considering the high base and faster rate of order execution, we expect a CAGR of 12% in order backlog over the next two years.
EBITDA margin for the quarter fell 34 bps, compared with Q407. Going forward, rising interest rate could also negatively impact margins and result in a slowdown in the real estate business.
We expect the net profit margins to dip by 231 bps by FY10E. At the current market price, the stock is trading at a P/E of 13.4x and 11.1x for FY09E and FY10E, respectively.
Based on our SOTP valuation, our target price of Rs335 reflects a potential upside of 18% with respect to the current market price. We reiterate our BUY rating on the stock.