April 17, 2023
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AHLUWALIA CONTRACTS INDIA Stock Research Report by HDFC Securities
Sector: Construction – Residential & Commercial Complexes
CMP Rs. 516, Target Rs. 610 (18% upside potential)
Target Period: 12 Months
Ahluwalia Contracts (India) Limited (ACIL), is one of the leading infrastructure companies. ACIL is engaged in civil construction and execution of turnkey projects. It is actively engaged in construction of institutional & industrial buildings, corporate office complexes, multi-storied housing complexes, township development projects, hospitals, medical colleges, hotels, educational & technical institutes, schools, and gymnasiums and sports complexes. Mr. Bikramjit Ahluwalia is a key promoter in the company being experienced in the construction industry in India with more than five decades of experience.
The company’s order inflow stood at Rs 5057 crore vs. guidance of Rs 3500-4000 crore for FY23E. The company has been conservative on order inflow guidance in the past. Looking at the governments initiatives on infra structure sector, we expect that company could see huge order inflow opportunities going forward. We expect that the company could report revenue growth of 10.3% and 10% in FY24E and FY25E, respectively. The high-priority healthcare sector comprises one third of ACIL’s backlog and is likely to be a key driver of both fresh inflows and execution in FY23/24E. ACIL operates an asset-light business, with consistent FCF generation since FY15.
On Jan 02, 2023, we had issued Stock Update report on Ahluwalia Contracts (India) Ltd and recommended to buy in the Rs 471-481 band and add further on dips to Rs 425-433 band for base case target of Rs 525 and bull case target of Rs 557. The bull case target was achieved on March 31,2023. Given healthy growth outlook and expectation of strong set of numbers in Q4FY23E, we have now revised earnings and increased target price for the stock.
AHLUWALIA CONTRACTS INDIA Stock Research Report: Valuation & Recommendation:
ACIL continues to see robust prospects in healthcare, data centers, industrial structures apart from government buildings. Competitive intensity remains elevated and ACIL remains very selective in bidding for projects. Despite near term headwinds of high input costs, margin is expected to improve from FY24E with softening of commodity prices, a narrower gap of indices with input prices, slightly lesser competitive intensity and new projects bid at elevated input price assumption. The promoter family remains closely involved in the business with well- defined responsibilities and clear understanding of future roles. ACIL’s robust and diversified order book, strong bidding pipeline, timely execution could help to bring more orders going forward.
Investors could buy the stock in the Rs. 511- 521 band and add more on dips to Rs. 457-465 (10x FY25E EPS). We feel the Base case fair value of the stock is Rs. 564 (12.25x FY25E EPS) and the Bull case fair value is Rs. 610 (13.25x FY25E EPS) over the next two to three quarters. At the CMP of Rs 516 the stock trades at 11.2x FY25E EPS.
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