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Nirmal Bang Report
In 4QFY23, Ashoka Buildcon Ltd (ASBL) reported revenue growth of 28% YoY compared to our estimate of 30% growth. Enhanced performance in the Roads segment and HAM initiatives contributed to this expansion. EBITDA margin came in at 7.3% vs our estimate of 11.1% due to increased competition in project tendering, and higher raw material costs (up 27% QoQ) and construction costs (up 35% QoQ). The management has projected 25-30% revenue growth and 9-10% EBIT margin for FY24. We believe that the execution of low-margin initiatives as directed by the management will result in lower return ratios if there is no significant reduction in construction costs.
The SPA between Ashoka Concessions Limited (ACL) and KKR has been terminated as both parties have mutually decided not to pursue the earlier transaction for the sale of 5 BOT projects d at Rs13.37bn. The company expects an order book of Rs100bn in FY24. The management is optimistic that the successful conclusion of the SPA with the National Investment and Infrastructure Fund Ltd (NIIF) for 1 BOT project will substantially reduce the company's exposure to the asset business. In addition, the company expects the successful conclusion of the Chennai ORR contract worth Rs6.86bn, the Jaora-Nayagaon Road Project (Rs6.91bn) and the Mahanagar Gas (MGL) deal for CGD business to generate Rs8bn in cashflow by FY24-end.
We exercise caution with respect to the company’s growth prospects while maintaining our BUY rating with a reduced target price (TP) of Rs92. Key risks include over commitment to capital-intensive projects, delay in the asset monetization process, aggressive tendering for road projects amid increased competition and commodity price inflation.
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