Recommendation from a Construction - Residential & Commercial Complexes

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.


AHLUWALIA CONTRACTS (INDIA) : COUNTRY’S GROWTH, COMPANY’S GAIN

HERE IS WHY
✓   Focus of government on infrastructure development
✓   Steady increase in revenue
✓   Strong order book for the coming years

The infrastructure sector is a key driver of the Indian economy, propelling the country’s overall development. This is the reason there is intense focus from the government for initiating policies that would ensure the time-bound creation of world-class infrastructure in India. It also aligns with the government’s ambition to make the transition to a ‘developed’ country. In fact, such has been the recent momentum in this sector that it is expected to reach USD 1.4 trillion by 2025.

In the Interim Budget 2024-25, the government has allotted ₹11.11 lakh crore for infrastructure development which is an 11.1 per cent increase in capital investment outlay and 3.4 per cent of the GDP. It will help meet India’s aim of reaching a USD 5 trillion economy by 2025. Taking into account all such positive factors, our recommendation of choice scrip in this issue is Ahluwalia Contracts (India) Ltd. Its commitment to timely project completion and high-quality construction has led to rapid growth and numerous prestigious awards. Ahluwalia Contracts (India) offers construction services including the erection of structures, planning, and scheduling of manpower, equipment, materials and sub-contractors. The company has built various types of buildings, including institutional buildings, corporate office complexes, industrial complexes, multi-storied housing complexes, hospitals, medical colleges etc.

On the financial front, in Q3FY24 on a consolidated basis, its revenue rose by 38.11 per cent year-on-year (YoY) to ₹1,026.48 crore as compared to ₹743.25 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 13.86 per cent. The PBIDT excluding other income increased by 56.53 per cent to ₹111.84 crore YoY as compared to ₹71.45 crore from the previous year’s same quarter, while sequentially increasing by 24.58 per cent. The net profit stood at ₹70.65 crore compared to ₹44.99 crore, a YoY increase of 57.05 per cent, while sequentially increasing by 27.79 per cent from ₹55.29 crore.

Ahluwalia Contracts (India) is poised for growth with a robust order book of ₹11,246.83 crore, ensuring work for the next 2-2.5 years. It has secured a lead position in projects worth ₹3,229.87 crore while it has bagged airport projects worth around ₹2,000 crore. The company’s future goals include a revenue target of ₹1,100 crore in Q4FY24 and an ambitious order inflow target of ₹5,000 crore for FY25, with a focus on the second half. The challenges include payment delays in certain states but the company is hoping for improvement post-elections.

A shift towards private projects could lead to better margins compared to government contracts. On the valuation front, the shares of the company are trading at a PE of 29 times which is lower than the industry PE of 30.8 times and higher than its three-year median PE of 22.7 times. The company has a three-year average return on equity (ROE) of 14.5 per cent and a return on capital employed (ROCE) of 21.8 per cent. Considering the sector’s potential for growth, including the government’s keen efforts to boost infrastructure development across the country, and Ahluwalia Contracts (India)’s business prospects, we recommend BUY.