Recommendation from the 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.

IRCON INTERNATIONAL : ON THE RIGHT TRACKS

HERE IS WHY
✓  Impressive order book
✓  Ambitious growth plans
✓  Good operating margin

India’s high growth imperative in 2023 and beyond will be driven by major strides in key sectors, with infrastructure development being a critical force aiding the progress. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increasing efficiency and costs. Owing to this, our low price scrip for this issue is Ircon International Ltd. The company commenced its business in 1976 as a railway construction company and has progressively diversified since 1985 as an integrated engineering and construction PSU specialising in large and technologically complex infrastructure projects in various sectors.

It provides EPC services on a fixed-sum turnkey basis as well as on an item-rate basis for various infrastructure projects. It also executes on build, operate and transfer modes in various projects in order to meet the requirements of its bids. The company specialises in major infrastructure projects, including railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, runways, EHV sub-stations and electrical and mechanical works, among others. In its railway construction business, the company is a turnkey construction company that specialises in new railway lines, rehabilitation or conversion of existing lines, station buildings and facilities, bridges, tunnels, etc.

As of March 31, 2023, the company had a healthy order book of ₹35,000 crore and plans to increase it to ₹45,000-50,000 crore. The company plans to maintain its consolidated PAT level at 7-7.5 per cent and is focusing on execution in FY23-24. Ircon International has developed capabilities in complex projects such as viaducts, tunnels and bridges and has made significant investments in joint ventures (JVs). These investments have led to a decline in the company’s cash and bank balances, which will help the company over a long-term period. In Q4FY23, Ircon International’s consolidated revenue rose by 28.05 per cent YoY to ₹3,780.66 crore compared to ₹2,952.59 crore from the previous year’s same quarter. 

On a sequential basis, revenue grew by 61.12 per cent. PBIDT excluding other income stood flat at ₹183.15 crore YoY as compared to ₹183.16 crore from the previous year’s same quarter, while sequentially it increased by 22.10 per cent. Net profit stood at ₹243.02 crore compared to ₹214 crore, a YoY growth of 13.56 per cent, while sequentially it increased by 22.10 per cent. The PBIDT excluding other income margins decreased by 136 bps YoY and 227 bps QoQ and stood at 4.84 per cent. Net profit margin fell by 82 bps YoY and 205 bps QoQ and stood at 6.43 per cent. The company has well managed its operating margin despite having high price challenges.

At TTM, Ircon International is trading at a PE of 10.2 times, which is slightly higher than its three-year median PE. The company has maintained a healthy average (three-year) ROE and ROCE of 15.5 per cent and 15.8 per cent, respectively. The company has a three-year compounded sales and profit growth of 24 per cent and 18 per cent, respectively. It also has a debt-to-equity of 0.29 times with an interest coverage ratio of 8.55 times. Ircon International is in a good position for future growth. The company has a healthy order book, ambitious goals and a sound plan to achieve its goals. The company is facing some risks, but it is taking steps to mitigate them. Considering all these factors, we recommend BUY.