Religare Securities has maintained ‘buy’ on IVRCL with a revised target price of Rs 537. IVRCL is trading at P/E of 19 times and 13 times 1-year and 2-year forward respectively. The company witnessed a sharp 37 per cent correction in stock price in past couple of months. For non-core operations, the company is now available at 14.5 times and 10 times FY09E and FY10E earnings respectively. Religare believes this steep undervaluation is unwarranted considering the company’s strong fundamentals and projected earnings growth of 44 per cent in two years. The current market price is Rs 363.
Religare maintains the core valuations at Rs 415 and while other ventures at Rs 122. It reiterates conviction in company’s new ventures and believes these would evolve into cash cows that aid the extension of the core business, offering long-term value creation for shareholders. This includes a value of Rs 81 per share for IVR Prime. IVR Prime’s stock price has corrected by 67 per cent to Rs 167 from a high of Rs 510. The brokeage maintains NAV valuation at Rs 540 per share and have factored in a holding company discount of 30 per cent for IVRCL.
In the last five months, the company has bagged orders valued at Rs 25 billion; its current order book stands to Rs 110 billion. Of these, a significant proportion, at 76 per cent, flows from the water and irrigation segment. Religare expects the company’s order book to grow 43 per cent CAGR over FY07-FY09 with water comprising the majority share at 60 per cent.
Under the Bharat Nirman program, an irrigation potential of 10 million hectare acres is to be created over FY05-FY09. Considering an annual addition of 2.2 mha, it is estimated that 11 mha of new potential can be added during 11th five year plan, with a proposed investment of Rs 2 trillion. IVRCL accounts 50 per cent of its revenue.
Apart from its core operations, Religare reiterates conviction in the company’s new ventures like real estate, BOT projects and Hindustan Dorr Olivier (52% subsidiary). The company has four BOT projects which are in progress. Three will be completed in November 2008. National Highways Development Project plans for development and upgradation of 47,087 km of roadways across India over 2007-2015 with an investment of Rs 2.3 trillion.
IVRCL has outperformed in last two to three years with a 52 per cent CAGR in sales over FY05-FY08E. During 9mFY08, sales have grown at 76 per cent, margins have improved by 50 basis points to 9.7 per cent, and the order book has swelled significantly.
Link to the article: http://economictimes.indiatimes.com/Analysis/Religare_maintains_buy_on_IVRCL_target_price_Rs_537/articleshow/2904081.cms
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