Hold IVRCL; target of Rs 76: Nirmal Bang

Nirmal Bang has recommended hold rating on IVRCL with a target of Rs 76, in its April 3, 2012 research report.

"During the past three months, IVRCL stock has shown a significant run-up (160% from its bottom) and has achieved our earlier target price of Rs70. We have now revised our target price upwards from Rs70 to Rs76 to factor in the rise in the market price of subsidiaries IVRCLAH and HDO. However, we have downgraded our rating on IVRCL from Buy to Hold as we believe improvement in project execution and profitability would be key for further re-rating of the PE multiple and more upside in the share price. Meanwhile, developments on the Essel Group making any hostile bid for IVRCL would lead to short-term upside in the share price, which, we believe, may not be sustainable."

"The company has started FY13 with strong order inflows of Rs41bn comprising Rs32bn in the road space and Rs9bn in its power vertical (civil and structural work for NTPC power projects-Meja, Solapur & Mouda). The first road project is for upgradation of the four-lane national highway (NH-5) between Gundugolonu and Rajahmundry in Andhra Pradesh into six lanes on toll basis, with a project cost of Rs16.1bn. The other highway project is for conversion of the Patiala to Bhatinda section of NH-64 into four lanes on toll basis, with a project cost of Rs15.8bn. Both the highway projects have to be constructed within 30 months from the appointed date and the concession period for the projects is 24 years. For FY12, the company reported order inflows of Rs125bn (60% YoY) and an order backlog of Rs250bn (4.5x of FY11 revenue) as on 31 December 2011. Looking at the recent order inflow trend, we believe IVRCL will beat our order inflow estimate of Rs120bn for FY13. The Essel Group has acquired a 10.2% stake in IVRCL from the secondary market and has also informed the media about its intention to further increase its stake in the company. IVRCL's promoter, who held 11.2% in the company, is not interested in selling his stake. This has actually set the stage for a hostile takeover. Currently, the situation stands unchanged and further development of the takeover story in future would lead to short-term upside in the share price which we believe would not be sustainable."