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IVRCL: High interest cost take a toll
Feb 17, 2011

IVRCL has announced its 3QFY11 results. Top-line increased 14.5% YoY while bottom line registered a decline of 0.8% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top line registered a growth of 14.5% YoY during 3QFY11.
  • Operating profits increased 26% YoY in 3QFY11 due to decline in overall expenditure as a percentage of sales and healthy top-line growth.
  • Net profits declined 0.8% YoY in 3QFY11 due to increase in interest expenses and decline in other income.

Standalone financial snapshot
(Rs m) 3QFY10  3QFY11  Change 9MFY10  9MFY11  Change
Income from operations  12,322   14,104 14.5%   35,900 35,658 -0.7%
Other operating income  25 84 235.8% 118 334 183.5%
Total income  12,347   14,188 14.9%   36,018 35,992 -0.1%
Expenditure  11,233   12,784 13.8% 32,635 32,627 0.0%
Operating profit (EBDITA)   1,114 1,404 26.0%  3,383 3,365 -0.5%
Operating profit margin (%) 9.0% 9.9% 9.4% 9.3%
Other income 39 11 -71.2% 80 76 -5.0%
Interest 372 592 59.0% 1111 1,525 37.3%
Depreciation 139 199 43.3% 402 540 34.3%
Profit before tax 642 625 -2.8% 1,950 1,376 -29.4%
Tax 216 202 -6.6% 691 440 -36.4%
Profit after tax/(loss) 426 423 -0.8% 1,261 936 -25.7%
Net profit margin (%) 3.5% 3.0% 3.5% 2.6%  
No. of shares (m)         267.0  
Basic earnings per share (Rs)           3.51  
P/E ratio (x) *          10.8  
* On trailing 12 month basis

What has driven performance in 3QFY11?
  • IVRCL's top line increased 14.5% YoY during 3QFY11, owing to an improvement in execution across key projects. The order book of the company stood at Rs 242 bn, (including L1 orders) with order inflows of Rs 32 bn, at the end of 3QFY11.

  • Operating profits increased 26.0% YoY due to decline in overall expenditure as a percentage of revenues during the quarter. Improvement in execution resulted in excess absorption of overheads supplementing margins. Operating margins improved 90 bps YoY as overall expenditure (as a percentage of sales) declined from 91.0% in 3QFY10 to 90.1% in 3QFY11.

  • However, the net profits of the company declined 0.8% YoY due to increase in interest expenses and fall in other income during the quarter. The interest expenses increased due to increase in CP rates and overall hawkish interest rate environment. However, the tax rate declined marginally from 34% in 3QFY10 to 32% in 3QFY11.

What to expect?
After a disappointing previous quarter, improvement in execution resulted in a healthy top-line growth for IVRCL. However, higher interest cost due to stretched working capital cycle (debt is used to fund working capital) impacted the bottom-line performance. Nonetheless, the company has a healthy order book to the tune of Rs 242 bn which provides strong revenue visibility into the future. IVRCL's two subsidiaries Hindustan Dorr-Oliver (HDO) and IVRCL Assets and holdings (IVRAH) also delivered a strong performance during the quarter. While IVRAH's topline registered strong growth due to toll/annuity accretion from existing BOT projects HDO also reported a 19.8% YoY growth in top-line. Considering the healthy order book position and a large BOT portfolio we maintain our positive view on the stock.

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