IVRCL - Outperformer

IVRCL reported excellent results for Q4FY06 as also for the full year 2006. For the full year, revenues grew by 44%, operating margins improved by 60 basis points (bps) and profits grew by 64%. This was in line with my estimates. I am upgrading my estimates and recommend BUY with a price target of Rs. 305 taking into consideration full conversion of FCCBs, providing an upside of 27% from current levels.

KEY HIGHLIGHTS OF THE RESULTS

Excellent growth in revenues…

For Q4FY06, the company's revenues grew by 73% driven by a very good order book. For the full year, revenues grew by 44%. The company has an order book of Rs. 62 bn to be executed in the next two years, which would result in a higher growth in revenues in FY07 and FY08. Moreover, it is also expected to end the financial year with an order book of Rs. 85 bn.

and improvement in operating profit margin…

Operating margins of IVRCL have shown an improvement of 60 bps for the full year FY06 vis-à-vis FY05 led by selective bidding for projects, variable pricing clause and shift towards higher margin segments such as power. The company is also expected to improve these margins by 25 to 50 bps owing to higher contribution of power and irrigation projects and with the setting up of a steel fabrication unit, which would become operational in Q4FY07.

… leading to significant growth in profits

Profits for the full year have grown by 64% driven by an excellent growth in revenues and improvement in operating margins. For Q4FY06, profits grew by 74% resulting in net profit margins of 7.3%. For the full year, net profit margins stood at 6.1% and the company is confident of maintaining margins these levels.

Subsidiaries showing decent performance

The company's subsidiaries IVRCL Prime Urban Developers (IPUD) and Hindustan Dorr Oliver Ltd (HDOL) have also performed decently. HDOL has shown revenue growth in line with our estimates and a higher growth in profits vis-à-vis FY05. IPUD has also recorded revenues of Rs. 1.36 bn vis-à-vis Rs 218 mn last year. It isalso expecting a significant improvement in the netprofit margins owing to higher price realizations for its flats. The company is also coming up with a state-of-theart mall and IT park at Gachibowli, Hyderabad and has also obtained an approval for raising capital.

Future growth areas

The water segment would continue to be around 50-55% of the company's order book and with the growing size of power-related projects, the company would be able to improve its operating margins. It currently has sufficient funds and internal accruals to take care of its current order book but it would have to go for a GDR issue if it bags a few more large sized BOT projects in water or road segment. The company has already obtained an approval for raising approx $125 m.