Ashoka Buildcon Stock Research Report

CDPQ deal remains the highlight for Q2FY25; FY26 outlook remains strong…..

Ashoka Buildcon’s Q2FY25 earnings saw YoY decline in growth. However, the outlook remains strong for FY26, with earnings likely to see 15-20% growth led by strong bidding pipeline which is expected to boost the company’s executable orderbook. The highlight of Q2 remained the agreement Ashoka entered into to sell its BOT asset to India Highway Concession Trust – sponsored by CDPQ, a Canadian pension fund. Ashoka shall receive INR 25bn as the deal’s proceeds. A major (sizeable) chunk of the proceeds would be earmarked for Macquarie exit – a fund invested in 2012, removing the long overhang. Delay in asset sale and providing an exit have addressed major concerns on the stock. Maintain BUY; value the stock on SoTP basis at INR 311.

Muted H1FY25

Ashoka’s revenue was up 7% to INR 33bn in H1FY25 on the back of growth in Q1FY25. Q2FY25 revenue has seen a decline of 9% on the back of lower executable orderbook. Orderbook stood at INR 113bn with bill-to-book ratio of 1.4, lowest in a long time. However, the company is L1 and has LoAs worth INR 46bn which would take its OB to INR 159bn. EBITDA margin grew 1900bps QoQ to 8.4%, resulting in EBITDA of INR 1.1bn. Margin is likely to increase ~100bps in H2FY25E. APAT came in at INR 362mn, down 49% YoY.

Highlight of the quarter – The CDPQ deal

The company entered into an agreement to sell its BOT asset to India Highway Concession Trust – sponsored by CDPQ, a Canadian pension fund. Ashoka shall receive INR 25bn as the deal’s proceeds. A major (sizeable) chunk of the proceeds would be earmarked for Macquarie exit – a fund invested in 2012. Delay in asset sale and providing an exit, addresses major concerns on the stock.

Order pipeline strong for remainder of FY25

The order pipeline for the year is expected to be strong at INR 1 – 1.2trn, with 52-55% of EPC projects. The company expects the orderbook to increase by 10-15% incrementally from current level in near term.

Maintain BUY

We maintain our BUY rating on the stock with a target price of INR 311

Outlook and valuation

India witnessed a sharp dip in road bidding in FY24. The delay was attributable to Cabinet approval for increased capital cost of its flagship programme, Bharatmala Pariyojana and applicability of model code of conduct beginning Mar’24 due to it being an election year in India. The pipeline for road construction remains robust at > INR 1.5trn. We note 25% of roads under Bharatmala Pariyojana are yet to be awarded (~INR 3trn). The pipeline primarily consists of BOT and HAM assets, which bode well for listed companies with stronger balance sheets. The delay has impacted OI for EPC companies – those mainly dependent on the road sector. We expect an uptick in bidding in H2FY25E.

Ashoka has created a strong brand over the years with stable revenue growth of 15% CAGR over FY19–24 to INR 77bn.

Amidst a year of subdued road bidding, Ashoka’s OB stands at INR 165 bn (including L1 and LOAs), as on Q2FY25 result date (1.6x TTM revenue). With a strong bid pipeline of INR 2.5trn in FY25, it expects OI of INR 100–120bn, revenue growth of 15% and EBITDA margin of 9.5%, in FY26.