PINC Quick Bite Sector: Infrastructure BSE Sensex : 16,884

RESEARCH
14 October 2011

MAINTAIN BUY

ASHOKA BUILDCON

CMP TP

Rs240 Rs363

Vinod Nair vinod.nair@pinc.co.in

+91-22-6618 6379

Subramaniam Yadav +91-22-6618 6371 subramaniam.yadav@pinc.co.in

Ashoka Buildcon is scouting for a strategic partner by merging its 7 BOT projects from its kitty of 18 BOT into one SPV. The media report talks about raising Rs7.35bn, our under standing is Rs6bn Rs6.5bn. Our valuation of seven projects
Projects Durg - Chhattisgarh Chhattisgarh - Bhandara Sambalpur-Baragarh Belgaum Dharwad Jaora - Nayegaon 4-Laning NAV 2,993 669 1,845 728 6,006 2,218 178 14,638 Adj. NAV 1,527 341 1,845 728 2,222 577 178 7,418 Value/ Share 29 6 35 14 42 11 3 141 Equity as on FY12E 779 572 1,661 865 2,417 2,537 400 9,230 Total equity # 779 572 3,322 1,730 2,417 3,382 6,000 18,202

(Rs mn)
Adj Total equity $ 397 292 3,322 1,730 894 879 6,000 13,514

PINC QUICK BITE

Pimpalgaon-Nasik Dhankuni Kharagpur Total

Source: Company, PINC Research Note: #Total project equity, $ Adj for Ashokas stake

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High dilution likely

Our valuation of these seven projects works out to Rs14.6bn (not adjusted for Ashokas stake) and adjusted is Rs7.4bn. We have taken a discount rate of 14% for under construction projects. Based on our valuation and the amount of dilution required we expect a higher percentage dilution, which is yet to be decided by the management. We believe management would target a valuation between Rs20-25bn for these 7 projects. PE deals in BOT projects
Company IRB (Surat-Dahisar) TRIL Roads Sadbhav Infrastructure Projects IVRCL Assets & Holdings Nandi Economic Corridor Enterprises Isolux Corsan India GR Infraprojects GVR Infra Projects Soma Enterprise KMC Infratech HCC Concessions Source: Venture Intelligence, PINC Research Amount (USD mn) 12 78 85 34 111 200 18 33 110 97 55 Amount (Rs mn) 544 3,510 4,000 1,500 5,000 9,000 800 1,500 5,000 4,350 2,400 Stake (%) 10 35 22.2 5.9 8.33 50 14.25 20 NA NA 14.5 Investors Deutsche Bank Actis Norwest, Xander Ascent Capital JP Morgan Morgan Stanley Motilal Oswal, Others IDFC PE JP Morgan 3i IIF Xander Date Feb-09 May-10 Aug-10 Oct-10 Dec-10 Jan-11 Mar-11 Jul-11 Sep-11 Mar-11 Jul-11

Recent dilution history especially for listed entities suggests a possibility of higher stake dilution for similar kind and type of projects.

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RESEARCH

Ashoka Buildcon

Ashoka Buildcon does not seem to be in a great hurry Also, our calculation suggests that for the next two years Ashoka is in a good position to manage its equity requirement and bulk of the equity requirements are likely to be scheduled in late FY13 or in FY14. Please find below our equity requirement and cash flow schedule, though it does not factor new project wins. Besides, interaction with the management suggests that they are in very initial phase of this exercise but the news articles quotes of concluding the deal in 4 months time, which sounds aggressive as due diligence is yet to start. Equity Requirement
Projects Sambalpur-Baragarh Belgaum Dharwad Jaora - Nayegaon Pimpalgaon-Nasik Dhankuni-Kharagpur Total Source: PINC Research 1,483 FY 11 831 173 260 220 FY 12 831 692 220 400 2,142 FY 13 1,661 433 220 1,400 3,713 FY 14 433 2,100 2,533

(Rs mn)
FY 15 2,100 2,100

Cashflow position
Particulars FY 09 FY 10 FY 11 FY 12 Cash From Operation (net of tax) 2,738 2,043 2,055 3,338 ISIEmergingMarketsPDF in-iimlsingh from 59.165.151.7 on 2011-11-14 13:39:21 EST. (715) DownloadPDF. Less: Interest payment (646) (490) (1,256) Cash from Operation Less: Capex (Standalone) Net Cash generated 2,092 (472) 1,620 282 1,553 (225) 1,327 224 1,340 (696) 644 1,483 (839) 2,082 (897) 1,184 2,142 (958)

(Rs mn)
FY 13 5,009 (1,716) 3,293 (805) 2,488 3,713 (1,225)

Can be easily met by raising debt in standalone entity

Eq Invst Required Deficit Source: PINC Research

Our View Our understanding is that a PE deal will work out well for the company as it will boost its networt, thus improve its qualification for higher size projects and get more aggressive. Our only apprehension is about the timing of the deal sound bit aggressive (4months as stated in the news article), as we believe that ABL is in no dire need of funds in the near term unless large project is won in H2FY12. Also some of its key projects will achieve important milestones over the next 6-9 months, which will boost its valuation; again much will also depend on the market conditions. VALUATIONS & RECOMMENDATION Equity invested till date by ABL is ~Rs5bn, which would increase to Rs7bn & Rs10bn by FY12E and FY13E, we value BOT (DCF) at equity multiple of 1.6x times and 1.1x times on FY12E and FY13E i.e. Rs11bn. Over FY10-13E, we expect revenue for standalone business to clock at 22.3% CAGR and PAT to witness at 12.4% CAGR. We value this business at 9x FY12E adjusted earnings of Rs19.6 (EPC).Our SOTP based target price is Rs363 and we maintain our BUY recommendation.

vinod.nair@pinc.co.in

subramaniam.yadav@pinc.co.in

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RESEARCH

Ashoka Buildcon

SOTP Valuation
Particulars BOT Projects operational (SPVs) Indore - Edalabad Pune - Shirur Dewas Bypass Katni Bypass FOBs - Eastern Exp Hway Dhule Bypass Durg - Chhattisgarh Chhattisgarh - Bhandara BOT Projects operational (Standalone) Anagar - Karmala TOLL ANG (Anagar - Aurangabad) Nasirabad ROB Sherinallah Bridge Waiganga river Bridge BOT Projects under construction Sambalpur-Baragarh 100% 1,845 35.0 13.8 41.7 11.0 218 100% 100% 100% 100% 50% 369 401 291 167 225 7.0 7.6 5.5 3.2 4.3 87% 100% 100% 100% 100% 100% 51% 51% 1,689 99 390 536 92 53 1,527 341 32.1 1.9 7.4 10.2 1.8 1.0 28.0 6.5 Stake Adj NAV Per share

ISIEmergingMarketsPDF in-iimlsingh from 59.165.151.7 on 2011-11-14 13:39:21 EST.100% DownloadPDF. 728 Belgaum Dharwad Jaora - Nayegaon 4-Laning Pimpalgaon-Nasik Total BOT Value PAT FY12E EPC Business Total Value CMP (Rs) Appreciation Source: PINC Research, Company 846 P/E (x) 9 7,617 19,557 37% 26% 2,222 577 11,939

145 363 240 51%

vinod.nair@pinc.co.in

subramaniam.yadav@pinc.co.in

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RESEARCH

Ashoka Buildcon

Consolidated Financials
Income Statem ent Net sales Growth (%) Operating profit Operating income EBITDA Growth (%) Depreciation EBIT Interest paid PBT (before E/o items) Tax prov ision E/o Income / (loss) Net profit Adjusted net profit Growth (%) Basic EPS (Rs) Diluted EPS (Rs) Diluted EPS Growth (%) FY09 5,184 60.6 1,640 150 1,790 27.1 645 1,145 646 499 116 348 348 4 7.6 7.6 3.7 FY10 7,956 53.5 2,143 186 2,329 30.1 661 1,668 490 1,177 319 804 804 131 17.6 17.6 130.9 FY11 13,020 63.7 2,522 339 2,861 22.8 690 2,171 715 1,456 424 2,080 1,008 25 19.2 19.2 8.9 FY12E 20,105 54.4 3,755 300 4,055 41.7 1,050 3,005 1,256 1,748 489 1,139 1,139 13 21.6 21.6 12.9 FY13E 23,250 15.6 4,651 300 4,951 22.1 1,140 3,811 1,716 2,095 587 1,353 1,353 19 25.7 25.7 18.8 Cash Flow Statement Pre-tax profit Depreciation Inc. from inv t & int (profit) Interest paid Tax es (Inc)/Dec in w orking capital Other operating activ ities Cash from operations Net capital ex penditure Net Inv estments Interest & div idend recd Cash from inv. activities Equity raised/(repaid) Debt raised/(repaid) Div idend (incl. tax ) Other financing activ ities Cash from financing activ Inc/(Dec.) in cash 2,105 (682) 1,423 (302) FY09 499 645 646 (111) 368 94 2,092 (3,664) (194) 41 (3,818)

Year Ended March (Figures in Rs mn)

FY10 1,177 661 490 (307) (379) 2 1,553 (4,777) (576) 466 (4,887) 3,995 (507) 3,488 154

FY11 2,528 691 715 (438) (2,012) 2 1,340 (4,880) 93 283 (4,436) 2,125 1,501 (715) 2,852 (243)

FY12E 1,748 1,050 (300) 1,256 (507) (936) 25 2,456 (6,911) (750) 300 (7,361) 6,000 (1,256) 4,744 (161)

FY13E 2,095 1,140 (300) 1,716 (609) (952) (114) 3,131 (6,963) (750) 300 (7,413) 6,000 (1,716) 4,284 2

Balance Sheet FY09 FY10 FY11 FY12E FY13E Key Ratios FY09 FY10 FY11 ISIEmergingMarketsPDF in-iimlsingh from 59.165.151.7 on 2011-11-14 13:39:21 EST. DownloadPDF. Equity capital 457 457 526 526 526 OPM margin (%) 31.6 26.9 19.4 Reserves & surplus Shareholders' funds Minorities Interest Total Debt Capital Employed Fix ed assets Cash & Cash Eq. Net Current Assets Inv estments Net Deferred Tax Assets Total assets 2,836 3,423 287 7,226 10,936 4,636 692 5,408 911 (18) 10,936 4,042 4,623 813 11,221 16,657 9,283 845 5,918 1,487 (30) 16,657 8,302 8,930 1,112 12,830 22,873 8,290 602 13,095 1,503 (16) 22,873 9,441 10,069 1,232 18,830 30,132 9,218 441 18,803 2,145 (34) 30,132 10,791 11,419 1,387 24,830 37,636 15,858 443 18,940 2,895 (56) 37,636 Net margin (%) Div idend y ield (%) Net debt/Equity (x ) Net Working Capital (day s) ROCE (%) RoE (%) EV/Net sales (x ) EV/EBITDA (x ) PER (x ) PCE (x ) Price/Book (x ) 6.7 1.9 50 12.1 11.1 4.4 14.0 31.5 11.0 2.9 10.1 2.2 74 12.5 20.6 2.9 10.7 13.7 7.5 2.2 7.7 1.4 108 17.2 31.2 1.8 9.1 12.5 7.4 1.4

FY12E 18.7 5.7 1.8 87 11.9 12.1 1.1 6.1 11.1 5.8 1.2

FY13E 20.0 5.8 2.1 90 9.4 12.7 1.0 4.9 9.3 5.1 1.1

1 year forward rolling P/E Band

1 year forward rolling EV/EBITDA Band

340

21,000
4.7x

300

13.0x 12.5x 12.0x 11.5x 11.0x

18,000

4.4x 4.1x 3.8x

260

15,000

3.5x

220 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11

12,000 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11

vinod.nair@pinc.co.in

subramaniam.yadav@pinc.co.in

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RESEARCH

T E A M
EQUITY DESK
Sadanand Raje Head - Institutional Sales Technical Analyst sadanand.raje@pinc.co.in 91-22-6618 6366

RESEARCH
Vineet Hetamasaria, CFA Head of Research, Auto, Cement vineet.hetamasaria@pinc.co.in Auto, Auto Ancillary, Cement nikhil.deshpande@pinc.co.in Nikhil Deshpande Auto, Auto Ancillary, Cement tasmai.merchant@pinc.co.in Tasmai Merchant Construction, Power, Capital Goods vinod.nair@pinc.co.in Vinod Nair Capital Goods, Engineering ankit.b@pinc.co.in Ankit Babel Power hitul.gutka@pinc.co.in Hitul Gutka Construction subramaniam.yadav@pinc.co.in Subramaniam Yadav Power madhura.joshi@pinc.co.in Madhura Joshi Fertiliser, Natural Gas satish.mishra@pinc.co.in Satish Mishra Fertiliser, Natural Gas urvashi.biyani@pinc.co.in Urvashi Biyani FMCG naveent@pinc.co.in Naveen Trivedi IT Services rohit.anand@pinc.co.in Rohit Kumar Anand Media namrata.sharma@pinc.co.in Namrata Sharma Media sakshee.chhabra@pinc.co.in Sakshee Chhabra Metals, Mining bikash.bhalotia@pinc.co.in Bikash Bhalotia Harleen Babber Metals, Mining harleen.babber@pinc.co.in Metals, Mining dipti.vijaywargi @pinc.co.in Dipti Vijaywargi Pharma sushant.dalmia@pinc.co.in Sushant Dalmia, CFA Pharma poonam.sanghavi@pinc.co.in Poonam Sanghavi Real Estate, Mid caps suman.memani@pinc.co.in Suman Memani in-iimlsingh from 59.165.151.7 on 2011-11-14 13:39:21 EST. DownloadPDF. ISIEmergingMarketsPDF Real Estate, Mid caps abhishek.kumar@pinc.co.in Abhishek Kumar Technical Analyst krishnamurthy.c@pinc.co.in C Krishnamurthy 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 6388 6339 6377 6379 6551 6410 6371 6395 6488 6334 6384 6372 6412 6516 6387 6389 6393 6462 6709 6479 6398 6747

SALES
Rajeev Gupta Ankur Varman Himanshu Varia Shailesh Kadam Ganesh Gokhale
Equities Equities Equities Derivatives Derivatives

rajeev.gupta@pinc.co.in ankur.varman@pinc.co.in himanshu.varia@pinc.co.in shaileshk@pinc.co.in ganeshg@pinc.co.in

91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618

6486 6380 6342 6349 6347

DEALING
Mehul Desai Naresh Panjnani Amar Margaje Ashok Savla Sajjid Lala Raju Bhavsar Kinjal Mehta Chandani Bhatia Hasmukh D. Prajapati Kamlesh Purohit
Head - Sales Trading Co-Head - Sales Trading

mehul.desai@pinc.co.in naresh.panjnani@pinc.co.in amar.margaje@pinc.co.in ashok.savla@pinc.co.in sajjid.lala@pinc.co.in rajub@pinc.co.in kinjal.mehta@pinc.co.in chandani.bhatia@pinc.co.in hasmukhp@pinc.co.in kamlesh.purohit@pinc.co.in

91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618

6303 6333 6327 6321 6337 6322 6333 6324 6325 6357

SINGAPORE DESK
Amul Shah amul.shah@sg.pinc.co.in 65-6327 0626

DIRECTORS
Gaurang Gandhi Hemang Gandhi Ketan Gandhi gaurangg@pinc.co.in hemangg@pinc.co.in ketang@pinc.co.in 91-22-6618 6400 91-22-6618 6400 91-22-6618 6400

COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400
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