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IVRCL: Another disappointing quarter - Views on News from Equitymaster
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IVRCL: Another disappointing quarter
Aug 18, 2011

IVRCL Infrastructures has announced the first quarter results of financial year 2011-2012 (FY12). Top-line increased by a marginal 1.4% YoY while bottom line declined drastically by 85.0% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top line registered a meager growth of 1.4% YoY during 1QFY12.
  • Operating profits declined 15.3% YoY in 1QFY12 due to increase in overall expenditure.
  • Net profits declined 85.0% YoY in 1QFY12 due to increase in interest and depreciation expenses partially offset by rise in other income and lower taxes.


Standalone financial snapshot
Rs m 1QFY11 1QFY12 % Change
Income from operations 11,065 11,219 1.4%
Other operating income 3 24 766.9%
Total income 11,068 11,243 1.6%
Expenditure 10,057 10,387 3.3%
Operating profit (EBDITA) 1,011 856 -15.3%
Operating profit margin (%) 9.1% 7.6% -1.52%
Other income 5 49 796.1%
Interest 453 628 38.7%
Depreciation 157 228 44.7%
Profit before tax 406 49 -88.0%
Tax 125 7 -94.7%
Profit after tax/(loss) 281 42 -85.0%
Net profit margin (%) 2.5% 0.4%  
No. of shares (m) 267 267  
Basic earnings per share (Rs)* 7.64 5.02  
Price to earnings ratio (x)*   8.0  
* On a trailing 12-months basis

What has driven performance in 1QFY12?
  • IVRCL's top line remained broadly flat (marginal 1.4% YoY growth) during 1QFY12. The order book of the company stood at around Rs 210.5 bn (including L1 orders) at the end of the quarter.

  • Operating profits declined 15.3% YoY mainly attributable to increase in material costs during the quarter. Due to cost overruns, operating margin declined from 9.1% in 1QFY11 to 7.6% in 1QFY12.

  • The net profits of the company declined 85.0% YoY due to increase in interest and depreciation expenses during the quarter. Higher interest rate (~12% in 1QFY12 compared to ~9% in 1QFY11) and rise in debt levels led to a 38.7% YoY increase in interest expense. However, the tax rate declined from 31% in 1QFY11 to 14% in 1QFY12 due to higher contribution from joint venture entities in overall profits.

What to expect?

Execution issues continue to plague the top-line growth of IVRCL. This is more because sub-contractors are finding it difficult to raise funds for working capital requirements due to high interest rates. Due to the financing constraints at sub-contractor and supplier level, payable days for IVRCL has declined, which in turn has stretched the working capital requirement for the company. Even the bottom line was impacted due to rising interest and depreciation expenses.

The company has a healthy order book to the tune of Rs 210.5 bn which provides strong revenue visibility into the future. The company has further bid for Rs 200 bn worth of orders. At the current order book, the company foresees an equity requirement of Rs 7.5 bn in the next 2-3 years which it expects to fund through sale of its real estate assets (including land).

Nonetheless, considering the execution issues, higher interest rates and financing constraints faced by sub-contractors, we do not anticipate a rapid turnaround in growth prospects during FY12. In light of these factors, we have revised our estimates and target price downwards. Our revised target now stands at Rs 100 per share. This offers a reasonable upside from current price levels. However, taking into consideration the current weak performance and non-congenial business environment, we would advise investors to avoid averaging as the risk factor remains high amidst earnings slowdown and rate tightening. Nonetheless, we believe that the worst case scenario has been priced in and booking a heavy loss at these levels would not be prudent. Even the execution issues are not exclusive to the company. So, once the overall macro environment improves, the stock may register a sharp bounce back. As a result we keep the company a "HOLD".

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