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IVRCL: Tough times continue - Views on News from Equitymaster
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IVRCL: Tough times continue
Nov 26, 2012

IVRCL announced its results for the quarter ended September 2012. During the quarter, the company's revenues declined by 5% YoY, while it reported a loss of Rs 396 m. Here is our analysis of the results.

Performance summary
  • Revenues decline by 5% YoY during quarter ended September 2012.
  • Operating profits decline by 26% YoY as margins fall by 2% YoY to 7%.
  • Company reports a net loss of Rs 396 m during the quarter.
  • The current order book of the company stands at approximately Rs 264 bn as of 31st October 2012. Order inflow stood at Rs 15 bn during the quarter,

Standalone financial snapshot
(Rs m) Qtr ended Sep '11 Qtr ended Sep '12 Change
Income from operations 10,461 9,947 -4.9%
Expenditure 9,524 9,248 -2.9%
Operating profit (EBDITA) 938 699 -25.5%
Operating profit margin (%) 9.0% 7.0%  
Other income 320 93 -71.0%
Interest 919 1,011 10.0%
Depreciation 250 204 -18.1%
Profit before tax 89 (424)  
Tax 7 -28  
Profit after tax/(loss) 81 (396)  
Net profit margin (%) 0.8% -4.0%  
No. of shares (m)#   306.9  
Basic earnings per share (Rs)   (1.2)  
P/E ratio (x) *   NA  
* On a trailing 12-months basis

What has driven performance in the quarter ended September 2012?
  • IVRCL's revenues declined by 5% YoY during the quarter ended September 2012. The company's performance was impacted due to high interest rates and delays in project related clearances which there by impacted the performance. The revenue break up during the quarter stood as water - 38%, buildings - 25%, roads - 23%, power - 8% with the balance being contributed by others.

  • At the operating level, IVRCL's operating profits declined by 26% YoY as sub contracting expenses and masonry labour & other construction expenses increased (as a percentage of sales). Operating margins stood at 7% during the quarter as compared to 9.0% margins during the corresponding quarter last year. Lower other income and higher interest costs (largely on account of the amalgamation - nearly 30% of interest costs due to amalgamated company), coupled with a poor operating performance led the losses at the pre-tax level to expand.

  • It may be noted that the quarterly results are not comparable due to the merger of IVRCL Assets and Holdings with the parent company, IVRCL Infrastructure. The IVRCL Group underwent a restructuring in which almost all SPVs of IVR Assets and Holdings were acquired by IVRCL.

What to expect?
At the end of the quarter, IVRCL's order book stood at over 5 times its FY12 revenues. Execution issues faced by the company continue to hampers its top line growth. For example, road projects of Rs 20 bn continue are facing issues. The company also mentioned that receivables of Rs 1.26 bn have been outstanding for over three years. About Rs 550 m are stuck in arbitration and have been outstanding for more than three years.

The company has decided to take a break from BOT projects for a while and as such would be focusing on its core business of EPC (engineering procurement and construction). Apart from focusing on the EPC business, the short term plans also includes divesting its BOT assets, aimed at strengthening its balance sheet. The company plans to excuse itself from NHAI orders bids till the overall issues impacting the sector are resolved, with the key ones being land and financial closure related.

Keeping reasons such as monetization and the lower valuations (TTM EPS is not comparable) in mind, we believe investors can hold on to the stock from a long term perspective. We would change our view if any major let downs come from the company's side in the future.

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