Nirmal Bang Institutional Equities likes Ashoka Buildcon Ltd but it believes the upside is capped for the stock following the recent rally. The domestic brokerage has downgraded the stock to 'accumulate' with a target price of Rs 220 per share.
Nirmal Bang, which hosted the company CFO Paresh Mehta, said margins for Ashoka Buildcon have been subdued in the last 6-7 quarters because the company has entered new segments and a new entrant in a segment must share margins with the partner, which is required to secure qualification. For FY25, the margin is expected at 9-9.5 per cent. It is seen at 11 per cent in FY26.
"International projects are accruing better margins than domestic projects. In places like Guyana (a developing country), 60-70 per cent machinery worth Rs 60-70 crore is sent from India. The company targets to do more projects there because of lot of opportunities and utilise the entire machinery there while disposing them off there itself. O&M should at least generate 15 per cent margins. Cost of deployment is very low," Nirmal Bang.
The company has a portfolio of 11 HAM projects and 5 BOT projects. It is in discussion with large investors. By June’24-end, it expects to monetize them. The amount realised is expected to be much higher than the KKR offer in FY23.
Ashoka Buildcon has started FY25 with an order book of Rs 11,700 crore, which is lower mainly on account of low bidding in the Road segment. It was not aggressive in bidding because it had taken previous orders on lower margins, Nirmal Bang said.
"The company has focused on national projects but now it is also looking at state projects. In FY25, it expects to receive orders worth Rs120-130bn. By June-end, it is likely to receive Rs 2,000-3,000 crore worth of orders with good margins," Nirmal Bang said.
The brokerage said Ashoka Buildcon is prioritising sustainable EPC business in Highways, Railways, Power Transmission and Power Distribution.
"While we remain positive on the Construction sector and ASBL, the stock has risen by 16 per cent. Thus, we have downgraded it to “Accumulate” while maintaining the multiple and valuing it at 6 times FY26E EPS & BOT/HAM projects at 0.7 times P/B basis with a target price (TP) of Rs 220.
The stock is up 32 per cent in the past one month and 175 per cent in the past one year.