Ahluwalia Contracts’ stock factors its strong Q4 performance adequately

30 Jun , 2021 By : Kanchan Joshi

Shares of Ahluwalia Contracts (India) Ltd touched a new 52-high on Monday on the National Stock Exchange. The company’s recently announced March quarter financial results have beaten Street estimates.

Revenues rose almost 39% year-on-year to Rs762 crore, led by a strong pick-up in execution. Ebitda margins for the March quarter expanded about 500 basis points to 9.2%. Ebitda is earnings before interest, tax, depreciation and amortisation; a key measure of profitability for companies. One basis point is one-hundredth of a percentage point.

The company told analysts that it expects revenues to grow 10-15% in the current financial year (FY22). HDFC Securities Ltd analysts believe this guidance is very conservative, given its robust order book, 3.8 times FY21 revenue, and strong execution capability.

Note that Ahluwalia Contracts’ order inflows in FY21 stood at Rs2,200 crore, taking its order backlog to Rs7,610 crore. For FY22, the company expects order inflows to the tune of Rs2,500 crore. “Gross debt reduced to Rs15.6 crore from Rs47 crore at the end of FY20. With a cash balance of around Rs300 crore, Ahluwalia Contracts remains a net cash company," said HDFC Securities’ analysts in a report on 29 June.

Analysts from Centrum Broking Ltd said in a report on 29 June, “Ahluwalia Contracts is finally showing the much awaited acceleration in execution of its strong order backlog." The broker estimates 21% revenue CAGR over FY21-23. CAGR is compound annual growth rate.

Execution in the June quarter is understandably expected to be muted due to the second covid wave. As such, investors can expect recovery from September quarter.

Centrum Broking analysts’ added, “The healthcare sector comprises 58% of Ahluwalia Contracts’ order backlog and is likely to be a key driver of both fresh inflows and execution in FY22/FY23. With the adverse impact of provisions and write-offs in legacy projects behind, we expect a return of historical margin levels of 12-13% in FY22/FY23, leading to a robust 70?GR in earnings."

To be sure, shares of Ahluwalia Contracts have outperformed the broader markets so far this calendar year, rising by more than 40%. Needless to say, given the stock’s meaningful appreciation, sharp upsides could well be limited from a near-term perspective.