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IVRCL: Asset sales to ease liquidity issues - Views on News from Equitymaster
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IVRCL: Asset sales to ease liquidity issues
Nov 29, 2011

IVRCL Infrastructures has announced the second quarter results of financial year 2011-2012 (2QFY12). While total income declined 2.6% YoY bottom line registered a fall of 65.0% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Total income declined by 2.6% YoY during 2QFY12 due to the prevailing execution issues.
  • Operating profits declined 2.2% YoY in 2QFY12 due to poor performance at the top line front. However, operating margins were relatively flat throwing up a positive surprise.
  • Net profits declined 65.0% YoY in 2QFY12 due to increase in interest and depreciation expenses partially offset by fall in tax expenses.
  • The current order book of the company stands at Rs 256.0 bn including L1 orders.

Standalone financial snapshot
(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Income from operations 10,497 10,460 -0.4% 21,562 21,679 0.5%
Other operating income 248 1 -99.7% 251 24 -90.3%
Total income 10,745 10,461 -2.6% 21,813 21,704 -0.5%
Expenditure 9,787 9,524 -2.7% 19,843 19,910 0.3%
Operating profit (EBDITA) 959 938 -2.2% 1,970 1,794 -8.9%
Operating profit margin (%) 8.9% 9.0%   9.0% 8.3%  
Other income 51 53 3.8% 57 102 79.7%
Interest 480 652 35.8% 933 1,281 37.2%
Depreciation 184 250 35.6% 342 477 39.8%
Profit before tax 345 89 -74.3% 751 138 -81.7%
Tax 112 7 -93.4% 238 14 -94.1%
Profit after tax/(loss) 233 81 -65.0% 514 124 -75.9%
Net profit margin (%) 2.2% 0.8%   2.4% 0.6%  
No. of shares (m)         267.0  
Basic earnings per share (Rs)         0.46  
P/E ratio (x) *         7.9  
* On a trailing 12-months basis

What has driven performance in 2QFY12?
  • IVRCL's top line declined 2.6% YoY during 2QFY12. Poor execution amidst weak macro-environment impacted top-line growth.

  • Operating profits declined 2.2% YoY due to poor performance at the top-line level. However, operating margins surprised positively and registered a marginal improvement of 10 bps during the quarter suggesting that cost pressures have started easing out.

  • The net profits of the company declined 65.0% YoY due to increase in interest and depreciation expenses during the quarter. However, the tax rate declined from 32.6% in 2QFY11 to 8.3% in 2QFY12 due to deferred tax adjustments.

What to expect?
Execution issues continue to plague the top-line growth of IVRCL. However, restoration of operating margins at historical levels was a positive surprise. Nonetheless, the bottom line continues to get impacted by rising interest (increase in debt) and depreciation expenses. However, the company has a healthy order book to the tune of Rs 256 bn which provides strong revenue visibility into the future.

The company has decided to re-merge IVRCL Assets & Holdings with itself. This would mean that the equity commitments of the Build Operate Transfer (BOT) projects would now have to be met by the parent. This may further pressurize the balance sheet of IVRCL. However, the company is planning to sell land parcels in Noida and divest its stake in BOT projects in order to ease the liquidity pressures. Considering the current execution issues, higher interest rates and slowdown in project award activity we do not anticipate a rapid turnaround in the near future. As a result, we maintain our "Hold" view on the stock.

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