Recommendation from a Construction - Infrastructure Sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.[EasyDNNnews:PaidContentStart]

ASHOKA BUILDCON : CEMENTING A STRONG GROWTH CURVE

HERE IS WHY
✓Infrastructure focus to open up new horizons
✓Strong talent pool and financials
✓Tapping opportunities outside India too 

India’s growth in 2023 and beyond will largely be driven by significant strides in key sectors, with infrastructure development playing a crucial role. Investments in building and upgrading physical infrastructure, particularly through business-friendly initiatives, are essential for increasing efficiency and costs. The government’s focus on building future infrastructure, including the USD 1.3 trillion Gati Shakti National Master Plan, has already shown progress. Infrastructure support for manufacturers is also a top agenda 

The Union Budget 2023-24 aims to increase infrastructure capital investment by 33 per cent to ₹10 lakh crore (USD 122 billion), equivalent to 3.3 per cent of GDP. The Union Budget 2023-24 provides the highest ever outlay for the Indian Railways at ₹2.40 lakh crore (USD 29 billion). The National Infrastructure Project (NIP) has grown to 9,142 projects across 34 sub-sectors, with 2,476 under development phase projects, primarily in the transportation sector. Taking all this into account, our low price scrip for this issue is Ashoka Buildcon. 

Ashoka Buildcon is a leading engineering, procurement, construction, operations and maintenance company in India, specialising in roads and highways. It has completed prestigious projects in various states and is currently constructing a road network for the Housing Development Corporation in the Maldives. The company has a strong talent pool and sound financials, enabling it to bid for and execute large-scale projects. 

The company’s order book was ₹16,920 crore as of June 30, 2023, with roads and railway projects accounting for 51 per cent of the total. The company has received a letter of awards for power distribution infrastructure development in Maharashtra, and is preparing to sign an SPA (sales and purchase agreement) for 11 HAM (hybrid annuity model) projects. The company expects 15 per cent revenue growth and EBITDA margins of 8-9 per cent for FY 2024. It is monetising its assets and aims to reduce its debt by ₹500-600 crore by March 2024. 

The company’s capex guidance for FY 2024 is ₹100 crore. It is focused on opportunities in Bangladesh and the Maldives. In Q1FY24, the revenue of the company stood at ₹1,935.16 crore, which is 20.96 per cent lower on a QoQ basis, while it increased by 2.97 per cent on a YoY basis. The company’s PBIDT excluding other income stood at ₹473.30 crore, which decreased by 2.37 per cent YoY, while on a QoQ basis it decreased by 14.83 per cent. The profit after tax (PAT) witnessed a substantial growth of 111.56 per cent on a QoQ basis which stood at ₹71.80 crore. At TTM, Ashoka Buildcon Ltd. is trading at a PE of 11.9 times, which is higher than its three-year median PE. 

The company has maintained a threeyear ROE and ROCE of 38.4 per cent and 27.8 per cent, respectively. It has a three-year compounded sales and profit growth of 17 per cent and 39 per cent, respectively. The company has a debt to equity ratio of 1.09 times and interest coverage ratio of 1.48 times. The company is well-positioned to capitalise on the growing demand for infrastructure in India and other markets. As part of its business it faces potential hazards such as severe weather, regulatory delays and site acquisition challenges, as well as the need for extra operating capital. However, with its track record and financial strength, it will be able to overcome such obstacles. Considering all these factors, we recommend BUY.

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