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IVRCL: Losses widen - Views on News from Equitymaster
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IVRCL: Losses widen
Feb 18, 2013

IVRCL announced its results for the quarter ended December 2012. During the quarter, the company's revenues increased by 6% YoY, while it reported a loss of Rs 681 m. Here is our analysis of the results.

Performance summary
  • Income increases by 6% YoY during the quarter.
  • Operating margins contract to 5.4% (down by 2.5% YoY) leading operating profits to decline by 28% YoY.
  • Lower other income, higher interest expenses lead to losses at the profit before tax level. Losses after tax stand at Rs 681 m during quarter (Loss of Rs 396 m during preceding quarter).
  • The current order book of the company stands at approximately Rs 260 bn. Order inflow stood at Rs 6.5 bn during the quarter,

Standalone financial snapshot
(Rs m) 2QFY12  2QFY13  Change 6mFY12 6mFY13 Change
Income from operations  12,025 12,701 5.6% 22,487 22,648 0.7%
Expenditure 11,081 12,021 8.5% 20,600 21,264 3.2%
Operating profit (EBDITA) 944 680 -28.0% 1,887 1,384 -26.6%
Operating profit margin (%) 7.9% 5.4%   8.4% 6.1%  
Other income 311 175 -43.8% 631 268 -57.6%
Interest 958 1,136 18.5% 1,883 2,152 14.3%
Depreciation 229 218 -4.7% 478 422 -11.7%
Profit before tax 69 (498)   157 (922)  
Tax 1 183 28148.8% 8 155 1828.3%
Profit after tax/(loss) 68 (681)   149 (1,077)  
Net profit margin (%) 0.6% -5.4%   0.7% -4.8%  
No. of shares (m)#   306.9     306.9  
Basic earnings per share (Rs)          (3.6)  
P/E ratio (x) *          NA   
* On a trailing 12-months basis

What has driven performance in the quarter ended December 2012?
  • IVRCL's revenues increased by 6% YoY during the quarter. The revenue break up during the quarter stood as water - about 50%, buildings - 25%, roads - 16%, power - 4% with the balance being contributed by others.

  • IVCL's operating margins contracted by 2.5% YoY during the quarter. It may be noted that the company has made claims of cost over runs to the tune of Rs 570 m odd (provision for which has been made during the quarter gone by). As per the management, it is hoping to recover the same in the future.

  • IVRCL's profit before tax went in to the negative territory on the back of a poor operating performance, coupled with lower other income and higher interest outgo.

  • It may be noted that the quarterly results are not comparable due to the merger of IVRCL Assets and Holdings with the parent company, IVRCL Infrastructure. The IVRCL Group underwent a restructuring in which almost all SPVs of IVR Assets and Holdings were acquired by IVRCL.

What to expect?
Keeping reasons such as monetization and lower valuations (in terms of PBV) in mind, we have been asking investors to hold on to the stock for a while now. But as you would have seen, the company's financial position has been deteriorating steadily. While the company's management has stated that it will be selling its operational BOT assets in the coming quarter, the fact of the matter is that the company would be requiring a lot of capital for its upcoming BOT projects - which it plans to sell once they are operational. IVRCL's management has decided to exit the BOT space completely, and that it would focus on being a pure play EPC player once again. We believe the company would continue to face issues broadly related to its debt burden as well as the difficulties the sector is facing on the whole.

Despite IVRCL 's beaten down valuations, we believe it would be better for investors to look at other opportunities as the risk reward ratio in this stock is not on the favorable side. As such we advise investors to exit the stock.

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