rating matrix ashoka buildcon (ashbui) - nse / bse share...

September 24, 2014

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Well funded – Gearing up for big league… Ashoka Buildcon (ABL) is a leading road developer with a portfolio of 21 road projects encompassing ~5,000 km. ABL’s road portfolio is well funded courtesy SBI Macquarie’s (SBM) | 700 crore commitment for a 34-39% stake in ACL (a subsidiary with seven major projects) at implied P/BV of 1.3x. With this secured funding, we expect ABL’s gross daily collection to grow 1.4x to | 2.8 crore/day in FY14-16E. With SBI Macquarie’s commitment of an additional | 650 crore, we believe ABL is also likely to be a key beneficiary of road awarding opportunities in H2FY15. On the EPC front, with an order book of | 3042 crore (1.5x order book to bill ratio on TTM), L-1 bids of | 1030 crore in the T&D segment and new road awarding opportunities from H2FY15 onwards, we believe ABL’s EPC revenues and earnings will grow at a CAGR of 19.7% and 15.2%, respectively, during FY14-FY16E. Hence, we initiate coverage on ABL with a BUY recommendation with an SOTP based target price of | 166/share.

Transforming into big league player with SBI Macquarie deal… In August 2012, SBI Macquarie committed | 700 crore (with an additional | 100 crore contingency reserve) for a 34-39% stake in Ashoka Concession (ACL) which has seven of its big ticket project. The deal, at implied P/BV of 1.3x (assuming 34% dilution), ensures equity funding towards ACL’s project portfolio. With secured funding, we expect ABL’s gross daily toll collection to grow 1.4x to | 2.8 crore/day in FY14-FY16E.

EPC revenues to grow at 19.7% CAGR during FY14-16E... ABL’s order book currently stands at | 3042 crore, 1.5x order book to bill ratio on a TTM basis. Beside this, ABL has L-1 bids worth | 1,030 crore in the T&D segment. Going ahead, we anticipate ABL’s revenues and PAT will grow at a CAGR of 19.7% and 15.2%, respectively, during FY14-16E on the back of a strong order book, aggressive road awarding opportunities in H2FY15E and opportunities from the T&D segment.

ABL to be key beneficiary from new opportunities, initiate with BUY… Considering the strong track record, well funded BOT road project portfolio and healthy order book, we remain positive on its long term prospects. With SBI Macquarie’s commitment of an additional | 650 crore, we believe ABL is likely to be a key beneficiary of the road awarding opportunities in H2FY15. Hence, we initiate coverage on ABL with a BUY recommendation and an SoTP target price of | 166 per share. We have valued ABL’s BOT projects at | 41/share, EPC business (net of debt) at | 70/share (5x FY16 EV/EBITDA) and ACL at | 55/share.

Exhibit 1: Financial metrics (consolidated) (| crore) FY12 FY13 FY14 FY15E FY16ENet Sales (| crore) 1,500.0 1,852.7 1,794.9 2,228.2 2,893.3 EBITDA (| crore) 325.0 371.9 397.2 505.1 836.7 Net Profit (| crore) 124.8 84.2 97.4 128.4 101.0 EPS (|) - Diluted 7.9 5.3 6.2 8.1 6.4 P/E (x) 17.2 25.5 22.0 16.7 21.3 Price / Book (x) 2.1 2.0 1.7 1.6 1.5 EV/EBITDA (x) 11.7 12.2 13.0 12.4 7.6 RoCE (%) 8.6 6.3 5.3 5.9 9.4 RoE (%) 12.1 8.0 7.7 9.3 6.9

Source: Company, ICICIdirect.com Research

Ashoka Buildcon (ASHBUI)| 136

Rating matrix Rating : BuyTarget : | 166Target Period : 18-24 monthsPotential Upside : 22%

YoY Growth (%)

(YoY Growth) FY13 FY14 FY15E FY16ENet Sales 22.8 (3.3) 23.6 30.2 EBITDA 14.4 6.8 27.2 65.7 Net Profit (45.4) 19.5 31.8 (39.5) EPS (|) 5.3 6.2 8.1 6.4

Valuation summary

(x) FY13 FY14 FY15E FY16EP/E 25.5 22.0 16.7 21.3 Target P/E 31.1 26.9 20.4 26.0 EV / EBITDA 12.2 13.0 12.4 7.6 P/BV 2.0 1.7 1.6 1.5 RoNW (%) 8 7.7 9.3 6.9 RoCE (%) 6.3 5.3 5.9 9.4

Stock data Particular AmountBloomberg/Reuters Code ASBL IN / ABDL.NSSensex / Nifty 26729 / 79963 Months Average Daily Volume 1,46,966Market Cap (| crore) 2,148.2

52 week H/L 159 / 43Equity Capital (| crore) 79.0Promoter's Stake (%) 67.5FII Holding (%) 2.5DII Holding (%) 14.6

Comparative Return Matrix (%)

1M 3M 6M 12MAshoka Buildcon 3.0 (5.1) 111.7 205.7 IRB Infra (1.0) 23.4 169.6 228.6 Sad Eng 19.6 21.2 172.0 299.3 ITNL (7.2) (0.9) 74.9 106.2

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Price (R.H.S) Nifty (L.H.S) Analyst

Deepak Purswani, CFA deepak,[email protected]

Bhupendra Tiwary

[email protected]

Nikunj Gala [email protected]


Company background Nashik-based Ashoka Buildcon (ABL) has primarily been a road developer cum contractor for the last 17 years. ABL, which started as an E&C contractor for residential, commercial, industrial and institutional buildings in 1997, has come a long way since then. The company has executed 59 road and bridge projects becoming one of the leading BOT developers in the country.

ABL has 21 projects (including Ahmednagar – Karmala and Pune - Shirur where tolling has stopped since Q3FY13 and Q2FY15, respectively) in its road portfolio encompassing ~5,000 lane km and spread across Maharashtra, MP, Chhattisgarh, Karnataka, West Bengal and Odisha. Out of its portfolio of 21 projects, 15 are fully operational. Furthermore, it has four BOT projects under construction/development of which one is also tolling on the current stretch. It includes the recently bagged two projects (Chennai ORR and Karnataka annuity projects) for which construction will begin in the next quarter.

ABL houses its road projects under two broad holding companies i.e., Ashoka Buildcon (ABL) and Ashoka Concession (ACL). The latter was carved out with eight projects in its portfolio to enable a strategic stake sale to SBI Macquarie, which holds 34% (expandable up to 39% on the performance of one road project) in ACL. It also carries out engineering & construction (E&C) work for road and power transmission and distribution (T&D) and sells ready mix concrete (RMC) for road construction.

Exhibit 2: Timeline of Ashoka Buildcon

IDFC PE acquired 13% stake

Dhule Bypass – First BOT of | 5.8 crore

Won Dankuni- Kharagpur worth | 2205 crore

BOT Projects (NH-6 D & NH-6 B) of >| 500 crore

Two large NHAI BOT projects worth | 1638 crore on NH-4 and NH-6 stretch

1976

- IIF picked up stake in both NH-6 SPVs- First power distribution EPC- Together with L&T, won NH-3 project worth | 1691 crore

Origination

1997 2000

First project (Indore-Edalabad) of > | 100 crore

Completed 10 BOT projects between

2001 & 20062006 2007 2009 2010 2011 2012

SBI Macquarie invested | 700 crore for 34% stake in ACL

2013

Won two annuity projects (Chennai ORR

& KSHIP II)


FII & DII holding trend (%)

0.0 0.0 0.02.5

18.3 17.9 17.914.6

0.05.0

10.015.020.0

Q2FY14 Q3FY14 Q4FY14 Q1FY15

FII DII

Shareholding pattern (Q1FY15)

Shareholder Holding (%)Promoter 67.5FII 2.5DII 14.6Others 15.3

Rectangle


Investment Rationale Focused play on road segment… Strong portfolio of 21 projects…

ABL has primarily been a developer cum contractor for projects over the last 17 years. The presence of ABL in the road development segment dates back to 1997 when it bagged the 6-km Dhule Bypass project worth | 5.8 crore. With a focused play on the segment coupled with experience of partnership with established players such as L&T, IDFC and Srei Infrastructure, ABL is one of the leading road developers in the country.

The company has 21 projects (including Ahmednagar–Karmala and Pune-Shirur where tolling has stopped since Q3FY13 and Q2FY15, respectively) under its road portfolio encompassing ~5,000 lane km and spread across Maharashtra, Madhya Pradesh, Chhattisgarh, Karnataka, West Bengal, Tamil Nadu and Odisha. Out of this, 15 projects are operational while it has four BOT projects under construction/development (one of them is partially tolling). On one of its projects Ahmednagar-Karmala, tolling has been stopped by MSRDC for which the company has take the matter to arbitration. On its Pune-Shirur project, tolling has stopped from August 8, 2014 in accordance with the interim order of the Bombay High Court. In this project, the company has two awards in its favour approximately for three years. These are being contested at the district court.

Exhibit 3: Holding structure of ABL

Projects Stake (%)Aurangabad - Ahmednagar 100.0Ahmednagar Karmala 100.0Anawali Kasegaon 5.0Katni Bypass 99.9

Projects Stake (%) Nashirabad ROB 100.0Belgaum Dharwad Road 100.0 FOB Eastern Expressway 100.0Sambalpur Baragarh Road 100.0 Sheri Nallah Bridge 100.0Dankuni Kharagpur Road 100.0 Dhule Bypass 99.9Bhandara Road 51.0 Dewas Bypass 100.0Durg Chhattisgarh Road 51.0 Indore Edalabad 99.7Jaora-Nayagaon Road 37.7 Pune Shirur 100.0Pimpalgaon-Nasik-Gonde Road 26.0 Wainganga Bridge 50.0

New BOT Projects Stake (%) New BOT Projects Stake (%)Chennar ORR 50.0 Karnataka State Highway 51.0

Ashoka Buildcon Ltd (Listed Entity)

Ashoka Concessions Limited(ACL)

Owned BOT Projects

SBM to hold 34-39%* stake

EPC & RMC Business

Source: Company, ICICIdirect.com Research * depends on the performance of the Sambalpur Baragarh project, the review on the traffic of the same would be done in FY16.

Total 15 projects are operational while it has four BOT

projects under construction/development of which one

project is tolling on the current stretch


Exhibit 4: Portfolio of road projects of ABL Ashoka Buildcon Ltd

Project Name Stake (%) Length

(km) Lane(km)

TPC(| crore)

Debt(| crore)

Equity(| crore)

ABL Eq share(| crore) Status

Aurangabad - Ahmednagar 100.0 42.0 168.0 102.7 35.7 67.0 67.0 Operational

Nagar Karmala 100.0 80.6 160.0 50.4 38.1 12.4 12.4 Tolling stopped since Q3FY13

Anawali Kasegaon 5.0 11.0 22.0 7.4 NA NA 0.0 Operational

Katni Bypass 99.9 17.6 35.2 70.9 53.5 17.4 17.4 Operational

Nashirabad ROB 100.0 4.0 8.0 14.7 13.3 1.5 1.5 Operational

FOB Eastern Expressway 100.0 NA NA 3.7 1.8 2.0 2.0 Operational

Sheri Nallah Bridge 100.0 4.0 7.0 14.2 7.2 7.0 7.0 Operational

Dhule Bypass 99.9 6.0 11.8 5.8 5.2 0.6 0.6 Operational

Dewas Bypass 100.0 20.0 39.6 61.3 36.0 25.3 25.3 Operational

Indore Edalabad 99.7 203.0 406.6 165.0 101.5 63.5 63.3 Operational

Pune Shirur 100.0 54.0 216.0 159.9 113.5 46.4 46.4 Operational

Wainganga Bridge 50.0 13.0 26.0 40.9 35.0 5.9 3.0 Operational

Karnataka State Highway 51.0 109.9 216.0 471.0 287.0 47.0 24.0 Construction to start from Q3FY15

Ashoka Concession Ltd

Project Name Stake (%) Length

(km) Lane(km)

TPC(| crore)

Debt(| crore)

Equity(| crore)

ACL Eq share(| crore) Status

Bhandara 51.0 82.6 376.8 528.0 354.5 173.5 60.0 Operational

Durg Chhattisgarh 51.0 71.1 368.2 630.5 410.0 220.5 100.2 Operational

Jaora Nayagaon 37.7 85.1 340.2 865.1 554.5 310.6 69.0 Operational

Belgaum Dharwad 100.0 82.0 772.0 694.1 479.0 185.0 185.0 Operational

Sambalpur Baragarh 100.0 88.0 407.6 1142.2 810.0 332.2 332.2 Under construction

Dankuni Kharagpur 100.0 112.0 840.5 2205.2 1516.2 689.0 689.0 Under construction, partially tolling

Pimpalgaon Nasik Gonde 26.0 60.0 451.9 1691.0 1183.7 507.3 131.9 OperationalChennai ORR 50.0 50.0 183.0 1450.0 1080.0 173.0 86.5 Under construction


“King of Great Eastern Road (NH 6)”…

ABL enjoys a staggering 24% share in PPP road projects on the NH-6 (also known as Great Eastern Road or GE Road). The ~1950 km highway stretches from Hazira in Gujarat to Kolkata in West Bengal passing through Maharashtra, Madhya Pradesh, Chhattisgarh and Odisha. While the stretch is perceived as a low key corridor, mineral rich states such as Chhattisgarh and Odisha falls on the route coupled with the presence of key eastern ports such as Haldia, Paradip, etc. There are also key steel, copper and aluminium plants on the fringes of this stretch.

It has a portfolio of nine projects encompassing 1739 lane km on this stretch with a presence in four out of six states connected to NH-6. We believe that it eases mobilisation of equipment for ABL. Furthermore, the experience and presence on the stretch also provides ABL with credible traffic data, which would support bidding of new projects.

The region’s traffic has been muted given the restricted mining activity & industrial activity in terms of steel, copper etc. However, we believe that in the long run traffic will pick up given the mineral rich potential of states like Chhattisgarh, Odisha and trade potential of Gujarat and Maharashtra, given the expected pick-up in industrial activity. Furthermore, given the dredging issues in Haldia Port, traffic is affected. Hence, resolution of the same along with development of the Multi-modal International Cargo Hub and Airport at Nagpur (Mihan) as an international cargo hub would hold the key for port traffic. This, in turn would support traffic flow on the stretch.

We highlight that while the potential of the region remains high, given the economic slowdown, we remain conservative in our traffic growth

We highlight that while the potential of the region remains

high, we remain conservative in our traffic growth

estimates for projects in the region assigning a nominal 3%

traffic growth in FY15 and 5% per annum in FY16


estimates for projects in the region assigning a nominal 4% traffic growth in FY15 and 5% per annum in FY16 (refer exhibit 29 for more details).

Exhibit 5: NH 6 where ABL is a leader with nine projects spanning 1739 km


SBI Macquarie deal – equity constraints eased…

Deal details…

To grow its BOT project portfolio in the road sector and support its funding need for under construction projects, ABL has partnered with SBI Macquarie through a | 700 crore private equity investment (with additional | 100 crore for contingency in the current portfolio).

ABL has carved out of its asset portfolio seven of its large road BOT projects (refer exhibit 6) under a subsidiary named Ashoka Concessions Ltd (ACL) wherein SBI Macquarie (SBM) will make an equity investment of | 700 crore in its existing under construction projects for an equity stake between 34% and 39% depending on the performance of one BOT project (Sambalpur Baragarh – to be evaluated in FY16). This deal implies a price to book value of 1.3x (assuming 34% stake) valuing ACL at ~| 2059 crore (vs. total ACL’s share of equity requirement of | 1567 crore for the said projects). Assuming 39% stake, the deal implies a P/BV of 1.1x (valuing ACL at | 1795 crore). Additionally, SBM would also bring in proportionate equity for a stake in the recently won Chennai ORR project.

Exhibit 6: ACL project portfolio details

Project Name Stake (%) TPC(| crore)

Debt(| crore)

Equity(| crore)

ACL Eq share(| crore)

Bhandara 51.0 528.0 354.5 173.5 60.0Durg Chhattisgarh 51.0 630.5 410.0 220.5 100.2Jaora Nayagaon 37.7 865.1 554.5 310.6 69.0Belgaum Dharwad 100.0 694.1 479.0 215.1 185.0Sambalpur Baragarh 100.0 1142.2 810.0 332.2 332.2Dankuni Kharagpur 100.0 2205.2 1516.2 689.0 689.0Pimpalgaon Nasik Gonde 26.0 1691.0 1183.7 507.3 131.9Total 7756.1 5307.9 2448.2 1567.2

SBM Investment 700.0Implied P/B @ 34% 1.3


This deal implies a price to book value of 1.3x (assuming 34% stake) valuing ACL at ~| 2059 crore vs. total ACL’s share of equity requirement of | 1567 crore for the said projects


Sambalpur Baragarh traffic shortfall may lead to SBM stake increasing to 39%…

As per the agreement, SBM’s stake can go up to 39% in ACL, depending on the performance of the Sambalpur Baragarh project. The review on the traffic of the same would be done in FY16. We highlight that given the economic slowdown leading to muted traffic growth, the management has indicated that traffic in Sambalpur may fall short of estimates. Consequently, the effective stake of SBI Macquarie may be 39%.

Protection of 12% IRR on SBM investment…

ABL has provided SBM with an exit option through an IPO, sale to a financial investor and a split of assets. As per the agreement, capital protection of 12% IRR (on | 700 crore) has been provided on exit for a maximum of 6.5 years implying an exit value of | 1459 crore in 6.5 years or a proportionate amount if exited earlier than 6.5 years.

Deal puts ABL on faster growth momentum…

In addition, SBM has committed | 650 crore as its equity contribution towards additional projects that are likely to be won by ACL over the next three or four years. With this commitment, ABL can bid for new projects worth ~| 7000 crore, going ahead. Additionally, ACL can utilise the Macquarie technical points for NHAI qualification. This move, therefore, brings ACL into the league of big BOT players being the exclusive platform for SBI Macquarie fund to bid for newer projects. Consequently, this deal also gives a huge boost to ABL’s EPC order book as ABL is the exclusive contractor for ACL’s future projects implying total inflow potential of ~| 7000 crore as a result of the new bids.

Cash generation from ABL owned projects & EPC to further provide scope for equity

We believe ABL’s equity share for new bids of ACL would largely be met through operational cash flows from ABL owned BOT projects. We expect ABL’s operational BOT projects to generate FCFE of | 314.9 crore in the next three years. Additionally, ABL would be generating internal accruals to the tune of ~| 575 crore over the next three years in its EPC divisions. Hence, the presence of such cash flow would help it to fund its equity commitment in the news projects along with SBI Macquarie.

The deal with SBM, FCFE of | 314.9 crore from ABL’s operational BOT projects and operating cash flow of | 575 crore from the current EPC order book would enable ABL to bid for new projects worth | 7000 crore

Exhibit 7: Operational cash flow key provider for equity for new bids

Stake (%) TPC (| crore) Debt O/S

(| cr) Toll Collection

FY14 (| cr) Residual Life

(Years) Aurangabad - Ahmednagar 100.0 102.7 13.8 18.4 2.4Katni Bypass 99.9 70.9 -- 16.6 0.5Nashirabad ROB 100.0 14.7 -- 4.9 0.6Sheri Nallah Bridge 100.0 14.2 -- 3.8 1.2Dhule Bypass 99.9 5.8 -- 5.7 0.4Dewas Bypass 100.0 61.3 2.1 20.2 1.4Indore Edalabad 99.7 165.0 14.8 79.0 3.1Pune Shirur 100.0 159.9 -- 22.6 1.5Wainganga Bridge 50.0 40.9 18 23.4 3.9Total 49.2 194.5



Toll collection to grow 1.4x in FY16E when all projects commence operation…

Post the completion of all BOT projects, we anticipate the daily toll collection for ABL will inch up 1.4x to | 2.8 crore in FY16E vs. | 2.0 crore in FY14. The growth is expected to be led by ACL’s portfolio, which consists of large sized under construction projects vs. ABL’s portfolio where most projects are mature. For ACL, the toll collection is expected to rise from | 1.5 crore/day in FY14 to | 2.3 crore per day in FY16E as the entire toll based projects in the portfolio would be operational by FY15E. For ABL owned projects, toll collection is expected to remain flattish at | 0.6 crore/day in FY16E. With the improvement in the daily toll collection, we expect ACL’s cash profit to grow to | 319.2 crore in FY16E from | 236.4 crore in FY14 despite building up conservative estimates for the EPC division in FY16E.

Exhibit 8: Daily toll collection to inch up to 2.9 by FY16E

0.6 0.6 0.5 0.6 0.6

0.51.2 1.5

1.9 2.31.1

1.8 2.02.5

2.8

0.0

1.0

2.0

3.0

4.0

5.0

FY12 FY13 FY14E FY15E FY16E

(| c

rore

)

ABL ACL


Exhibit 9: Cash profit to rise to | 319.2 crore in FY16 as all projects commence operation

102.4 104.4142.8 161.7

193.7

107.3 112.193.6

97.8

125.5

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

FY 12 FY 13 FY 14 FY 15 E FY 16 E

(| c

rore

)

Construction BOT projects


With all toll based projects (the two new projects being annuity based) expected to become fully operational, we expect the daily toll collection for ABL to inch up 1.4x to | 2.8 crore in FY16E vs. | 2.0 crore in FY14


EPC business to grow at 19.7% during FY14-16E...

ABL’s order book at the end of Q1FY15 stood at | 3,042 crore implying book to bill of 1.5x TTM construction revenues. Roads (largely captive) constitute 63% of the overall order book while the T&D EPC orders account for the balance 37%. The construction revenue growth for ABL in FY15 will largely be driven by under construction projects of ACL and newly won projects such as Chennai ORR, and Karnataka State Highway. In addition to this, the T&D order book of | 1,120 crore and recently won projects worth | 1,030 crore in the T&D segment (not included in the current order book yet) would contribute significantly to EPC revenues.

For FY15 and FY16, we have built in order inflows worth | 3,000 crore in the road segment on the back of aggressive plans by NHAI and | 2,230 crore in the T&D segment considering huge opportunities from planned investment in the T&D segment as per the Twelfth Five Year Plan. Hence, we expect the EPC order book to grow at 16.7% CAGR to | 4,829 crore during FY14-16E. Consequently, the EPC segment is expected to report revenue CAGR of 19.7% during FY14-16E. However, we expect the margin to remain at 13% in FY15 and FY16 against 13.6% in FY14 mainly due to a significant contribution from the low margin T&D segment. We expect PAT to grow at 15.2% CAGR to | 153.4 crore during FY14-16E. It should also be noted that the visibility of FY16 will depend on new order wins. With majority of under construction projects (except Chennai ORR and KSHIP II) expected to be completed in FY15, EPC revenue growth in FY16 would hinge on order inflows traction.

Exhibit 10: Order book trend

4967.0

3568.0 3546 3279

4829

0

1000

2000

3000

4000

5000

6000

FY12 FY13 FY14 FY15E FY16E

(| c

rore

)


Exhibit 11: Road constitutes 63% of order book

T&D EPC37%

Captive75.7%

Non-captive24.3%

Road63%


Exhibit 12: EPC revenue and EBITDA margin trend

1265

.3

1584

.8

1502

.1

1813

.6

2150

.0

13.812.9 13.6 13.0 13.0

0

500

1000

1500

2000

2500


(| c

rore

)

0246810121416

(%)

Revenues EBITDA Margin(RHS)


Exhibit 13: EPC PAT trend

89.475.3

115.6 119.7

153.4

0.0

50.0

100.0

150.0

200.0


(| c

rore

)

PAT

CAGR - 15.2%


With a majority of under construction projects (except Chennai ORR and KSHIP II expected to be completed in FY15, FY16 EPC revenues growth would hinge on order inflows traction

Trend in T&D planned investment:

(| crore)X plan

investmentXI plan

investmentXII plan

investmentT&D 119,500 427,000 640,000 Transmission 47,100 140,000 240,000 Distribution 72,400 287,000 400,000 T&D capex as % of total 51 56

Source: Planning Commission, ICICIdirect.com Research


ABL vis-à-vis other key road developers...

ABL, through present in the BOT road segment from 1997, has been a small sized player till 2010 after which it started undertaking projects above | 1000 crore. Furthermore, aided by the SBM PE deal, its road BOT portfolio has expanded to 5,096 km taking it into the league of big road players in our coverage after IRB Infrastructure. Beside this, with SBM’s further commitment of ~ | 650 crore for new projects coupled with its internal accruals from ABL’s BOT portfolio and EPC division, ABL is well poised to enter a strong growth trajectory.

Exhibit 14: ABL vis-à-vis its peers

Ashoka Buildcon IRB Infrastructure Sadbhav Engineering

Order Book to Bill Ratio 1.5x 3.0x 3.4x

EPC Revenue

Road BOT Revenue

BOT Portfolio

Total Lane km

EPC Order Book

21 Projects

3,042 crore

5056

11,348 crore 8,336 crore

21 Projects 13 Projects

9295 3796

IRB Infra

3.9 4.67.1

5.5

0.0

2.0

4.0

6.0

8.0

FY13 FY14 FY15E FY16E

(|)

Ashoka Buildcon

1.4 1.5 1.7 2.0

0.4 0.60.8

0.8

0.0

0.6

1.2

1.8

2.4

3.0


(|)

Toll Collection Income from Associates

Sadbhav Engineering

0.91.6 1.8 2.20.6

0.8 0.91.0

0.0

1.0

2.0

3.0

4.0


(|)

Toll Collection Income from Associates

IRB Infra

2640

.9

2555

.3

3448

.4

2926

.2

0.0

1000.0

2000.0

3000.0

4000.0


(| c

rore

)

Sadbhav Engineering

1811

.0

2358

.1

3348

.7

2933

.1

0.0

1000.0

2000.0

3000.0

4000.0


(| c

rore

)

Ashoka Buildcon

1584

.8

1502

.1

2150

.0

1813

.6

0.0

1000.0

2000.0

3000.0


(| c

rore

)



Road: Tough times but regulatory aid to improve situation...

Visibility of opportunities galore for road developers in next four or five years…

A lull has been seen in NHAI awarding since the last 18-24 months given the issues such as stressed balance sheet of the developers, non-viability of BOT projects given the low traffic density, lack of regulatory clarity regarding clearances and restricted funding avenues after cautious stance taken by banks on account of miss in traffic estimates in current projects.

However, with the formation of a stable government at the Centre and its 10-year agenda to focus on infrastructure, the tide is finally turning for the tormented sector. Modification of the regulatory framework, speeding up clearances to eliminate execution hurdles and new project awards to revive moribund capex cycle, restructuring of premium, amendments in the Model Concession Agreement (MCA) lend us confidence that there will be greater rewards in the long run for road developers. Also significant focus was given to the road sector in the Union Budget 2014-15:

The Budget has proposed investments worth | 37,880 crore, up 12% from the previous year’s spend for the development of national highways and state roads. Additionally, | 500 crore has been set aside for expressways, which could help kick-start some expressway projects that have been on the drawing board for long.

After witnessing all-time high awarding of 6,491 km in FY12, NHAI missed its FY13 and FY14 target by a long margin. Till June, 2014, 22,727 km out of 50,618 km have been constructed under National Highways Development Project (NHDP), which is managed by NHAI under MoRTH. Total 3,567 km are under implementation while 8,922 have already been awarded till date. Therefore, 15,402 km of road projects are expected to be awarded in the next three or four years. Also, NHAI has set very aggressive targets to award 8,500 km of highways (already awarded ~1,000 km) and complete construction of 3,900 km during FY15.

Exhibit 15: NHDP status as on June, 2014

GQ NS& EW Ph.

I & IINHDP Phase

IIINHDP Phase

IVNHDP Phase

VNHDP Phase

VINHDP Phase

VII Port Connectivity Other NHs SARDP-NETotal by

NHAI

Total length 5846 7142 12109 14799 6500 1000 700 380 1754 388 50618

Completed till date 5846 6305 6214 610 1869 0 22 379 1391 91 22727

Under implementation 0 420 1490 753 805 0 19 1 61 18 3567

Awarded till date 0 0 2720 4493 1407 0 0 0 302 0 8922

Length to be awarded 0 417 1685 8943 2419 1000 659 0 0 279 15402

Source: NHAI, ICICIdirect.com Research

Second largest road network in the world

In India, roads form the most common mode of transportation and account for about 85% of passenger traffic and close to 60% of freight

Road Network Length (Kms)

Percentage of total length

Percentage of total traffic

National Highway 92,851 2 40

State Highway 142,687 3

Other Roads 4,629,462 95

Total 4,865,000 100 100

60

Source: MoRTH, NHAI, ICICIdirect.com Research

Rectangle


Exhibit 16: Road project awarding by NHAI

17341234

643

3166

5083

6,491

1,1161,476

8500

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E

(km

)


Exhibit 17: NHAI road construction trend

635

18822205

2693

17862248

2844

1901

3900

0500

10001500200025003000350040004500

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E

(km

)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

(km

)

Completed km/day (RHS)


Exhibit 18: NHDP quarterly project awarding trend

101

472

320220 221 208

409476

763

0100200300400500600700800900

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

(km

)


Exhibit 19: NHDP quarterly project execution trend

613

349

515

1227

574

228

441

654

362

6.8

3.95.7

13.6

6.4

2.5

4.9

7.3

4.0

0

200

400

600

800

1000

1200

1400

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

(km

)

0.0

2.0

4.0

6.08.0

10.0

12.0

14.0

16.0(k

m/d

ay)



Recent policy reforms…

1) De-linking of forest clearances...

One of the major suggested policy reforms was the Supreme Court ruling of de-linking of forest clearances from environment clearances, which ensured that projects that were stuck for forest clearance could start work on the non-forest stretch post environmental clearance.

2) Proposal to facilitate exit in project…

Another policy reform was the proposal to facilitate complete/partial exit of the existing concessionaire in the ongoing or completed road projects. This move was aimed at expediting execution, which was stuck due to inability of the current concessionaire to fund the project. However, considering the already stressed balance sheets of most developers, there will be few takers for the projects.

3) Premium rescheduling…

Recently, the Finance ministry approved the rescheduling of the premium, as per the Rangarajan Committee suggestion. Accordingly, road developers would be allowed to defer their premium payment if they are faced with a paucity of funds to pay premium, after undertaking debt servicing and operation and maintenance costs, from toll revenues. Post rescheduling, none of them would become non-performing assets because the dues to the banks would now take precedence over the premium payable to NHAI. NHAI has estimated that 21 ongoing two to four lane projects would benefit from the recommendations. The total annual premium payable in these 21 projects is ~ | 729 crore. The overall premium payable over the concession period is | 28,577 crore.

From the road developer’s perspective, we see two important implications.

Firstly, as per the new norms, the developer would have to pay interest equal to bank rate + 2% on premium amount deferred (~11%). Based on this, cost of fund is ~11% vs. the current borrowing cost of 12-12.5%

Secondly, since as per the new norms, a lender has precedence over NHAI premium, developers are in discussions with rating agencies to enhance the credit rating for the SPV, which should lead to lower cost of borrowing

ABL has indicated that two projects in its portfolio, Dankuni Kharagpur and Belgaum Dharwad wherein they have combined annual premium of ~| 165 crore per annum, would qualify for premium deferral. The benefit would be in the form of ~100-125 bps savings. This would increase our fair value by ~3% of our valuation.

4) New finance corporation to fund road projects; long term funds made available …

The government plans to set up a finance corporation with a corpus of | 1 trillion, in partnership with Japanese investors, to fund projects in the road sector. Also with an aim to improve availability and reduce the cost of funds, banks have been allowed to raise long term funds with minimum requirements for cash reserve ratio, statutory liquidity ratio and priority sector lending.

In addition to these, other policy initiatives like overhauling of claims and dispute resolution process, proposition to take over stalled projects, etc. to revive the sector gives us confidence the tide is finally turning for the tormented sector.


Financials Consolidated revenue to grow at 27.0% CAGR during FY14-16E…

We expect ABL’s consolidated net sales to grow at 27.0% CAGR during FY14-16E. The construction revenue growth for ABL in FY15 and FY16 will largely be driven by under construction projects of ACL viz. NH-6-Sambalpur and NH-6-Dankuni Kharagpur and newly won projects such as Chennai ORR and Karnataka State Highway. In addition to this, the T&D order book of | 1,120 crore and recently won projects worth | 1,030 crore in the T&D segment (not included in the current order book yet) would contribute significantly to EPC revenues. Consequently, the EPC segment is expected to report revenue CAGR of 19.7% during FY14-16E. However, it should be noted that with a majority of under construction projects expected to be completed by FY16, EPC revenue growth would hinge on new order inflow traction, going ahead.

Despite projects like Katni, Dhule, Nashirabad, etc. completing their concession period in FY15/16, toll revenues are expected to grow at 59.3% CAGR during FY14-16E mainly due to the commencement of operation of major projects under ACL by FY16. We expect projects viz. NH-6 Sambalpur and NH-6 Dankuni to contribute more than 45% to the consolidated toll revenues of FY16.

Exhibit 20: Consolidated revenue growth trend

1,500.0

1,852.7 1,794.9

2,228.2

2,893.3

-

500

1,000

1,500

2,000

2,500

3,000

3,500


(| c

rore

)

27% CAGR


Exhibit 21: EPC revenue to grow at 19.7% CAGR during FY14-16E

1233

.5

1561

.2

1500

.0

1813

.6

2150

.0

-50200450700950

12001450170019502200


(| c

rore

)

19.7% CAGR


Exhibit 22: BOT revenue to grow at 59.3% CAGR during FY14-16E

261.

6

286.

5

292.

8

414.

6

743.

3

0

150

300

450

600

750

900


(| c

rore

)

Sambalpur and Dankuni will become fully operational by FY16, contributing >45% to the consolidated toll revenue


We expect revenues to grow at a CAGR of 27.0% in FY14-

16E from |1795 crore to | 2893 crore


EBITDA to grow at 45.1% CAGR during FY14-16E…

The consolidated EBITDA of ABL is expected to grow at a CAGR of 45.1% during FY14-16E given the sharp growth in BOT revenues. EBITDA margins are expected to improve from 22.1% in FY14 to 28.9% in FY16 on the back of an increasing share of BOT revenues, which typically have 75-80% margins. We expect BOT revenue to contribute 25.7% to total revenues in FY16E against 16.3% share in FY14.

Exhibit 23: EBITDA growth trend

325.

0

371.

9

397.

2

836.

7

505.

1

21.720.1

22.1 22.7

28.9

0

100

200

300

400

500

600

700

800

900


(| c

rore

)

0

5

10

15

20

25

30

35

(%)

EBITDA EBITDA Margin (RHS)


Bottomline to remain flat; cash profit to remain healthy…

We expect ABL’s bottomline to remain flat in FY16 as all projects become operational leading to higher depreciation and interest outflow. However, we expect cash profit to remain healthy at | 319.2 crore in FY16E.

Exhibit 24: PAT to remain flat

124.

8

84.2

97.4

128.

4

101.

0

8.3

4.55.4 5.8

3.5

0

20

40

60

80

100

120

140


(| c

rore

)

0

2

4

6

8

10

(%)

PAT PAT Margin (RHS)


Exhibit 25: …but cash profit to remain healthy

209.7 216.6239.0

259.5

319.2

0

100

200

300

400


(| c

rore

)


EBITDA margins are expected to improve from 22.1% in

FY14 to 28.9% in FY16 on the back of an increasing share

of BOT revenues, which typically have 75-80% margins

Rectangle


Return ratios to improve from hereon…

Considering the large number of projects under construction, the return ratios of ABL are subdued. However, we expect return ratios of ABL to improve from hereon as under construction projects become operational.

Exhibit 26: Return ratios to improve

12.1

8.6

8.07.7

9.3

6.96.3

5.3 5.9

9.4

0

2

4

6

8

10

12

14


(%)

RoE RoCE


We expect return ratios of ABL to improve as under

construction projects become operational


Risk & concerns Slowdown in awarding…

There has been a lull in NHAI awarding in the last 18-24 months given issues like the stressed balance sheet of developers, non-viability of BOT projects given the non lucrative stretch, lack of regulatory clarity regarding clearances & restricted funding avenues after the cautious stance taken by banks due to miss in traffic estimates in current projects.

However, recent positive moves such as de-linking of forest clearance and environment clearance for linear projects by Supreme Court, deferral of premium and setting up of a regulator for the road sector are key reforms for the sector, boding well for future awarding.

Nevertheless, continuance of this sluggish awarding could be a major concern for road developers.

Further stake dilution in SBM deal…

As per the agreement, SBM’s stake can go up to 39% in ACL, depending on the performance of the Sambalpur Baragarh project. The review on the traffic of the same would be done in FY16. Any shortfall in traffic estimates could lead to an increase in SBM’s stake to 39% in ACL. While, we have built up dilution of 39% in our valuation; any dilution beyond 39% may impact our valuation.

Traffic risk…

Lower traffic growth may adversely impact revenue growth for projects since all (except two new wins) of Ashoka’s projects are toll- based and revenue is directly dependent on traffic. For ACL portfolio, every 1% decline in traffic growth estimates from our base case assumption could impact valuations by ~7-8% while impact for ABL projects would be ~1% to our valuation for every 1% decline in traffic growth assumptions.

Nonetheless, we highlight that we have assumed initial toll collection at a discount to management expectations. We have also built in conservative traffic growth of 4% for FY15E and 5% for FY16E for road projects. As such, traffic risk should not be a major concern affecting our valuation estimates.

Execution delay…

Although ABL has exhibited a strong track record of executing projects within time, any delay in execution by the company would lead to cost overruns and loss of toll revenues. We highlight that given the delay in clearances and approvals by NHAI, Cuttack Angul was terminated by the company. Similarly, in future, if any project gets stuck on account of any issues, the risk of cost overruns and loss of toll revenues pose a significant risk.

Rise in key raw material prices and labour cost…

Rising raw material prices and labour cost are a risk for ABL. Since the entire in-house EPC road contracts (~70% of the order book) undertaken by ABL are fixed price contract, any significant rise in raw material prices would pose a risk in margins estimate for EPC projects.

Supreme Court’s verdict on coal blocks…

The Supreme Court recently termed all captive coal blocks allocated by the government from 1993 to 2010 illegal. The final verdict is yet to come. However, in case such an event occurs and a delay in re-allocation process takes place that may adversely affect the traffic on NH-6. In turn, this may impact ABL’s toll revenue.

Although ABL has a strong track record of executing

projects within time, any delay in execution on part of the

company would lead to cost overruns and a loss of toll

revenues


Valuation At the CMP, the stock is trading at 1.5x FY16E P/BV. Considering the strong track record, well funded BOT road project portfolio and healthy order book, we remain positive on its long term prospects. Hence, we initiate coverage on ABL with a BUY recommendation with an SoTP target price of | 170/share. ABL-BOT: We have valued ABL’s BOT portfolio at | 40.8/share. To value ABL’s BOT portfolio, we have considered the traffic assumption of 4% for FY15 and 6% for FY16 with a toll hike in line with the concession agreement (discussed in detail in key assumptions & sensitivity section). We have valued the ABL portfolio using cost of equity (CoE) of 13%. EPC: We have valued ABL’s EPC business at | 88.5/ share (5x FY16E EV/EBITDA, which is at ~15% discount to other leading construction companies). ACL BOT: To value ACL’s BOT project portfolio, we have considered CoE of 13% for annuity based projects and 14% for toll based projects. We have also considered a traffic assumption of 5% for FY15 and 6% for FY16 and a toll hike in line with the concession agreement (discussed in detail in key assumptions and sensitivity section). Based on these assumptions, we have derived ACL’s valuation of | 1360 crore. Our valuation implies 0.9x P/BV vs. PE deal at 1.3x. We have valued ABL’s 64% stake in ACL at | 871 crore or | 55.1/share. &

Exhibit 27: ABL valuation

Project Name Stake (%)Length

(km)TPC (| crore)

Debt (| crore)

Equity (| crore)

Eq share (| crore) CoE(%)

ABL equity value (| cr)

Value/share (| )

Ashoka Buildcon (ABL) - BOT

Aurangabad - Ahmednagar 100.0 42.0 102.7 35.7 67.0 67.0 14.0 18.9 1.2

Katni Bypass 99.9 17.6 70.9 53.5 17.4 17.4 14.0 2.8 0.2

Nashirabad ROB 100.0 4.0 14.7 13.3 1.5 1.5 14.0 15.0 0.9

Sheri Nallah Bridge 100.0 4.0 14.2 7.2 7.0 7.0 14.0 1.1 0.1

Dhule Bypass 99.9 6.0 5.8 5.2 0.6 0.6 14.0 4.2 0.3

Dewas Bypass 100.0 20.0 61.3 36.0 25.3 25.3 14.0 51.1 3.2

Indore Edalabad 99.7 203.0 165 101.5 63.5 63.3 14.0 427.5 27.1

Wainganga Bridge 50.0 13.0 40.9 35.0 5.9 3.0 14.0 79.6 5.0

FOB Eastern Expressway 100.0 NA 3.7 1.8 2.0 2.0 14.0 3.0 0.2

KSHP 51.0 110.0 471.0 287.0 47.0 24.0 14.0 40.6 2.6

Total (ABL)-BOT (A) 419.6 950.2 576.1 237.1 210.9 643.7 40.8

EPC (B) 100.0 1397.5 88.5

ACL stake valuation ( C) 69.0 870.6 55.1

Less standalone debt (D) 290.5 18.4

Total SoTP valuation (A+B+C-D) 2621.3 166.0

5x FY15 EV/EBITDA


We are initiating coverage on ABL with a BUY recommendation and SoTP based target price of | 170

Rectangle


Exhibit 28: ACL valuation

Project Name Stake (%) Length (km)TPC

(| crore) Debt

(| crore)Equity

(| crore)ACL share (|

crore) CoE(%) ACL equity value

Ashoka Concession (ACL)

Bhandara 51.0 82.6 528.0 354.5 173.5 60.0 15.0 -48.9

Durg Chhattisgarh 51.0 71.1 630.5 410.0 220.5 100.2 15.0 43.5

Jaora Nayagaon 37.7 85.1 865.1 554.5 310.6 69.0 15.0 303.9

Belgaum Dharwad 100.0 82.0 694.1 479.0 185.0 185.0 15.0 171.0

Sambalpur Baragarh 100.0 88.0 1142.2 810.0 332.2 332.2 15.0 503.5

Dankuni Kharagpur 100.0 11.6 2205.2 1516.2 689.0 689.0 15.0 322.8

PNG 26.0 60.0 1691.0 1183.7 507.3 131.9 15.0 -78.8

Chennai ORR 50.0 32.0 1450.0 1080.0 173.0 86.5 14.0 143.3ACL Valuation 512.4 9206.0 6387.9 2591.1 1653.7 1360.3

ACL stake (%) ` 64.0

ACL stake value post 20% holdco discount 870.6

ACL stake value per share 55.1


Key assumptions & sensitivity analysis:

Traffic growth assumption

• In terms of ABL’s portfolio, since it has a portfolio of small & mature projects, the sensitivity towards traffic growth remains very low. For instance, every 1% change in traffic assumption impacts our overall valuation by only 1-2%

• In terms of ACL portfolio, since it has a portfolio of big ticket and recently started projects, the sensitivity towards traffic growth assumptions remains very high. To value ACL’s portfolio, we have considered the traffic growth phase during FY15E-FY21E where traffic growth would gradually move from 4% to 8%. During FY21E-24E, we consider the slowdown in traffic from 8% to 5%. Thereafter, we have built in 5% traffic growth assumption. Based on these assumptions, every 1% deviation from our base case traffic growth assumption every year would impact our valuation by 15-17%.

Exhibit 29: Traffic growth assumptions

Phase YearTraffic growth

assumption Remarks

High growth phase FY15-FY21 4-8% Traffic growth to move from 4% to 8% gradually

Growth Tapering Phase FY21-FY24 8%-5% Traffic growth totaper down from 8% to 5% gradually

Stable Growth PhaseFY25

onwards 5% Traffic growth to stabilise at 5%


Exhibit 30: Sensitivity to traffic assumption

-2.0 -1.0 0.0 1.0 2.0

ABL 40.1 40.4 40.8 41.1 41.4

ACL 11.9 32.3 55.1 80.6 109.4

Target Price 122.0 142.8 166.0 191.8 220.9


Every 1% change in traffic assumption every year from our

base case would impact our valuation by 15-17%


Toll rate hike assumption

• We have considered the toll hike as guided by the management as per the concession agreement. For those projects in which the tariff hike has been linked to WPI, we have considered the 6% hike in FY15E while for the remaining life of the project we have assumed a 5% tariff hike per annum. The following exhibit discloses the project wise tariff hike and its sensitivity to our assumptions

Exhibit 31: Project wise sensitivity to toll rate hike

Project Name Next toll hike Frequency & rate (%) Every 1% change in toll rate impact on valuations

Ashoka Buildcon Ltd

Aurangabad - Ahmednagar Apr-16 Every 3 years @ 19.5% Not Applicable

Katni Bypass Sep-14 Every 2 years @ 15% Not Applicable

Nashirabad ROB NA No increase Not Applicable

Sheri Nallah Bridge Mar-14 Every 3 years @ 19.5% Not Applicable

Dhule Bypass No Hike No increase Not Applicable

Dewas Bypass Apr-15 Every 3 years @ 25% Not Applicable

Indore Edalabad Apr-14 Every year @ 7% p.a Not Applicable

Pune Shirur Jul-14 Every 3 years @ 19.5% Not Applicable

Wainganga Bridge Jul-14 Every year at WPI rate is likely to impact |0.2/share

Ashoka Concession Ltd

Bhandara Sep-14 Every year at WPI rate to witness |0.3/share to valuation

Durg Chhattisgarh Sep-14 Every year at WPI rate to have impact of 0.7% to our valuation

Jaora Nayagaon Apr-14 Every year @ 7% p.a Not Applicable

Belgaum Dharwad Apr-14 Every year @ 3%+40% of WPI is expected to impact ~4%

Sambalpur Baragarh Apr-14 Every year @ 3%+40% of WPI to witness |2.5/share to valuation

Dankuni Kharagpur Apr-14 Every year @ 3%+40% of WPI to signifcantly impact our valuation by ~3.5%

PNG Apr-14 Every year @ 3%+40% of WPI is likely to impact |0.5/share


Discount rate assumption

• Given the maturity and size of the project portfolio, we have considered different CoEs for the ABL and ACL portfolio. For the mature and operational road portfolios of ABL, we have considered CoE of 13%. For ACL, we have considered CoE of 13% for operational and under construction annuity projects and 14% for under construction/partial tolling BOT projects. Based on these assumptions, we derive our target price of | 166/share. In terms of sensitivity, it indicates that every 1% change in our CoE (%) will have an impact of 6-7% on our valuation.

Exhibit 32: Sensitivity to discount rate (%)

-2.0 -1.0 0.0 1.0 2.0

ABL 41 41 41 41 41

AC L 55.1 55.1 55.1 55.1 55.1

T ota l 166.0 166.0 166.0 166.0 166.0


Every 1% change in CoE is likely to impact our valuation by

6-7%


Exhibit 33: Peer valuation matrix

CMP M Cap(|) (| Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E

IRB Infra (IRBINF) 231 7,678 13.8 20.4 20.5 18.7 12.6 12.6 9.8 7.5 6.5 2.4 2.1 1.9 12.9 16.6 14.8Sadbhav Engg. (SADENG) 227 3,426 7.0 6.7 8.6 32.0 33.8 26.3 17.1 13.7 11.9 3.6 3.3 2.9 11.1 9.6 11.1Ashoka Buildcon (ASHBUI) 136 2,149 6.2 8.1 6.4 22.0 16.7 21.3 13.0 12.4 7.6 1.7 1.6 1.5 7.7 9.3 6.9Source: Company, ICICIdirect.com Research

Sector / CompanyRoE (%)EPS (|) P/E (x) EV/EBITDA (x) P/B (x)

Source: Company, ICICIdirect.com Research, * Bloomberg consensus

Exhibit 34: One year forward P/BV chart

0

20

40

60

80

100

120

140

160

Apr-1

1

Jul-1

1

Oct-1

1

Jan-

12

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

4

Jul-1

4

Pric

e (|

)

Price 0.5x 0.75x 1x 1.25x 1.5x

Source: Company, Reuters, ICICIdirect.com Research

Exhibit 35: One year forward P/BV vs. its average P/BV

0.0

0.5

1.0

1.5

2.0

Apr-1

1

Jul-1

1

Oct-1

1

Jan-

12

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

4

Jul-1

4

Oct-1

4

(x)

P/BV Average P/BV

Source: Company, Reuters, ICICIdirect.com Research

The stock has traded at an average P/BV of 1.0x since IPO


Tables and ratios (Consolidated)

Exhibit 36: Profit & loss account (consolidated) (| Crore) FY12 FY13 FY14 FY15E FY16ENet Sales 1,500.0 1,852.7 1,794.9 2,228.2 2,893.3 Other Income 26.0 21.5 17.3 11.1 21.7 Total Revenue 1,526.0 1,874.2 1,812.2 2,239.4 2,915.0

Operating Expenditure 1,032.4 1,329.4 1,242.7 1,343.6 1,778.1 Employee Expenses 43.1 50.2 58.3 60.6 78.9 Cost of Material Sold 68.4 53.0 56.1 56.1 56.1 Other Expenses 31.0 48.2 40.6 262.8 143.5 Total Operating Expenditure 1,175.0 1,480.8 1,397.7 1,723.2 2,056.7

EBITDA 325.0 371.9 397.2 505.1 836.7

Interest 114.4 139.5 133.5 233.8 537.4 PBDT 236.5 253.9 280.9 282.4 321.0 Depreciation 85.0 132.4 141.5 131.0 218.2 PBT 151.6 105.8 123.7 151.4 102.8 Total Tax 45.1 68.5 68.8 82.2 98.5 PAT before MI 106.5 37.3 54.9 69.2 4.3 Minority Interest (8.9) (38.9) (42.5) (59.2) (96.7) Profit from Associates 9.4 7.9 - - - PAT 124.8 84.2 97.4 128.4 101.0

EPS (Diluted) 7.9 5.3 6.2 8.1 6.4



Exhibit 37: Balance sheet (consolidated) (| crore) FY12 FY13 FY14 FY15E FY16EEquity Capital 52.6 52.7 79.0 79.0 79.0 Preference Capital 2.6 - - - - Sh. App. money pending allotment 14.9 14.9 14.9 14.9 14.9 Reserve and Surplus 964.0 983.1 1,168.9 1,283.4 1,370.5 Total Shareholders funds 1,034.1 1,050.7 1,262.8 1,377.3 1,464.3 Minority Interest 63.0 278.7 464.5 505.3 508.6

Total Debt 1,706.9 2,453.5 3,103.2 4,437.2 4,601.0

Deferred Tax Liability 1.0 (0.7) (2.1) (2.1) (2.1) Other - NHAI Premium Payable 2,044.7 7,831.1 7,760.6 7,549.7 7,391.0

- - - - - Total Liabilities 4,849.6 11,613.3 12,589.1 13,867.4 13,962.8

AssetsTotal Gross Block 2,076.1 2,027.5 4,671.8 13,741.8 13,771.8 Less: Acc Dep 450.3 527.5 646.7 801.5 964.0 Net Block 1,625.8 1,500.0 4,025.0 12,940.3 12,807.7 Total CWIP 2,678.0 9,610.0 7,962.1 188.4 376.8

633.3 1,778.9 201.5 7,361.3 7,014.2 Investments 205.2 283.9 284.7 234.7 194.7

Inventory 277.0 539.9 627.2 668.5 839.1 Debtors 146.7 86.2 130.5 162.0 210.4 Loans and Advances 262.4 264.5 308.7 334.2 376.1 Cash 50.0 51.7 94.5 320.1 357.6

Other Current Assets 128.7 101.9 83.5 111.4 144.7 Total Current Assets 864.8 1,044.2 1,244.3 1,596.2 1,927.9 Current Liabilities 484.5 687.7 776.3 941.4 1,193.5 Provisions 39.7 137.0 150.8 150.8 150.8 Net Current Assets 340.6 219.5 317.3 504.0 583.6

Total Assets 4,849.6 11,613.3 12,589.1 13,867.4 13,962.8



Exhibit 38: Cash flow statement (consolidated) (| Crore) FY12 FY13 FY14 FY15E FY16EProfit after Tax 124.8 84.2 97.4 128.4 101.0 Depreciation 85.0 132.4 141.5 131.0 218.2 Interest 114.4 139.5 133.5 233.8 537.4 Cash Flow before working capital changes 324.2 356.0 372.5 493.2 856.5 Net Increase in Current Assets 7.3 (177.7) (157.4) (126.3) (294.1) Net Increase in Current Liabilities 183.8 300.5 102.3 165.1 252.1 Net cash flow from operating activities 515.3 478.9 317.5 532.1 814.5

(Purchase)/Sale of Fixed Assets (2,764.2) (6,938.5) (1,018.7) (1,272.6) (274.0) Other - NHAI Premium Payable 2,016.7 5,786.4 (70.5) (210.9) (158.7) (Purchase)/Sale of Investments (65.7) (78.7) (0.8) 50.0 40.0 Net Cash flow from Investing Activities (862.1) (1,016.8) (905.5) (1,392.8) (389.4)

- - - - - Inc / (Dec) in Equity Capital 0.0 0.0 26.3 - - Inc / (Dec) in Secured Loans 701.8 722.7 636.8 1,334.0 163.8 Inc / (Dec) in Unsecured Loans (277.9) 24.0 12.9 - - Interest Paid (114.4) (139.5) (133.5) (233.8) (537.4) Net Cash flow from Financing Activities 325.7 539.6 630.8 1,086.2 (387.5)

- - - - - Net Cash flow (21.1) 1.7 42.8 225.6 37.6 Opening Cash/ Cash Equivalent 71.1 50.0 51.7 94.5 320.1 Closing Cash/ Cash Equivalent 50.0 51.7 94.5 320.1 357.6



Exhibit 39: Ratio analysis (consolidated) (Year-end March) FY12 FY13 FY14 FY15E FY16EPer Share DataEPS (Diluted) 7.9 5.3 6.2 8.1 6.4 EPS 7.9 5.3 6.2 8.1 6.4 BV 65.5 66.5 79.9 87.2 92.7 Operating profit per share 20.6 23.5 25.1 32.0 53.0

Operating RatiosEBITDA Margin 21.7 20.1 22.1 22.7 28.9 PAT Margin 8.3 4.5 5.4 5.8 3.5

Return RatiosRoE 12.1 8.0 7.7 9.3 6.9 RoCE 8.6 6.3 5.3 5.9 9.4 RoIC 11.3 12.3 5.6 2.8 4.7

Valuation RatiosEV / EBITDA 11.7 12.2 13.0 12.4 7.6 P/E 17.2 25.5 22.0 16.7 21.3 EV / Net Sales 2.5 2.5 2.9 2.8 2.2 Market Cap / Sales 1.4 1.2 1.2 1.0 0.7 Price to Book Value 2.1 2.0 1.7 1.6 1.5

Turnover RatiosAsset turnover 0.4 0.2 0.1 0.2 0.2 Debtors Turnover Ratio 10.2 21.5 13.8 13.8 13.8 Creditors Turnover Ratio 3.1 2.7 2.3 2.4 2.4

Solvency RatiosNet Debt / Equity 1.6 2.3 2.4 3.0 2.9 Current Ratio 1.6 1.3 1.3 1.5 1.4 Quick Ratio 1.1 0.6 0.7 0.8 0.8



Appendix Some key projects in ACL’s portfolio:

Belgaum-Dharwad project

The project involves six laning of the 82-km stretch on NH-4 for a concession period of 30 years. ACL has a 100% stake in the project and the total cost for the stretch, ranging from Belgaum to Dharwad in Karnataka, is | 694.1 crore, funded through debt of | 479 crore and the remaining through equity and internal accruals. The project is currently tolling partially with daily toll collection of | 16 lakh/day and is expected to commence full tolling (95% complete till Q3FY14) from Q1FY15. The project also involves premium payment to NHAI every year. The premium is | 31 crore for the first year with 5% increment per annum. As per the management, it is the matured stretch. Therefore, steady growth is expected in terms of traffic on this project. We highlight that this is one of the projects where the company is looking to opt for the premium deferral scheme as offered by NHAI.

Exhibit 40: Belgaum Dharwad project financials | crore FY13 FY14E FY15E FY16E FY17E FY18E FY19E FY20ERevenues 65.2 73.2 82.5 92.5 103.6 116.0EBITDA 43.9 59.6 67.5 76.0 85.4 95.9Margin(%) 67.3 81.3 81.8 82.1 82.4 82.7PAT -50.1 -31.4 -32.8 -30.2 -24.7 -16.9

Cash Profit -19.0 -11.8 -10.9 -5.8 2.4 13.2

Equity IRR (%) 19.2


Sambalpur Baragarh project

The Sambalpur Baragarh (Odisha) project involves six laning of the 88-km stretch on NH-6 for a concession period of 30 years. ACL has a 100% stake in the project and the total cost for the stretch is | 1142.2 crore, funded through debt of | 810 crore and the remaining through equity. Construction for the project is complete to the extent of ~71% as on Q3FY14 and the company expects partial tolling to commence soon. The project also involves premium payment to NHAI every year. The premium is | 1.3 crore for the first year with 5% increment per annum. The stretch continues to witness muted traffic given the sluggish mining and industrial activity on account of the tough economic situation. We highlight that the final stake of SBM hinges on the traffic of this project, which shall be assessed in FY16 when it commences full tolling. The management has, however, indicated that given the tough macroeconomic situation, the final per day toll figure may fall short. Hence, SBM could get ~39% stake.

Exhibit 41: Sambalpur Baragarh project financials | crore FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20ERevenues 23.7 105.5 117.4 130.6 145.4 161.8EBITDA 17.8 79.9 89.2 99.6 111.1 124.0Margin(%) 75.3 75.8 76.0 76.2 76.4 76.6PAT -8.4 -36.5 -28.6 -18.5 -5.6 8.4

Cash Profit -6.5 -28.5 -19.7 -8.6 5.5 20.7

Equity IRR (%) 17.8

Source: Company, ICICIdirect.com Research,


Dankuni Kharagpur project

The project involves six laning of the 112-km stretch on NH-6, completion of the incomplete bridge and construction of a new bridge on the other side of the existing bridge for a concession period of 30 years. ACL has a 100% stake in the project. The total cost for the stretch, ranging from Dankuni in Kharagpur in West Bengal, is | 2205.2 crore, funded through debt of | 1516.2 crore and the remaining through equity and internal accruals. The project is currently tolling partially with daily toll collection of | 55 lakh/day and is expected to be completed by September, 2014 (48% complete by Q3FY14). The project is currently funded by higher equity. Post full operationalisation of the project, the debt will inch up to | 1746 crore. The project also involves premium payment to NHAI every year. The premium is | 126.1 crore for the first year with 5% increment per annum. The stretch continues to witness muted traffic given the muted mining and industrial activity on account of the tough economic situation. Furthermore, given the dredging issues in Haldia Port, traffic is affected. We highlight that this is one of the projects where the company is looking to opt for a premium deferral scheme as offered by NHAI.

Exhibit 42: Dankuni project financials | crore FY13 FY14E FY15E FY16E FY17E FY18E FY19E FY20ERevenues 220.0 244.9 272.6 303.4 337.6 375.8EBITDA 215.3 214.3 238.6 265.5 295.4 328.7Margin(%) 97.8 87.5 87.6 87.5 87.5 87.5PAT 0.0 -96.0 -82.8 -87.7 -71.9 -59.8

Cash Profit 215.3 4.9 29.4 37.2 67.1 94.8

Equity IRR (%) 15.4


Durg Chhattisgarh project

The Durg Chhattisgarh project involves four laning of the 71-km stretch from the end of the Durg bypass to the Maharashtra border in Chhattisgarh on NH-6 for a concession period of 30 years. ACL has a 51% stake in the project. The total cost for the stretch is | 630.5 crore, which is funded through debt of | 410 crore and the remaining through equity wherein Ashoka’s share of equity is | 100 crore. It has been operational since Q4FY12 where ACL is currently tolling | 16 lakh/day. The management has indicated that the key trigger for the improvement of the stretch would be an improvement in the macroeconomic situation, which would support industrial activity and mining in the region, which is a key traffic provider on NH-6.

Exhibit 43: Durg Chhattisgarh project financials | crore FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20ERevenues 58.4 60.4 68.6 77.0 86.4 95.7 104.6 115.7EBITDA 36.7 43.5 49.0 54.6 62.0 77.3 84.8 93.3Margin(%) 62.9 72.0 71.4 71.0 71.8 80.8 81.1 80.6PAT -32.8 -29.0 -24.7 -19.2 -16.0 1.2 12.4 25.9

Cash Profit -15.4 -12.6 -5.8 1.7 7.3 27.1 41.2 57.9

Equity IRR (%) 21.9



Bhandara project

The project involves four laning of the 82.6-km stretch from the Chhattisgarh/Maharashtra border to the Wainganga bridge section on NH-6, for a concession period of 20 years. ACL has a 51% stake in the project. The total cost for the stretch, is | 528 crore, which is funded through debt of | 354.5 crore and the remaining through equity and internal accruals. The project is operational currently with daily toll collection of | 12.6 lakh/day. Similar to other projects on NH-6, an improvement in traffic would be mainly supported by a pick-up in industrial and mining activity.

Exhibit 44: Bhandara project financials | crore FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20ERevenues 46.2 47.7 53.0 59.6 67.0 75.2 84.5 95.0EBITDA 24.0 30.9 26.9 34.6 49.1 55.9 63.6 72.2Margin(%) 52.0 64.8 50.6 58.1 73.4 74.3 75.2 76.0PAT -37.9 -38.8 -31.8 -42.6 -29.3 -22.1 -12.3 0.2

Cash Profit -23.6 -17.4 -24.4 -27.1 -11.8 -2.4 9.8 25.0

Equity IRR (%) 11.8



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]

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