Ashoka Buildcon’s diversified order mix supports profit margins
Private sector infrastructure firm Ashoka Buildcon Ltd scaled a 52-week high of Rs199 last week as it became the lowest bidder for a Rs1,187 crore road project. The project, once secured, will increase its already swelling order book of Rs6,220 crore, which is three times the company’s trailing consolidated revenue.
What sets Ashoka Buildcon apart from its peers is that its order book comprises a healthy 44% of engineering, procurement and construction (EPC) projects, 29% of build-operate-transfer (BOT) projects and the rest in power transmission and distribution (T&D). So far, the EPC projects in its kitty have been on schedule.
Its December quarter’s 18% growth in stand-alone revenue was the result of the company kick-starting projects bagged in fiscal year 2016. The operating leverage gave a leg-up to its profit margin that rose 50 basis points year-on-year. In fact, operating profitability at both EPC and BOT levels has steadily improved over the last two years.
Of course, like others in the infrastructure pack, Ashoka Buildcon’s December quarter performance was hit by demonetization, when toll collection was suspended for 23 days. Collections were about 25% lower than the year-ago period.
Still, this did not hamper profit growth. Net profit for the quarter was a little over double that in the year-ago period.
Analysts are positive on the stock’s prospects also because the company operates roads in key mineral-rich states. Chances of revenue accretion are higher on these routes with economic and industrial recovery, both by way of increased traffic and higher incidence of commercial vehicles plying on these routes.
That said, being nimble-footed in bagging orders could lead to a rise in debt, which is currently twice the equity at the consolidated level. A report by Emkay Global Financial Services Ltd says, “ABL’s (Ashoka Buildcon’s) strong order book and low stand-alone debt levels will drive the EPC revenue by a compounded annual growth rate of 17% between FY2017 and 2019.”
Since January, the Ashoka Buildcon stock has gained momentum on the back of strong execution and order wins. There is significant wind beneath its wings, provided its robust order book is converted into revenue through timely execution.