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Reliance Securities
Ahluwalia Contracts (Buy)
CMP: ₹337.95
Target: ₹405
Unlike ₹120 crore revenue loss in 3QFY19 from projects in Bihar and Delhi/NCR, Ahluwalia Contracts is unlikely to report any revenue loss in the current quarter, as issues pertaining to the National Green Tribunal (NGT) are sorted out and execution of those projects are underway now. Notably, around about 45 per cent of its total projects are from Delhi/NCR and NGT’s adverse order in various projects had impacted execution. Further, one CPWD project worth ₹260 crore is still stuck due to tree cutting issues and pending decision from the Supreme Court, which is most likely to see change in scope of work. We expect Ahluwalia Contracts to report >20 per cent revenue growth in 4QFY19 and thus, the Company is likely to maintain its revenue growth guidance of 10 per cent in FY19E.
We maintain our positive stance on Ahluwalia mainly on the back of: 1) asset light business model; 2) strong balance-sheet (D/E ratio at 0.05x); 3) best-in-class return ratios; and 4) no equity commitment unlike several other construction companies.
Expecting Ahluwalia’s revenue and PAT to clock 17 per cent and 20 per cent CAGR, respectively over FY18-FY21E, we reiterate our ‘buy’ recommendation on the stock with an unrevised Target Price of ₹ 405 (16x FY20 EPS).
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