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Road developer Ashoka Buildcon is a good bet for investors with a long-term perspective. At Rs 196, the stock trades at 9.4 times trailing twelve-month earnings and a reasonable 7.7 times the estimated earnings for 2012-13. It has a strong portfolio of 12 completed road projects on which it collects toll. Order inflow, too, has held up, with the developer winning two large-scale road development projects of over Rs 1,000 crore each, besides a handful of power transmission and distribution projects in the last two quarters. It is also partnering other infrastructure majors such as Larsen & Toubro in executing high-value projects, making a transition from a State-level developer to a national player.
In-house manufacture of ready-mix concrete and bitumen, has helped it maintain healthy operating margins. While debt is not low at (consolidated) 1.4 times, interest cover is comfortable at just over 3 times.
Strong portfolio
Barring one, all of Ashoka's road projects have seen a steady growth in toll collections. In the December '11 quarter, for instance, comparable toll revenues grew 19 per cent over the year-ago period. The coming financial year may see an earnings boost from toll collections from three new projects. While Ashoka primarily executes its own development projects, it has taken on an average of Rs 1,000 crore in third-party contracts. Owing to slow project awards in the road space in the last couple of quarters, third-party orders did not pick up. With the prospects for new projects now looking up, Ashoka could again secure such contracts. Besides roads, Ashoka has contracts worth Rs 622 crore in the power space, with an average execution period of 24 months. The total order book, though, at Rs 4,165 crore, is below the Rs 4,672 crore at end-March '11.
Consolidated revenues have grown at an annual 54 per cent over the last three years, while net profits grew 51 per cent. For the nine months ended December '11, revenues were up 47 per cent and earnings expanded by 10 per cent.
Backward integration has helped maintain superior operating margins of 23-24 per cent. In the last three quarters, though, due to delays by the NHAI stretching working capital and maintenance costs in a couple of projects, margins slipped to around 21 per cent.
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