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Anand Rathi
Ahluwalia Contracts (Buy)
CMP: ₹296.5
Target: ₹361
Key takeaways: a) For management, cash flows rank above revenue growth. It does not intend to deliver revenue growth at the risk of levering its balance sheet. It, however, sees a about 15 per cent long-term revenue CAGR as possible (non-linearity not ruled out), with no significant rise in leverage.
b) Its order book jumps to about ₹8,550 crore with strong FY20 inflows (year-to-date at about ₹2,000 crore) and recent L1 status on a about ₹1,270 crore hospital project in Jammu. With even the raised inflow guidance ( about ₹3,000 crore) already in sight, it now plans to sharpen its focus on execution. Consequently, all but one order (of about ₹540 crore) from the end-Q2 OB ( about ₹6,230 crore) have already been grounded.
Valuation: Adjusting for the 40-day construction ban in the NCR, we push execution forward only slightly for some of the projects affected. Consequently, our FY20e and FY21e revenues are down about 2 per cent and 3 per cent, respectively. Also, we introduce our FY22e and roll forward our valuation.
Risk: Slower-than-expected execution.
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