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IVRCL + Lanco Infratech – Review

November 7, 2008

IVRCL’s Q2 FY09 Recurring PAT at Rs354mn was 36% ahead of our estimates primarily led by 34% better than expected sales; alleviating our concerns on the possibility of execution delays even as the operating environment is difficult. After including the impact of a) Rs160mn dividend received from its 62.3% listed real estate subsidiary, IVR Prime b) forex loss of Rs30mn on its outstanding FCCB and c) full tax rate at 34%, reported PAT at Rs571mn was up 57% YoY.

Current orderbook is Rs140bn. The company expects another Rs15-20bn of orders shortly as they have emerged as the lowest bidders on the same. ~65%-70% of orderbook is from the water segment. Water projects from the AP government form ~30%-40% of the water projects orderbacklog.

Management has guided Revenue growth of 35%-40% CAGR for next 2 years, EBITDA margins in the range of 9.5%-9.9%, Interest cost for FY09E in the range of Rs1.25bn-1.3bn, Depreciation of ~Rs450mn.

IVRCL is expected to report an EPS between Rs 13.7 to Rs 14.5 for FY09.

Lanco Infratech:
Lanco reported Q2 FY09 consolidated revenues of Rs12.8 bn (up 113% YoY) and earnings after minority interest (excluding forex losses) of Rs516 mn (down 8% YoY). During the quarter, Lanco incurred foreign exchange translation losses of Rs259 mn, after adjusting for which earnings would have been Rs775 mn (up 38% YoY). Reported EBITDA margin was 15.5% during Q2 FY09 as against 19.4% in Q2 FY08, however, on adjustment of sales on account of power trading and on account of naptha, EBITDA margin in F2Q09 would be 25% vs 22% in Q2 FY08.

Lanco is facing concerns over the cash flow issues for its huge investment requirement in power. Lanco will remain negative free cash flow till 2011-12, by which time most of its projects get completed. Real estate venture which is facing a huge slowdown. The company recently announced plans to divest stake in the SEZ business of the Lanco Hills project. If outlook for real estate remains bleak, we could see further dilution.

Lanco is expected to report an EPS between Rs 21 to Rs 24 for FY09.

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