IVRCL Infrastructure & Projects (IVRCL) announced its Q1FY08 numbers which were marginally better than our estimates. The company reported revenue of Rs6.8 billion (up 58.8% Y-o-Y). The EBITDA grew 67.9% y-o-y to Rs600.3 million and the PAT grew 74.6% Y-o-Y to Rs379.6 million. We also attended the conference call by the company and the key takeaways were:

Key highlights

The order accretion continues to be very strong. The company received order worth over Rs21 billion during the quarter. The addition was mainly in the water related projects segment where the company added over Rs15 billion and which now constitutes 61% of the order book. The transportation (17%), Power T&D (9%) and Buildings Structure (13%) segments constitutes the remaining order book.

The quarter saw an improvement of 50 bps in the EBITDA margins over the last year corresponding quarter at 8.9%. This is however below the last fiscal margins of 10%. The company expects the margins to improve by at least 25-50 bps for the full year.

The interest cost for the quarter was down by over 45% resulting in a faster growth in the PAT. The net margin was at 5.6% for the quarter and the management is confident of managing at least 6% net margins for the year.

In order to strengthen its position for pre-qualification for the projects in Power T&D segment, the company has set up a transmission tower manufacturing plant with a capex of Rs150 million. This is purely for captive purposes and is meant to support execution in the Power segment.

On the BOT projects front, the company has started construction activities on all its BOT projects. The Chennai Water Desalination project is expect to be commissioned by the first quarter of FY09, whereas the three BOT projects should start operations by the end of FY09. The company has already invested Rs2.5 billion in its BOT operations and will invest another Rs1 billion in the next year.

The company’s subsidiary IVR Prime has recently concluded its IPO and the issue price have been set at Rs550. The stock is expected to be listed shortly. IVR prime has a total of 75.5 m sft of saleable area in the cities of Hyderabad, Vizag, Chennai, Bangalore, Pune and Noida.

The company’s debt level should come down in the current fiscal from the current Rs7.9 billion as the company would repay debt to the extent of Rs2.5 billion. This will be possible as the company’s real estate subsidiary should repay the company the loans

The management also denied any plans for foray into the oil & gas explorations space as was reported earlier in various financial dailies.

The company has continued to take benefit of Section 80-IA and for the quarter the benefit taken was to the extent of Rs50 million.

The company has guided a turnover growth of 50% and a bottom-line growth of 60- 65% for its subsidiary Hindustan-Dorr Oliver (HDO). HDO currently has an order book of Rs4.5 billion.

Outlook and Recommendation:

IVRCL continued its splendid performance in Q1FY08 with a growth of over 55% to its topline as well as bottomline. The company als o added over Rs21 billion to its order backlog which currently stands at Rs 95 bn. The company had raised over Rs5.5 bn through the QIP route during FY07 which would help the company meet its funding requirement for various BOT projects and meet the working capital requirement. The Company has also recently successfully launched the IPO of its real estate subsidiary IVR-PUDL and has raised over Rs 7.8 bn from the same. We believe that the company's growth trajectory will continue in future and the pace of order accretion provides added visibility. We have arrived at a valuation of Rs 485 per share for the company based on a SOTP based valuation wherein we have valued the core construction business at Rs278 (15x FY09E), BOT projects at Rs55, holdings in subsidiaries at Rs143 for IVR-PUDL and Rs9 for Hindustan Dorr-Oliver. We reiterate our BUY recommendation.