IVRCL INFRA CMP Rs 343
Book Value Rs135.41 Debt / Equity 0.77 P/E 20.25
Strong order book, but worries persist
- Risk of concentrated business - IVRCL INFRA has strong order book of Rs 14600 Cr but 70% of it is from Irrigation. India has faced the driest monsoon in nearly 3 decades and it would be difficult for IVRCL to execute these projects with foreseen high margins.
- Project Execution Risk - Various construction companies and government sources suggest that companies are going slow on execution of some of the irrigation projects given delays in payments and lack of clarity on funding available for these projects. A shortage of manpower, land acquisition issues or arbitration with clients would further expose the project execution risk.
- Political Risk - Nearly Rs 5000Cr of orders are from the Andhra Pradesh (AP) irrigation department and after recent Telangana issue the execution of projects looks riskier than before.
- Delays in projects - IVRCL has a Rs300Cr Godavari Lift irrigation project and a Rs1500Cr Pranahita Chevella Project, which have been recommended to be included as National projects to enable them to get Centre funding. The execution of these Rs1800Cr worth of projects may be delayed/stopped if Central funding is not available to the AP government for these projects. Revenue growth could come under pressure as execution of these projects may get delayed.
- Financial Risk - IVRCL may need to take on additional debt to fund capex or working capital given capital intensive nature of projects. A spike in interest rates could hit its bottom line. There is also the risk of default on loans given to subsidiaries, in particular IVR Prime.
- If promoters themselves aren't interested how would an investor be? At present, IVRCL’s promoters hold less than a 10% stake. The low promoter stake increases the threat of a takeover while leaving little scope for fund-raising through equity if the need arises.
- Given a high P/E ratio of above 20 and Price To Book around 2.5 the stock looks richly valued and one may avoid buying the stock until it sees some correction where safe entry can be possible.
