Private sector infrastructure company IVRCL Ltd seems to have a problem of plenty.

Its order book is a hefty four times its estimated fiscal 2012 revenue. Orders have been trickling in for the firm across business segments—water and irrigation, roads and power—despite the slowdown in economic activity. Last week, the firm bagged a sizeable road upgradation engineering, procurement and construction (EPC) contract in Arunachal Pradesh.

Graphic by Yogesh Kumar/Mint

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Some of these are stuck due to land acquisition hurdles or are being stymied because of a lack of political will in states such as Andhra Pradesh. While one could argue that such hurdles are common to large infrastructure projects, they take a hefty toll on the financial health of the firm.

IVRCL’s revenue due to execution delays led to poor billing and revenue accretion; June quarter revenue rose by a mere 1.6% over the year-ago period. The problem is compounded by delays on the part of smaller contractors and vendors who have been hit by higher costs and interest rates.

Poor revenue ramp up and high inflationary pressures have squeezed operating margins. Brokerage reports say that in some water projects, inability to pass on cost escalations has stressed margins. Also, interest costs have been rising steadily, impacting most infrastructure firms.

IVRCL’s interest cost rose by around 38% year-on-year in the June quarter, hitting profitability. It just about managed to earn a net profit for the quarter, plunging 85% from the year-before period.

The management believes this situation could continue for another couple of quarters until both inflation and interest costs cool off.

Analysts reckon that with nearly 40% of its order book moving slowly, long working capital cycles and its ability to pull through the legacy orders without cost overruns will determine future profitability. The IVRCL scrip has hugely underperformed the Nifty mid-cap index on the National Stock Exchange over the past several months. The stock is trading at half its book value. The strong order inflows, albeit important for an infrastructure firm, will not result in a big change in the firm’s revenue and profit outlook for the next few quarters.

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