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IVRCL: An overview

Mar 29, 2007

About the company: IVRCL Infrastructures & Projects Ltd., (formerly IVR Constructions Limited) was incorporated in 1987 and commenced its operations in 1990, thereby establishing itself as a premier EPCC (Engineering Procurement, Construction and commissioning) & LSTK (Lump Sum Turnkey) service provider with front-end engineering capabilities. Of late, it has emerged as a major player in water transmission, treatment and wastewater management, and is also known for its desalination drive. Beside this, the company is also into the business of constructing buildings & industrial structures and power & transmission lines. IVRCL earns over 60% of its revenues from water and water related projects. One of the major projects from this segment includes the 100 million litres per day (MLD) seawater desalinisation plant in Chennai for a consideration of Rs 5 bn. Order book Analysis: Construction companies like IVRCL have been one of the biggest beneficiaries of the government's infrastructure spending programme. For the period between FY02 to FY06, the order book of the company grew by 57% CAGR, thereby enabling it to grow its topline by 40% CAGR. During the same period the average execution rate (percentage of order-book converted into sales) stood at 49%, whereas the average order book to sales stood at 3.3 times.

Orderbook Analysis
Particulars FY02 FY03 FY04 FY05 FY06 4 Year
CAGR/Average
Order book (e-o-y) 11,096 14,750 16,262 39,059 66,866 56.7%
Order book/Sales - 3.3 2.1 3.7 4.5 3.4
Execution rate - 39.7% 52.4% 64.2% 38.3% 48.7%

As far as order breakup is concerned, Water and Environment projects accounted for 52% of the orderbook size in FY06 as compared to 58% in FY04, followed by road and bridges whose share increased from 20% to 27% during the same period.

Orderbook Break-up
Segments FY04 FY05 FY06
Water & Environmental projects 58% 56% 52%
Roads & Bridges 20% 19% 27%
Buildings & Industrial Structures 20% 17% 14%
Power & Transmission Lines 3% 8% 6%

Financial Performance: As mentioned earlier, strong accretion in orderbook has resulted in IVRCL reporting a strong growth in topline over the past few years. Compared to a 40% compounded growth in topline between FY02 to FY06, net profits have grown by an impressive 63% during the same period. Average operating margins during the same period stood at 8.8%, whereas average net margins were 4.5%.

Financial Performance
Particulars FY02 FY03 FY04 FY05 FY06
Net Sales 3,922 4,403 7,735 10,438 14,957
Operating expense 3,557 3,966 7,151 9,573 13,614
Operating profit 365 438 583 865 1,343
Operating margins 9.3% 9.9% 7.5% 8.3% 9.0%
Other income 28 51 67 89 168
Depreciation 45 79 98 80 110
Interest 148 170 214 279 363
Profit befor tax 200 240 338 594 1,037
Extraordinary items - - 88 - -
Tax 68 85 35 28 108
Net Profit 132 156 391 567 930
Net margins 3.4% 3.5% 3.9% 5.4% 6.2%

Impact of withdrawal of Section 80-IA benefit: Construction companies have witnessed tremendous pressure in the recent market meltdown. This was primarily due to Finance Minister's clarification that tax benefits under Section 80-IA would not be applicable for entities executing projects through work contracts (i.e. sub-contracting of projects won by the entities) with retrospective effect from 1St April 2000. The additional tax liability pertaining to the earlier years (FY01 to FY06) could be to the tune of Rs 600 to 650 m rupees, which is likely to be written off from its networth.

Subsidiaries:

IVR Prime Urban Developers Limited (IPUDL), an 80% subsidiary of IVRCL, is a real estate company focused on integrated townships, residential developments and other commercial projects in various parts of the country. As of December 2006, IPUDL's land reserves aggregated approximately 1,655 acres of land, representing an aggregate of approximately 52.7 m sq. ft. of developed or potential developable area. The company has filed its draft red herring prospectus with SEBI and expected to come out with its IPO in the coming months.

Hindustan Dorr Oliver Limited (HDOL): The core business of the company is to design, manufacture, supply and installation of equipment and processes for solid-liquid separation and pollution control in following industries: Pulp and paper, mineral beneficiation, breweries and distilleries, pharmaceutical, oil and gas, phosphatic fertilizer and industrial and municipal waste. IVRCL owns a 70% stake in this listed company.

In our next articles, we will discuss few more aspects related to the company

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