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IVRCL: Higher taxes dent bottomline - Views on News from Equitymaster
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IVRCL: Higher taxes dent bottomline
Jun 7, 2010

IVRCL announced its FY10 results. The topline registered a strong growth in 4QFY10 and was in line with our estimates. Bottom line registered a modest growth and was below our estimates due to withdrawal of tax rebate. Here is our analysis of results.

Performance summary
  • Topline registered 17% YoY growth during 4QFY10, grew 10% YoY during FY10 – in line with our estimates but below management’s guidance of Rs 58-62 bn.
  • Operating margins stood at 10.5% during 4QFY10 on account of decline in total expenditure (as percentage of sales).
  • Net profits grew 7% YoY in 4QFY10, declined 7% YoY in FY10. The impact is largely due to higher interest expenses and withdrawal of tax rebate.


Standalone financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Income from operations 16,176 18,870 16.7% 49,665 54,771 10.3%
Other operating income 97 34 -64.7% 140 152 9.0%
Total income 16,273 18,904 16.2% 49,804 54,922.9 10.3%
Expenditure 14,853 16,920 13.9% 45,587 49,610 8.8%
Operating profit (EBDITA) 1,420 1,984 39.7% 4,218 5,313 26.0%
Operating profit margin (%) 8.8% 10.5% 8.5% 9.7%
Other income 87 20 -77.2% 299 155 -48.2%
Interest 392 525 34.1% 1,306 1,639 25.4%
Depreciation 134 141 4.6% 473 543 14.8%
Profit before tax 981 1,338 36.5% 2,738 3,288 20.1%
Tax 181 486 167.8% 478 1,177 146.3%
Profit after tax/(loss) 799 853 6.7% 2,259.7 2,113.2 -6.5%
Net profit margin (%) 4.9% 4.5% 4.5% 3.9%
No. of shares (m)         267.0  
Basic earnings per share (Rs)         7.9  
P/E ratio (x)         21.7  
* On a trailing 12-months basis

What has driven performance in 4QFY10?
  • IVRCL registered a 17% YoY growth in revenues during 4QFY10, driven by strong execution in the last quarter. The order book of the company stood at Rs 234 bn at the end of March 2010. The exposure to Andhra Pradesh also reduced during the quarter.

  • Operating margins of the company improved significantly during the quarter due to decline in expenditure. The subcontracting expenditure witnessed a drop partially offset by increase in construction expenses and other expenditure. The subcontracting expenditure was 19% as a percentage of sales in 4QFY10 as compared to 33% in 4QFY09.

  • IVRCL’s net profits registered a modest growth of 7% YoY during 4QFY10. This was due to increase in interest expenses and withdrawal of tax rebate during the quarter. The interest expenses increased by 34% YoY in 4QFY10. The withdrawal of tax rebate resulted in an increase in tax rates from 18% in 4QFY09 to 36% in 4QFY10.

What to expect?
At the current price of Rs 172, the stock is trading at a multiple of 21.7 times its trailing 12-month earnings. Going forward, the management expects order book to rise to Rs 320 bn in FY11 due to expected increase in government orders. Revenues are expected to be in the range of Rs 60-70 bn, a healthy growth over FY10, while capex is expected to remain in the range of Rs 60-100 bn. The management is also confident of delivering operating margins between 9-10% in FY11.

We believe the company is well poised to deliver strong set of numbers in the coming quarters due to a strong order pipeline. The company also plans to raise cash by liquidating non-strategic land bank which should tide of near term cash flow woes. We maintain our view on the stock.

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