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IVRCL: Disappointment continues - Views on News from Equitymaster

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IVRCL: Disappointment continues

Jun 7, 2011

IVRCL Infrastructures has announced the fourth quarter and full year results of financial year 2010-2011 (FY11). Top-line increased 8.7% YoY while bottom line registered a decline of 24.6% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top line registered a growth of 8.7% YoY during 4QFY11.
  • Operating profits declined 10.3% YoY in 4QFY11 due to increase in overall expenditure.
  • Net profits declined 24.6% YoY in 4QFY11 due to increase in interest and depreciation expenses partially offset by rise in other income.
  • The company has recommended a dividend of Rs 0.6 per share.

Standalone financial snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Income from operations 18,870 20,516 8.7% 54776 56174 2.6%
Other operating income 34 6 -82.0% 152 341 123.9%
Total income 18,904 20,522 8.6% 54,929 56,515 2.9%
Expenditure 16,920 18,741 10.8% 49,610 51,369 3.5%
Operating profit (EBDITA) 1,984 1,781 -10.3% 5,319 5,146 -3.3%
Operating profit margin (%) 10.5% 8.7%   9.7% 9.1%  
Other income 20 43 118.0% 149 120 -19.6%
Interest 525 656 24.9% 1,637 2,182 33.3%
Depreciation 141 217 54.7% 543 758 39.6%
Profit before tax 1338 950 -29.0% 3,288 2,326 -29.3%
Tax 486 308 -36.7% 1,177 747 -36.5%
Profit after tax/(loss) 852 643 -24.6% 2,113 1,579 -25.3%
Net profit margin (%) 4.5% 3.1%   3.8% 2.8%  
No. of shares (m)         267.0  
Basic earnings per share (Rs)         5.91  
P/E ratio (x) *         11.8  
* On a trailing 12-months basis

What has driven performance in 4QFY11?
  • IVRCL's top line increased 8.7% YoY during 4QFY11. The order book of the company stood at Rs 239.7 bn (including L1 orders) at the end of the year.

  • Operating profits declined 10.3% YoY due to increase in overall expenditure during the quarter. Cost overruns in few projects resulted in an increase in overall expenditure (as a percentage of sales) from 89.5% in 4QFY10 to 91.3 % in 4QFY11.

  • The net profits of the company declined 24.6% YoY due to increase in interest and depreciation expenses during the quarter. The interest expenses increased due to hawkish interest rate environment and rising debt levels (over FY10). However, the tax rate declined from 36% in 4QFY10 to 32% in 4QFY11.

What to expect?
Execution issues continue to plague the top-line growth of IVRCL. Even the bottom line was impacted due to rising interest and depreciation expenses. Stretched working capital cycle resulted in higher interest cost (debt is used to fund working capital) impacting the bottom-line performance. Nonetheless, the company has a healthy order book to the tune of Rs 239.7 bn which provides strong revenue visibility into the future.

IVRCL's two subsidiaries Hindustan Dorr-Oliver (HDO) and IVRCL Assets and holdings (IVRAH) delivered a modest performance during the year. While IVRAH's topline registered strong growth due to toll/annuity accretion from existing BOT projects, HDO reported a 10% YoY growth in top-line. However, both the subsidiaries reported a de-growth in net profits. Profits at HDO declined 3.2% YoY while losses at IVRAH magnified to Rs 467.3 m.

Revenues for FY11 were significantly below the company's guidance. Considering the execution issues, higher interest rates and slowdown in project award activity, we do not anticipate a rapid turnaround in growth prospects during FY12. Amidst non-congenial business environment and failure to achieve the internal revenue growth guidance, we are likely to revise our estimates and target price downwards. We will update our subscribers with a revised rating and target price in due course.

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