IVRCL Infra: Changing with times

The company has broadened its horizons beyond Andhra Pradesh, besides diversifying the product mix.

Being heavily dependent on government projects, especially in Andhra Pradesh, affected IVRCL Infrastructure’s profits. Reason: Revenues stagnated when the election process stalled projects. After this, the political imbroglio in the state added to the woes.

Things have been changing for the better since the March quarter. After remaining flat for a long time, revenues grew 16 per cent year-on-year to Rs 1,890 crore, aided by better execution of projects. Operating profit margins rose 180 basis points to 10.5 per cent — the highest in the past seven quarters. Analysts reckon that the company’s huge exposure to high-margin irrigation projects, which accounted for 45 per cent of the order book in the December 2009 quarter, sustained earnings. Moreover, government contracts (90 per cent of the order book) have a price escalation clause that helped IVRCL pass on higher input costs. Net earnings, however, remained subdued and rose 6.6 per cent to Rs 85.3 crore.

The Telangana and other political issues caused a delay in project implementation. Orders from Andhra Pradesh, which comprised about 50 per cent inflows in FY09, were virtually non-existent in 2010. The company has also raised the share of transportation in its order book, with the sector now contributing 31 per cent to new order inflows, up from 12 per cent earlier. The order book coverage ratio, which is the number of times the year-end order book exceeds revenues, grew 63 per cent to an all-time high of 4.2 times. And Andhra accounted for only 16 per cent of these new orders.

With steel prices set to fall, the pressure on operating margins will ease, as it is a critical input. A mature and growing order book and falling steel prices augur well for the company’s fortune.