Ashoka Buildcon: Karnataka project to give a big boost to company

Investor interest has been subdued in Ashoka Buildcon for quite some time, but it could change now, with its significant project win in Karnataka. Over the past three months, the company’s stock has fallen 16%, compared with a 27% surge in the broader ET Construction index, which is a composition of construction and road companies.


Ashoka Buildcon, leading a consortium with 51% stake, emerged as the lowest bidder for a Rs 318-crore Karnataka state highway project. Since it is an annuity project, the company will not be having any risk related to traffic on the route. In an annuity project, the road developer receives yearly income for the development of the project.

Although the size of the project is small, the order win underscores the keenness of the company to acquire projects, at a time order flow from NHAI has depleted. At present, on a standalone basis, Ashoka Buildcon has eleven projects, while its subsidiary Ashoka Concessions has eight.

In terms of geography, the company has a strong presence in Maharashtra and, to a reasonable extent, in the central and eastern region. With the Karnataka highway project, the company has entered the southern region now.

This new project should enhance the company’s engineering procurement and construction (EPC) segment revenues which, at present, form 76% of the company’s total revenues.

As of now, the company has a total order book of Rs 4,240 crore. Going ahead, the company plans to complete two bridges on Dhankuni-Kharagpur stretch by June 2013. This should enhance its toll revenues, which at present form 26% of its total revenues.

One main concern, however, for the company is sorting out land acquisition issues and securing environment clearance for its Cuttack-Angul project. The company plans to start the project by the second quarter of FY14.

This project should enhance its EPC revenues in FY14. Besides this, the company should also secure NHAI projects in the second half of the current fiscal. NHAI is expected to award more projects in the second half.

In the September 2012 quarter, on a consolidated basis, the company’s net profit remained flat at Rs 14.8 crore, compared with Rs 14.9 crore in the year-ago period. Its net sales for the quarter grew a meagre 6% to Rs 304 crore from ayear ago.

This slow pace of growth in revenues was a fallout of rains impacting the progress of two projects, the Sambhalpur-Baragrah and Dhankuni-Kharagpur projects, which led to lower revenue realisation.

On the valuation front, the company is trading at a price to book value of 1. This is quite economical in comparison with its larger peers such as IRB Infrastructure Developers and Sadbhav Engineering, which are trading at a price to book value of 1.6 each.