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IVRCL: De-growth all around - Views on News from Equitymaster

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IVRCL: De-growth all around

Nov 15, 2010

IVRCL has announced its 2QFY11 results. Both top-line and bottom line registered a decline of 16% YoY and 51% YoY, respectively. Here is our analysis of the results.

Performance summary
  • Top line registered a decline of 16% YoY during 2QFY11 mainly of account of extended monsoons. Over all, the company lost around Rs 2.5 to 3.0 bn of top line in 2QFY11 on account of delays in projects due to prolonged monsoons.
  • Operating profits declined 23% YoY in 2QFY11 due to increase in absorption of overheads. Operating margins fell 80 bps due to increase in overall expenditure as a percentage of sales.
  • Net profits declined 51% YoY in 2QFY11 due to increase in depreciation and interest expenses, partially offset by increase in other income.

Standalone financial snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Income from operations 12,525 10,502 -16.1% 23,568 21,564 -8.5%
Other operating income 40 248 522.4% 93 251 169.5%
Total income 12,565 10,750 -14.4% 23,661 21,814 -7.8%
Expenditure 11,324 9,797 -13.5% 21,403 19,853 -7.2%
Operating profit (EBDITA) 1,241 953 -23.2% 2,257 1,961 -13.1%
Operating profit margin (%) 9.9% 9.1%   9.6% 9.1%  
Other income 34 57 64.1% 41 65 57.3%
Interest 354 480 35.8% 739 933 26.3%
Depreciation 133 184 38.4% 264 342 29.6%
Profit before tax 788 345 -56.2% 1,308 751 -42.5%
Tax 309 112 -63.6% 475 238 -50.0%
Less: Earlier year tax       1,409    
Profit after tax/(loss) 479 233 -51.4% -577 514  
Net profit margin (%) 3.8% 2.2%   -2.4% 2.4%  
No. of shares (m)   267.0        
Basic earnings per share (Rs)   0.87        
P/E ratio (x) *   20.2        
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • IVRCL’s top line declined 16% YoY during 2QFY11, owing to delays in execution of several projects, due to pro-longed monsoons in some parts of the country. Overall the company lost around Rs 2.5 to 3.0 bn of top line during the quarter due to execution delays. The order book of the company stood at Rs 240 bn, (including L1 orders) with order inflows of Rs 53 bn, at the end of 2QFY11. In light of muted performance during the quarter, management has revised its revenue guidance downwards to Rs 65 bn for FY11 (earlier guidance of Rs 67.5-70 bn for FY11).

  • Operating profits declined 23% YoY due to increase in absorption of overheads during the quarter. Nonetheless management is confident of recovering the excess absorption in 2H FY11. This should enable margin sustenance in the region of 9.5-9.75%.

  • The net profits of the company declined 51% YoY due to increase in interest and depreciation expenses during the quarter. The interest expenses increased due to increase in CP rates and overall hawkish interest rate environment. Depreciation expenses increased due to increase in capex.

What to expect?
Overall 2QFY11 was a big disappointment for IVRCL. Execution delays impacted top line growth while excess absorption of overheads led to margin downfall. Nonetheless, the company has a healthy order book to the tune of Rs 240 bn and is expected to post a better performance in 2HFY11, a seasonally strong period. IVRCL’s two subsidiaries Hindustan Dorr-Oliver (HDO) and IVRCL Assets and holdings (IVRAH) too put up a weak performance during the quarter. While HDO’s margins succumbed due to execution of low yielding water projects, IVRAH performance was impacted by funding constraints. At the current price of Rs 132, the stock is trading at a multiple of 20 times its trailing 12-month earnings. Nonetheless, considering the healthy order book position and a large BOT portfolio, we maintain our positive view on the stock.

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