Does ARSS Infra makes an ideal Investment?

June 14, 2011   ·   0 Comments

In an interview with CNBC-TV18, Sunil Agarwal, President and CEO, ARSS said the company’s total order book position is around Rs 5,600 crore.

Few orders that company bagged in last couple of weeks

  • ARSS Infrastructure Projects, Niraj Cement joint venture has bagged a Rs 89.7 crore order from Madhya Pradesh Road Development Corporation.
  • ARSS Infrastructure Projects Ltd has informed BSE that the Company has awarded with two new work orders from Madhya Pradesh Road Development Corporation Ltd (MPRDC) Bhopal on June 06, 2011 for construction of Road aggregating to Rs 207.46 crores

www.stockssavvy.comHere is Verbatim of the interview with Management.

Q: Can elaborate a bit on the JV with Niraj Cements and what kind of revenue sharing agreement you have between both of you?

A: We have bagged the order from Madhya Pradesh Road Development Corporation (MPRDC). The order is for building of roads, making the road for Madhya Pradesh Road Development Corporation. The order is in joint venture with Niraj Cements. It is not Rs 897 crore it is Rs 89.7 crore. As of now it you take the total order book position of ARSS, it is around Rs 5,600 crore.

Q: The revenues in FY11 were just about Rs 1,250 crore. What kind of a revenue pick-up can we expect going into FY12, do you expect a 50% plus growth in the coming fiscal?

A: The growth for this year, 2011, is 24.1% growth year-on-year. In 2012, we will be growing in the same range of 45-50%. The top-line and bottom-line still will be a bit higher because the order what we have bagged now is in more margins and the EBITDA will be around 23-24%.

Q: Although you did a 24% year-on-year growth revenue growth, your quarter four showed actually a slight dip in sales. It was almost flat against the year ago Rs 400 crore you did about Rs 389 crore. What was the reason for that flatness of revenues in the fourth quarter and should we expect it to continue in the current quarter as well?

A: No. The main reason for the slightly depressed fourth quarter because the company is based in the eastern part of the country and monsoon has prolonged. There were some unseasonal rains which has occurred in the month of January and February for which the billing could not happen. For infra companies like us, they are EPC contractor who get billing on full cycle. The billing could not happen at the end of the quarter, so the fourth quarter was slightly depressed. In the first quarter of this year we will be getting good revenues.

CRISIL Grading – 5/5

CRISIL Research has come out with its report on ARSS Infra. The research firm has initiated coverage on the company with a Valuation Grade of ‘5/5’ and has maintained the fair value of Rs 570 per share.

ARSS Infrastructure Projects Ltd’s (ARSS’) Q4FY11 revenues and earnings were below CRSIL Equities’ estimates. Revenues declined by 3% y-o-y due to lower execution as some of its projects are moving slowly due to various regulatory and clearance-related issues. EBITDA margin increased by 512 bps to 22.0% as the company executed more of high-margin railway orders. However, PAT declined by 12% y-o-y due to higher interest expenses because of stretched working capital and high interest rate. Although we are positive on the overall opportunity in the construction space, we remain concerned about execution-related issues and rising interest rates. We maintain our fundamental grade of 2/5.

Q4FY11 result analysis:
ARSS’ Q4 revenues declined by 3% y-o-y to Rs 3,892 mn due to the delay in some projects. For the full year, ARSS’ revenues grew by 24.1% y-o-y to Rs 12.4 bn. EBITDA margin expanded by 512 bps y-o-y to 22%. For FY11, margin has improved by 368 bps y-o-y to 21.7%. PAT declined by 12% y-o-y to Rs 353 mn due to higher interest and tax expenses. For FY11, PAT increased by 25% to Rs 1.1 bn. The company has strong order book of Rs 32.2 bn (2.58x FY11 revenues), which gives revenue visibility for the next 24-30 months. It has also signed a concession agreement for the bus terminal project in Orissa.

Key development: order intake sluggish:
Order intake during the quarter was sluggish as ARSS bagged orders worth ~Rs 1.5 bn. Order intake for the entire year was Rs 13.6 bn. ARSS signed the concession agreement for the bus terminal project in Orissa. It expects the bus terminal to be operational in the next 18 months.

Revenue estimates revised downwards:

We have lowered revenue estimates by 15% for FY12 and 17% FY13 factoring in delays in some of the projects that are stuck due to clearance and regulatory issues. We have also factored in higher interest rate and stretched working capital as projects are moving slowly, leading to inventory build-up. Hence, we have lowered PAT estimates by 37% for FY12 and 29% for FY13.

Valuations: Current market price has strong upside We continue to value ARSS on the price-to-earnings basis. Given the slowdown in order intake coupled with stretched working capital, we have assigned a lower multiple of 7x vs. 8x earlier. Based on revised EPS of Rs 81 for FY13, our fair value is revised to Rs 570 per share. At the current market price, the stock merits a valuation grade is 5/5.

Savvy’s View: Company is having a good management which is believed to achieve their goals in timely manner. EPS of 75.6 , Profit of 113 crores & Revenue of 1250 makes the company trading at P/E of 6. Company was trading at the levels of 1380 Rs few months before. The slowness in Infrastructure shinned most of its gains. One can take a fresh investment at these levels. The company has good order book & will revive its EPS target to 110. Industry P/E for infrastructure space is around 15. A simple multiplication of 110 * 15 gives us a price more than 1600 Rs. This makes it a ideal investment opportunity. As market will revive, the stock will get much more money pumping in soon.

Disclaimer: I am holding the stock

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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