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IVRCL: Conference call excerpts - Views on News from Equitymaster
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IVRCL: Conference call excerpts
Apr 4, 2007

We recently had a conference call with IVRCL to gauge the growth prospects of the construction industry in general and IVRCL in particular over the long-term. Following are the key excerpts from the same. What is the company’s business?
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.

The key takeaways…..
Revenues and order book: The order book of the company as of FY07 was Rs 80 bn, including Rs 10 bn worth of BOT (Build operate transfer) projects. The same is expected to be executed over the next 27 months. IVRCL expects its topline to grow at 35% CAGR over the next few years. The company has given a revenue guidance of Rs 32 bn for FY08. As far as revenue mix is concerned, the company does not see any significant change and will continue to remain a water-focused company.

Outlook on margins: The company is confident of improving its margins from the current 9.3% (9mFY06). Their confidence stems from the quantum of infrastructure projects to be awarded on one hand and the limited bidding capacity on the other i.e. too many projects in comparison to the aggregate execution capacities of construction companies. Hence, the company can indulge in cherry-picking of projects i.e. accepting only those projects which are likely to give higher margins.

Impact of withdrawal of Section 80-IA benefit: According to the company, though the impact could be to the tune of Rs 570 m, it would not result in any cash outflows since it has already been paid for in earlier years. However, one time adjustment to the P&L in FY07 is likely to bring down the profit after tax.

Capital Expenditure: Company plans to spend Rs 800 m towards capex for the next two years. This will be likely towards the acquisition of machinery and equipment.

What to expect?
Going forward we expect IVRCL to benefit from the government’s focus on infrastructure spending given its strong execution capabilities and the pre-qualification status. We are in the process of forming our view on the stock and shall soon come up with our research report on the same.

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