Broker’s call: Ahluwalia Contracts (Buy)

Target: ₹300

CMP: ₹250.30

Ahluwalia Contracts ’ Q1-FY21 results beats estimates. PAT declined 69 per cent y-o-y to ₹7.5 crore but was sharply above estimate of loss of ₹38.70 crore driven by better execution/ margins and higher other income. Revenue declined 38.2 per cent y-o-y to ₹250 crore Margin decline led by execution disruption; but beats estimate led by cost savings.

On the back of a disrupted FY21, we expect sharp earnings recovery in FY22 driven mainly by improved conversion of ACIL’s robust order backlog. ACIL has received order inflow of ₹290 crore year-to-date and order backlog as on June-20 was robust at ₹7,260 crore (4.2x TTM revenue).

Execution has started in almost all projects though at a slow pace given the labour and on the ground challenges. Execution remains particularly impacted in Bihar and West Bengal due to rise in Covid-19 cases and funding constraints of the states. Payments in other projects/states are largely on track. ACIL’s balance sheet meanwhile remains robust (June-20 net cash position: ₹130 crore) with continued operating cash flow generation.