Ashoka Buildcon set to enter big league

Low debt and healthy road portfolio set to drive earnings at a CAGR of 46% over FY15-17

Ashoka Buildcon is set to enter the big league. The company is among the stronger players in the sector and has the ability to bid for large projects, as it is well-funded and has a healthy debt-equity ratio. The Street believes the company would be a big beneficiary of new road awards over the next 12-18 months. The company raised Rs 500 crore through a qualified institutional placement (QIP) in the March quarter to fund projects.

In 2012, SBI Macquarie coughed up Rs 700 crore for a 34 per cent stake in Ashoka Concession, which has seven of its large road projects. According to ICICI Securities, “The deal ensures equity funding towards ACL’s project portfolio. Ashoka Buildcon received a tranche of Rs 91 crore from SBM in March 2015, which led to aggregate investment of Rs 784 crore till date.”

The company’s ability to navigate through a tough operating environment is visible from its March quarter performance. Led by a strong growth in construction and robust execution in the BOT (build, own, transfer) portfolio, the company's topline grew 32 per cent year-on-year to Rs 803 crore, which is ahead of estimates.

Analysts are positive on the company as the revenues from construction are slated to increase, as new contracts are given under the EPC, which implies lower working capital requirement. SBIcap Securities expects the company to grow at a 5.4 per cent compound annual growth rate (CAGR) over F15–F17 in construction revenues, led by a pick-up in execution in its under-construction and newly awarded projects.

The company's income from BOT projects increased 47 per cent, driven largely by incremental revenues from commissioning of the Sambalpur-Bargarh and Dhankuni-Kharagpur projects. Toll collections increased 10 per cent on a comparable basis (excluding the new projects) to Rs 190 crore. Most projects saw a toll rate hike of 5.5-6 per cent. This implies four per cent increase in traffic on an average, explains IDFC Securities.

Analysts are of the opinion that Ashoka Buildcon is among the better plays in infrastructure as its asset portfolio is well-funded and projects either generate revenues or are tolling. IDFC Securities expects consolidated earnings CAGR of 46 per cent over FY15-17, with 53 per cent CAGR in cash profits.