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Buy B L Kashyap – Sharekhan

September 28, 2007

B L Kashyap[BLK] has proven execution skills, reasonably large-scale of operations and an established customer base, BLK is well poised to ride the construction boom in the fast-growing industrial, residential, commercial and retail segments.

BLK’s is our type of company because it focuses on providing contractual construction services to private sector clients and it has consciously avoided exposure to long duration infrastructure projects that are prone to delays and are much more capital intensive. Thus, it does not require regular infusion of funds through debt or equity dilution.

BLK has shown a healthy CAGR of 72.6% in its stand-alone revenues to Rs808 crore over the past three years. What’s more, the strong order backlog of Rs2,100 crore (2.6x FY2007 revenues) provides a robust revenue growth outlook for the coming years. Expect BLK to report CAGR of 48.8% over FY2007-10.

Real Estate Arm: BLK has forayed into real estate development through its subsidiary SSP, which undertakes joint development projects with the existing owners of land. Currently, it is executing six projects with saleable area of 13.2lsf (SSP’s share of around 8.5lsf) and also has rights for around 150-acre land in Bikaner, Rajasthan. Sharekhan value SSP at Rs580 crore.

At the current market price the stock trades at attractive valuations of 12.8x FY2009E and 9.3x FY2010E earnings (after adjusting for the value of its subsidiary: Rs554 per share). SSKI analysts recommends a Buy call on BLK with a price target of Rs2,850.

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