Ahluwalia Contracts - Rich Valuations; Maintain 'Reduce': Yes Securities

Yes Securities Report

We recently interacted with Ahluwalia Contracts India Ltd.'s management o get an update on the company’s business performance. Key Highlights:

• The government’s keen focus on developing the country’s institutions, health care infrastructure, and other emerging opportunities both in the public and private sectors will keep the company’s order inflow robust moving ahead. Ahluwalia Contracts has a strong bid pipeline of ~Rs 40-50 billion already bided / planned to be bided under various segments will enable to meet additional order inflow target of Rs 20-25 billion in FY24E.

• In FY23, the company’s total order inflow stood at Rs 50.6 billion the highest ever for the company (surpassing FY23 guidance of Rs 45 billion). In year-to-date FY24, the company has already bagged orders worth Rs 37.5 billion – 1) CSMT Station redevelopment project- Rs 2.5 billion, 2) Arbour Project from DLF – Rs 7.4 billion and 3) Dharavi Wastewater Treatment facility – Rs 5.6 billion.

• Ahluwalia Contracts’ unadjusted order book as on date stands at Rs 119 billion including the orders won in Q1 of Rs 37.5 billion thereby giving revenue visibility for the next three years. Geographically the order break-up (considering Q1 order inflow) is West – 38%, North – 29%, East – 26%, South – 3% and Overseas - 4%. The government and private segments form 89% and 11% of the overall project. Realizing it needs to balance its private and public mix, management intends to gradually increase the share of the private sector in the order book to 40-50% (from ~11% now); hence, the private sector would be in emphasis.

• The company exhibits a strong financial position which is reflected in its lean balance sheet with a debt-free status, healthy return ratios, strong liquidity with cash and bank balance of Rs 5.9 billion and consistent generation of operating cash flow.

Our View:

With a robust year-to-date orderbook and order inflow guidance of Rs 20-25 billion, sturdy execution is expected in FY24E. However, with the present run rate of order intake, the outlook beyond FY24E looks difficult. We expect revenues/profit after tax compound annual growth rate of 17%/14% over FY23-25E.

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