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Target: ₹4.020
CMP: ₹3.,480.15
Q3-FY24 core sales (ex-services) of ₹39,300 crore was about 2 per cent above our estimate, displaying seasonal improvement in execution. Core EBITDA margin at 7.5 per cent (-100 bps y-o-y, +10 bps q-o-q) missed our estimate (8.6 per cent).
The company has delivered on other fronts, including order inflows of ₹76,000 crore (+25 per cent y-o-y), which was higher than our estimate (₹61,000 crore), and NWC (ex-finance) moderated to 16.6 per cent of sales, largely in line with our view of further moderation from H1-FY24 levels.
Management raised its guidance to high-teens y-o-y growth (vs 15 per cent) for FY24 revenue. It also expects order inflows to grow 20 per cent y-o-y (+12 per cent earlier) and the NWC-to-sales ratio to remain at the current level of 16.6 per cent.
Due to rising share of Middle East contracts in the order book, fixed-price contract exposure rose to 43 per cent by 9M-FY24 vs 30-35 per cent typically. This results in higher commodity inflation risks to margins but given the relatively stable steel and cement prices, we do not expect near-term impacts.
Key risks to our investment thesis are slowdown of tendering and prolonged delay in margin recovery. Near-term asset monetisation and higher-than-expected order inflows are upside risks.
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