Sustained order inflow is a key reason for growing investor comfort in IVRCL Infrastructures and Projects Ltd (IVRCL). This, coupled with strong execution, is what will translate into revenue growth for the infrastructure and construction company.

It recently won the country’s largest ever toll road project worth Rs3,100 crore, which takes the order book up to around Rs25,000 crore, around three times its estimated revenue for fiscal 2011. During the March quarter, IVRCL’s order intake of around Rs3,400 crore surpassed its quarterly average during fiscal 2008 (around Rs2,200 crore) and 2009 (around Rs1,600 crore). It has had an edge over peers in relatively faster financial closure of projects.

After restructuring, it is the group company IVR Assets and Holdings Ltd that bids for project orders under a special purpose vehicle (SPV). However, engineering and construction contracts are normally awarded to IVRCL. The burgeoning order book will see revenue accretion faster for IVRCL, whereas IVR Assets would see benefits when tolling begins in the build-operate-transfer projects.

In fact, IVRCL’s robust performance during the March quarter was due to its higher pace of execution compared with previous quarters. Revenue jumped 60% on a sequential basis and 16% year-on-year (y-o-y) to Rs1,890 crore. Increasing scale of operations and a relative improvement in the ratio of raw material cost to sales, led to higher operating profit margin of 10.5%, compared with 8.6% a year ago and 9.7% in the preceding quarter.

A section of analysts, however, believe that increasing share of road projects in its portfolio could affect its profit margins. At present around 45% of its order book constitutes water projects and 31% constitutes transport, while the remaining projects are in power, oil and gas, and buildings.

IVRCL, however, is confident of retaining profitability as water projects will continue to hold a larger share in revenue.

IVRCL has maintained a stable debt to equity ratio of around 0.7. Most of the project debt is housed in an SPV, where repayment begins after the project revenues kick in.

The firm has guided for an order growth of around 25%, with a slightly higher revenue growth during fiscal 2011. IVRCL shares, which corrected in proportion to a 1:1 bonus, jumped around 9% to Rs172 after announcement of results. The price discounts estimated earnings for fiscal 2011 around 17 times implying fair valuation.

Compared with its peers, IVRCL’s order book hints at sustained revenue growth for the next three years.

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