IVRCL Infrastructure IVRC IN; Mkt Cap USD1.2b

Robust order book (up 48.1% YoY) to drive earnings growth: IVRCL’s current order backlog stands at Rs120b (+48.1% YoY, 3.5x FY08E revenue), which will drive revenue and earnings CAGR of 40.4% and 36.6% during FY08-FY10. We expect EBITDA margins to improve 70bp over FY08-FY10 driven by i) increasing proportion of buildings and power transmission in the order book and ii) operating leverage. Share of transportation projects to order book has reduced from 22% in March 2007 to 12% as at December 2007, which again is positive for margins. Given that ~93% of order book has price variation clauses, the impact of raw material price increases is limited.

Establishing a strong position in power T&D, buildings: IVRCL has been successful in building a strong presence in the power T&D segment (FY08 revenues Rs6.5-7b, v/s Rs3.6b in FY07). Also, share of buildings in order book has increased to 21% in December 2007 (v/s 12% in December 2006), wherein margins are relatively better. Both these segments are expected to be key growth drivers. IVRCL is also the largest construction companies in India in the ‘water management’ segment (50% of FY08 revenues).

Robust FY09 guidance: IVRCL reiterated revenues of Rs46-49b (up 35%-44% YoY), EBIDTA margin of 10.6-10.8% (up ~50bp YoY) and PAT of Rs2.9-3b (up 38-43% YoY). The company has comfortable net DER of 0.6x (March 2008), while incremental equity commitments towards BOT projects are negligible.

Valuation and view: We expect IVRCL to report net profit of Rs2b in FY08 (up 44.4% YoY), Rs2.7b in FY09 (up 34.4% YoY) and Rs3.8b in FY10 (up 38.8% YoY). At the CMP of Rs380/share, the stock trades at reported PER of 23.5x FY08E, 17.9x FY09E and 12.9x FY10E. Adjusted for BOT, real estate etc. the stock is trading at PER of 17.3x FY08E, 13.2x FY09E and 9.5x FY10E.