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IVRCL: Execution disappoints - Views on News from Equitymaster

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IVRCL: Execution disappoints

Aug 10, 2010

IVRCL announced its 1QFY11 results. Both top-line and bottom line registered a decline of 0.3% YoY and 20.8% YoY, respectively. Here is our analysis of the results.

Performance summary
  • Top line registered a decline of 0.3% YoY during 1QFY11. This was mainly of account of slow moving projects in Madhya Pradesh and Andhra Pradesh. Over all, the company lost around Rs 2.5 bn 1QFY11 on account of delays in these projects.
  • Operating profits increased 1.2% YoY in 1QFY11 due to decline in overall expenditure. Operating margins were flat and registered an improvement of 0.1% during the quarter.
  • Net profits declined 20.8% YoY in 1QFY11 due to increase in depreciation and interest expenses partially offset by decline in taxes.

Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Income from operations 11,043 11,062 0.2%
Other operating income 53 3 -94.9%
Total income 11,096 11,064 -0.3%
Expenditure 10,100 10,057 -0.4%
Operating profit (EBDITA) 996 1,008 1.2%
Operating profit margin (%) 9.0% 9.1%  
Other income 39 9 -77.6%
Interest 385 453 17.5%
Depreciation 130 157 20.6%
Profit before tax 519 406 -21.7%
Tax 166 125 -24.5%
Profit after tax/(loss) 355 281 -20.8%
Net profit margin (%) 3.2% 2.5%  
No. of shares (m)   267.0  
Basic earnings per share (Rs) *   1.05  
P/E ratio (x) *   22.2  

What has driven performance in 1QFY11?
  • IVRCL registered a flattish growth in revenues during 1QFY11, owing to delays in execution of several projects. Overall the company lost around Rs 2.5 bn during the quarter due to execution delays. The order book of the company stood at Rs 232 bn at the end of 1QFY11. However, the overall improvement in the situation of Andhra Pradesh has come in as a positive surprise. Going forward, management expects revenues to be in the region of Rs 67.5-70 bn for FY11. We believe this should not be a difficult proposition considering strong order pipeline and back loaded revenue recognition structure persisting in the industry.

  • Operating margins of the company were flat and stood at 9.1% during the quarter. The subcontracting expenditure witnessed an increase during the quarter partially offset by decline in construction expenses. The subcontracting expenditure as a percentage of sales increased to 17% in 1QFY11 as compared to 15% in 1QFY10. However, construction expenses as a percentage of sales declined to 33% in 1QFY11 from 40% 1QFY10.

  • The net profits of the company declined 20.8% YoY due to increase in interest and depreciation expenses during the quarter. The interest expense increased 17.5% YoY in 1QFY11 due to increase in debt taken to fund working capital requirements. However, this was partially offset by the decline in tax expenses (-24.5%) YoY in 1QFY11.

What to expect?
At the current price of Rs 170, the stock is trading at a multiple of 22.2 times its trailing 12-month earnings. Going forward, management expects order book to increase to Rs 250-260 bn by the fiscal year end while revenues are expected to be in the range of Rs 67.5-70 bn, a healthy growth over FY10. IVRCLís two subsidiaries Hindustan Dorr-Oliver and IVRCL Assets and holdings too put up a decent show during the quarter. Hindustan Dorr-Oliverís order book stood at Rs 13.7 bn and the company also ventured into the nuclear projects in 1QFY11. Going forward, IVRCL is looking to sell out its land parcels and expand its BOT portfolio to about Rs 200 bn over the next 3-5 years. Management is confident of maintaining the EBITDA margins in a tight range of 9-10%. Thus at current levels, we maintain our positive view on the stock.

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