Recommendation From Realty Sectors

This section gives a recommendation of a stock having stockmargin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

HERE IS WHY
Revival in financials 
Positive sector outlook 
Pick-up in order book

Vascon Engineers Ltd (VEL) is one of the foremost listed real estate companies headquartered in Pune. The company has over 30 years of experience delivering over 200 projects spanning over 50 million square feet of landmark developments across residential, industrial, IT parks, malls and multiplexes, hospitality and community welfare centres. The company commenced operations primarily as an engineering, procurement and construction (EPC) company. However, in the past few years, the company has diversified into real estate development, including owning and operating selected projects directly or indirectly through the subsidiaries and the other development entities. The company has presence in Bangalore, Uttar Pradesh, Chennai, Ludhiana, Mumbai, Pune and Goa. 

Recently, VEL signed a pact with Lina Ashar Foundation to develop a land parcel in Pune. Under the agreement, VEL will construct and deliver a total built-up area of approximately 135,000 sq. ft. on long term lease to Lina Ashar Foundation in phases.

The company has also recently bagged an order from Adhiraj Constructions for the work of civil and structural works (residential township) in Navi Mumbai amounting to Rs119 crore. With this order, VEL has bagged a total of over Rs600 crore of new third party EPC orders in the last nine months. 

The company, through its material subsidiary GMP Technical Solutions, has bagged a maiden contract from Tata Steel for manufacture and supply of minimum 124,000 steel doors and windows of various sizes over a period of three years. Its subsidiary GMP is doing well after exiting services business with Rs1.18 billion revenue in 9MFY18.

On the financial front, the standalone net sales for the quarter grew sharply by 84.8 per cent YoY to Rs93.5 crore due to high revenue recognition in real estate business at Rs41.5 crore. In the EPC segment, the revenue for the quarter grew by 12.4 per cent YoY to Rs52 crore without significant contribution from its large size new projects. Its EBITDA for the quarter turned positive to Rs6.5 crore with EBITDA margin at 6.9 per cent on account of higher expenses in real estate segment due to increase in marketing spend and higher employee expenses in the real estate segment. The company has added new employees for sales and marketing of real estate division. The PAT for the quarter grew by 64 per cent YoY to Rs2.5 crore. The tax rate for quarter was nil as company is setting off carry forward losses and expects to continue it in coming quarters.

On the valuation front, the company has return on equity (RoE) of 0.75 per cent and return on capital employed (RoCE) of 4.61 per cent. The company ’s TTM P/E ratio stood at 77.12x, as against the industry PE of 33.69x. VEL has a debt-to-equity ratio of 0.46x. The stock is trading at 0.88 times its book value. 

Considering the pick-up in order book, expected green shoots in the realty sector and the company's focus on affordable housing in both its EPC and real estate segments, we expect the stock of VEL to move upwards. We recommend our reader-investors to BUY the stock.