Profile IVRCL Infrastructure & Projects operates in high-growth potential sectors like water & environment, transport, buildings and power.

On Firm Grounds By Research Desk | Mar 31, 2009 The company started operations in 1990 and established itself as a premier engineering procurement, construction and commissioning (EPCC) and lump sum turn key (LSTK) service provider. It now ranks amongst the fastest growing, profitable companies in the country in the infrastructure space with sales growth of 44 per cent CAGR (2004-07). With an eye on expanding into emerging infrastructure sectors like railway infrastructure, metro rail projects and oil and gas sectors, it has acquired Alkor Petroo Limited so that it can take part in exploration activities in Egypt and Yemen. Moreover it has partnered with major corporations to bid for the upcoming projects world over. Promoter The company is promoted by E. Sudhir Reddy. Currently he is the Chairman and Managing Director of the company with 3.93 per cent holding of the company. Rest 5.80 per cent of the promoter holdings are held by various relatives and holding firms of Mr. Sudhir Reddy. The major share holders of the company are FIIs and Mutual Funds, the combined shareholdings by them is over 65 per cent. Investment Rationale Revenue Momentum to Sustain For Q3FY09, IVRCL's revenue was at Rs 11.8 billion, up by 22 per cent YoY. However, PAT went down by 27 per cent to Rs 465 million, led by higher interest charge of Rs 419 million, up by 137 per cent. The company's EBITDA margins of 9..1 per cent were lower by 230 bps due to higher material, labour and staff costs. However, revenue growth is expected to continue with the current order backlog at 3x its FY09E revenue. Debt Levels to be Maintained IVRCL has advanced a loan of Rs 2.8 billion to its real estate arm, IVR Prime. The company's total loans and advances to its subsidiaries stands at Rs 4 billion YTD. In FY09E, IVRCL expects to get Rs 0.8 billion back from IVR Prime, of which Rs 0.3 billion have already been received. However, the company expects to borrow an additional Rs 1 to 1.5 billion, depending on their requirement for project execution. But debt costs are expected to subside in FY10E on the back of internal cash accruals from its core construction business. Further-more, with toll revenue flowing in from its BoT project from 2QFY10E, no significant rise in its debt is expected. Strong Order Book IVRCL's order book of Rs 143 billion is at 4x its FY08 revenues and has an average execution cycle of 24 to 30 months. Furthermore, 95 per cent of the company's order book is protected by price escalation clauses. A major part of the order book (65 per cent) is from the water segment. The balance, 20 per cent comes from buildings and the rest from transportation and power. IVRCL's focus is to secure government contracts. So far this year, the company has managed to secure contracts worth Rs 50 billion and expects to further secure additional contracts worth Rs 17 billion. Positive Macro Outlook As per the planning commission, for the 11th five-year plan, spending on water supply and sanitation infrastructure development is pegged at Rs 1991 billion, up by 207 per cent. IVRCL is perfectly positioned with immense domain expertise to gain from this. Risk & Concerns Policy Dependence Number of projects of the company depends on the government. Any unfavourable change in policy environment is going to adversely affect the company. This high dependence on a single client increases the operating risk of the company. Working Capital IVRCL's working capital needs are expected to remain high over the next few years in order to support its top-line growth. As a result, we believe that the operating cash flow would remain negative. Con-sequently the company would need to borrow to fund its working capital requirement. Hence there is a good chance that the current debt-equity ratio is going to deteriorate in coming times. Valuation At CMP of Rs 110, IVRCL's stock trades 6x of the FY10E EPS. The company has been valued to arrive at a target price of Rs 132. Even though the economic growth is slowing down, but due to the water-related infrastructure focus of the company, the order book of the company is going to remain robust in the coming times. After the hammering it got in 2008 the stock looks well poised for an upside. Financials FY06 FY07 FY08 9 Mths* Net sales (Rs Cr) 1,491 2,293 3,646 3,255 PAT (Rs Cr) 93 141 210 147 Operating profit (Rs Cr) 93 160 240 280 Interest payments (Rs Cr) 30 48 91 92 Borrowings (Rs Cr) 679 556 1068 - Ret on networth (%) 25 16 15 - Ret on cap employed (%) 26 23 28 - * FY09

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L&T - Reduce - Target INR 536

Sharp drop in PPP projects in 2008; no awards expected until after elections; reinforces our slowdown thesis.

L&T considering ~50% of identified opportunity; complex regulations a hurdle; new govt’s policy to dictate spending.

INR536 TP (standalone INR460 [8.5x FY10E EBITDA], subsidiaries INR76). Maintain REDUCE.

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T H E  B N P  P A R I B A S  A N G L E

Take Healthcare Insurance and Enjoy Tax Benefits Under Section 80D

 

1. Take healthcare Insurance, and protect yourself and your family. Check for Tax benefits under the scheme, especially section 80D.

2. Avail Income tax deduction for the healthcare Insurance premium paid.

3. The healthcare Insurance shall be taken for (you, your spouse and your dependent children) and for your parents.

4. Make sure the premium is paid by any non-cash mode.

Insurance companies offer Health insurance policies. Take both Life Insurance and Healthcare Insurance to save income tax.

Amount eligible for Deduction:

Deduction allowed for Healthcare Insurance : Rs. 15, 000/-

Deduction allowed for Healthcare Insurance (Senior Citizen) : Rs. 20, 000/-

Deduction is allowed for the Healthcare Insurance premium (Non-cash),

1.  Paid for, Self, Spouse and Dependent children;

2. And also for your parents ( Dependent or Not).

Example :
Mr.Sunil is working in a MNC. He has taken health insurance policy for his family ( Himself, Wife and two dependent children).The annual premium is 17,000.

In addition Sunil has taken health insurance for his Parents. The annual premium is 38,000, in which 20,000 is paid by Mr.Sunil and remaining 18,000 is paid by Sunil’s father.

Note: Sunil’s father is a Senior citizen and he is not dependent on Mr. Sunil.

Deduction available for Mr.Sunil:

Health Insurance premium paid for his family : Rs. 15,000 (out of Rs. 17,000)

Health Insurance premium paid for his Parents : Rs. 20,000

Total deduction available for Mr. Sunil : Rs. 35,000/- (Rs 15,000 + Rs.20,000)

Deduction available for Mr. Sunil’s father : Rs. 18,000/-

Source: http://www.saveincometax.co.in/2009/01/15/take-healthcare-insurance-and-enjoy-tax-benefits-under-section-80d/78665/index.html

Health Insurance & Its Need

What is a health insurance policy?
A health insurance policy is a contract between an insurer and an individual or a group, in which the insurer agrees to provide specified health insurance at an agreed-upon price the premium. Depending on the policy, the premium may be payable either in a lump sum or in installments. Health insurance usually provides either direct payment or reimbursements for expenses associated with illnesses and injuries. The cost and range of protection provided by the health insurance will depend on the insurance provider and the particular policy purchased. These days, most companies give the benefit of health insurance to the employees. However, in case your employer does not offer a health insurance plan, it is advisable to opt for a health insurance scheme.

Why do you need health insurance?
Health insurance has become a necessity in today�s world considering the rise in the cost of medical care and treatment and the huge population of the country. The escalating cost of medical treatment today is beyond the reach of the common man. Even if an individual is healthy and has never had any major problem, it is not possible to predict what may happen in the future. There is a growing public awareness for better health care and desire to have better health care from private medical providers. In case of a medical emergency, cost of hospital room, doctor�s fees, medicines and related health services all add up to a huge sum. In such times, health insurance provides the much needed financial relief.

Who can avail this facility?
Health insurance can be availed by people aged between five and seventy five (The upper and lower age limits may vary slightly depending on the policy). The health insurance scheme could either be a personal scheme or a group scheme sponsored by your employer.

What does it cover?
In anticipation of unexpected events that create the need for medical goods and services, the health insurance does not cover certain ailments. It does not cover ailments in the first year after the policy is taken. It covers hospitalisation charges for:

• Heart attacks
• Strokes
• Prolonged illnesses
• Loss of limb, eye, or other parts of the body due to accident
• Injuries
• Maternity expenses
• Medicines

Written by:DoctorNDTV Team

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Real Estate Sector ; Sector Update ; Focus: Mid-Housing Segment

Real Estate Sector

 

Focus: Mid-Housing Segment

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In our recent update on the real estate sector "RBI's measure for realty sector, will it help?", we highlighted that boost to the housing sector shall be induced by lower property prices and declining home loan rates. Historically it has been observed that mortgage rates are at 250/300bps higher than the 10-year GOI bond yields. Our banking analyst expects 6% bond yield for CY09. With decline in the bond yield mortgage rates should, therefore, decline to 8-8.5%. Though PSU banks have reduced home loan rates upto Rs.2mn to 9.25%, we believe rates should fall further to boost demand for housing.  Private sector banks and HFCs have played a crucial role in home finance in the last few years. Though home loans rates have been reduced by them as well, they are still way higher than interest rates offered by PSU banks.

From developer's perspective, though lot of noise of mid-housing has been created, very few developers have mid-housing projects under offering. DLF Limited and Puravankara Projects Limited (amongst company under our coverage) is developing residential projects in the range of Rs.35-45mn. We believe, these two companies are relatively better placed to take advantage of the falling interest rates which shall in tern induce demand for home. For DLF Limited, 12.8% of the gross NAV is contributed by mid-housing segment. In case of PPL, residential accounts for 63.9% of Gross NAV.

Historically, residential rental yields in India have hovered between 5-5.5%. Over the last few years' yields declined substantially to 2-2.5% driven by higher property prices. Our channel checks suggests that mid-housing projects of DLF and PPL have been launched at attractive prices and have rental yields of 4-4.5% based on the rents prevailing in the neighboring areas.

 

Real Estate Sector ; Sector Update ; Focus: Mid-Housing Segment

Real Estate Sector

 

Focus: Mid-Housing Segment

---

In our recent update on the real estate sector "RBI's measure for realty sector, will it help?", we highlighted that boost to the housing sector shall be induced by lower property prices and declining home loan rates. Historically it has been observed that mortgage rates are at 250/300bps higher than the 10-year GOI bond yields. Our banking analyst expects 6% bond yield for CY09. With decline in the bond yield mortgage rates should, therefore, decline to 8-8.5%. Though PSU banks have reduced home loan rates upto Rs.2mn to 9.25%, we believe rates should fall further to boost demand for housing.  Private sector banks and HFCs have played a crucial role in home finance in the last few years. Though home loans rates have been reduced by them as well, they are still way higher than interest rates offered by PSU banks.

From developer's perspective, though lot of noise of mid-housing has been created, very few developers have mid-housing projects under offering. DLF Limited and Puravankara Projects Limited (amongst company under our coverage) is developing residential projects in the range of Rs.35-45mn. We believe, these two companies are relatively better placed to take advantage of the falling interest rates which shall in tern induce demand for home. For DLF Limited, 12.8% of the gross NAV is contributed by mid-housing segment. In case of PPL, residential accounts for 63.9% of Gross NAV.

Historically, residential rental yields in India have hovered between 5-5.5%. Over the last few years' yields declined substantially to 2-2.5% driven by higher property prices. Our channel checks suggests that mid-housing projects of DLF and PPL have been launched at attractive prices and have rental yields of 4-4.5% based on the rents prevailing in the neighboring areas.

 

ndian Cement Sector - Is this the first sign of a pickup in real demand?

Deutsche Bank - Equity Research

* Sharp pickup in December 2008 demand - first signs of a revival?

Our channel checks with major cement producers suggest that cement dispatches in December 2008 were +12-14% yoy and +12-14% mom. More importantly, inventory levels for plants/dealers fell sharply and are close to zero for many plants.

What is likely pre-election spending by state governments (such as for a few big infrastructure projects and the renewal of many stalled projects) helped to boost demand. Shree Cements and Grasim are our top picks, though pure plays such as ACC and Ambuja Cement could do better near term.

* Restart of several big ticket projects; could be pre-election demand

Our talks with cement marketing companies and dealers suggest that demand has been boosted by state government project restarts including (a) the sewerage line project in Punjab; (b) the national irrigation project in Haryana and Andhra Pradesh; (c) roads, bridges and other infrastructure projects in Gujarat; (d) the concretization of roads in Delhi; and (e) offtake for the Bangalore Metro in Karnataka. This seems to be pre-election demand and is likely to sustain at least until May 2009. A few dealers remarked that a lot of infrastructure projects have restarted as current commodity prices make these projects look profitable for developers.


* Operating profits for cement companies could sustain over next few quarters

A 10-15% correction of average retail prices impacted ex-factory realization by only 5-7% as government had cut down excise duties. Our earnings estimates, assuming a further 5% drop in cement realisations and virtually constant energy costs, are 14-33% below consensus except for ACC and India Cements.

* Reiterate Buy on Grasim, Hold on ACC; Shree Cement is our top mid-cap
pick.

We have used a combination of bottom of cycle PE and DCF for valuations. Our cost of equity ranging from 13.1 for ACC to 13.8 for Ambuja ( risk free rate of 8.7%and beta of 0.8 to 1) with a terminal growth of 1-2%%. Our target price implies that cement stocks are at a discount to replacement value by 17 to 66% Our preferred picks are Grasim (TP Rs1,340 +9% upside potential) and Shree cement (TP Rs560 +15%upside potential).

We maintain Hold on ACC, Ultratech, India Cement and Ambuja.

Key downside risks are a collapse in demand and the bunching up of new capacities. Upside risk stems clearly from low fuel prices and delay in new capacities.

ndian Cement Sector - Is this the first sign of a pickup in real demand?

Deutsche Bank - Equity Research

* Sharp pickup in December 2008 demand - first signs of a revival?

Our channel checks with major cement producers suggest that cement dispatches in December 2008 were +12-14% yoy and +12-14% mom. More importantly, inventory levels for plants/dealers fell sharply and are close to zero for many plants.

What is likely pre-election spending by state governments (such as for a few big infrastructure projects and the renewal of many stalled projects) helped to boost demand. Shree Cements and Grasim are our top picks, though pure plays such as ACC and Ambuja Cement could do better near term.

* Restart of several big ticket projects; could be pre-election demand

Our talks with cement marketing companies and dealers suggest that demand has been boosted by state government project restarts including (a) the sewerage line project in Punjab; (b) the national irrigation project in Haryana and Andhra Pradesh; (c) roads, bridges and other infrastructure projects in Gujarat; (d) the concretization of roads in Delhi; and (e) offtake for the Bangalore Metro in Karnataka. This seems to be pre-election demand and is likely to sustain at least until May 2009. A few dealers remarked that a lot of infrastructure projects have restarted as current commodity prices make these projects look profitable for developers.


* Operating profits for cement companies could sustain over next few quarters

A 10-15% correction of average retail prices impacted ex-factory realization by only 5-7% as government had cut down excise duties. Our earnings estimates, assuming a further 5% drop in cement realisations and virtually constant energy costs, are 14-33% below consensus except for ACC and India Cements.

* Reiterate Buy on Grasim, Hold on ACC; Shree Cement is our top mid-cap
pick.

We have used a combination of bottom of cycle PE and DCF for valuations. Our cost of equity ranging from 13.1 for ACC to 13.8 for Ambuja ( risk free rate of 8.7%and beta of 0.8 to 1) with a terminal growth of 1-2%%. Our target price implies that cement stocks are at a discount to replacement value by 17 to 66% Our preferred picks are Grasim (TP Rs1,340 +9% upside potential) and Shree cement (TP Rs560 +15%upside potential).

We maintain Hold on ACC, Ultratech, India Cement and Ambuja.

Key downside risks are a collapse in demand and the bunching up of new capacities. Upside risk stems clearly from low fuel prices and delay in new capacities.

HCC-To Commission Bandra Worli Sea Link By Jan 31st, 2009, Worth a good look at Rs 35

-Should the Arbitration panel working on the Bandra-Worli project cost over-run, decide in favour of HCC, the stock can simply double from here.

-Construction projects, Lavassa and HCC Infrastructure continue to do well.

-Axis Bank and BOI infuse Rs 400 crore into the company.

-NHAI awarded the Badarpur Elevated Expressway project, a 6 lane 4.4 km Elevated Toll Road connecting Badarpur in Delhi to Faridabad in Haryana.

• Concession Agreement signed on September 4, 2008.

• Financial closure for the same is achieved and under documentation.

• Company has qualified for NHAI's 28 highway projects. Out of which 5 bids are under submission worth around Rs. 5000 crs.

• British firm John Laing is a consortium partner towards bidding for these projects.

• Ready to bid for a few more projects in the power sector as well.

HCC-To Commission Bandra Worli Sea Link By Jan 31st, 2009, Worth a good look at Rs 35

-Should the Arbitration panel working on the Bandra-Worli project cost over-run, decide in favour of HCC, the stock can simply double from here.

-Construction projects, Lavassa and HCC Infrastructure continue to do well.

-Axis Bank and BOI infuse Rs 400 crore into the company.

-NHAI awarded the Badarpur Elevated Expressway project, a 6 lane 4.4 km Elevated Toll Road connecting Badarpur in Delhi to Faridabad in Haryana.

• Concession Agreement signed on September 4, 2008.

• Financial closure for the same is achieved and under documentation.

• Company has qualified for NHAI's 28 highway projects. Out of which 5 bids are under submission worth around Rs. 5000 crs.

• British firm John Laing is a consortium partner towards bidding for these projects.

• Ready to bid for a few more projects in the power sector as well.

NHAI Releases Road Construction Contracts, Beneficiaries Are The Usual Names

NHAI project releases Road Construction Contracts, more to be released by March 2009...credit squeeze, execution challenges remain.   Key Beneficiaries: L&T, Reliance Infra   16 projects left with less than 5 bidders each, indicating lower interest from bidders; No project awards till October 2008:   NHAI has commenced the process of bid evaluation and award for 53 projects, under NHDP Phase III and Phase V. Initial bids for 27 projects that were targeted to be awarded by November 2008 have been delayed, given the bid withdrawals post clause 2.1.18 of RPF which restricts the number of bidders and the tightening credit scenario. Please Refer Annexure A for complete list of bidders for 27 projects and Annexure B for clause 2.1.18 of RFP.    Of the 27 highway stretches for which initial bids have been received and evaluated, 16 projects are left with less than five bidders each, while for 2 projects there are no bidders. In a significant relaxation, NHAI has stated that restrictions imposed by clause 2.1.18 will not be applicable for new offers made, in case the number of short listed bidders is less than 5.   L&T, Reliance Infra, Maytas - NCC at the forefront, in terms of short-listings: Based on the initial short listing by NHAI for bid submission at RFP stage, consortiums with highest pre-qualifications include Maytas-NCC (total length 2,231kms, total project cost Rs192b), HCC (2,148 kms, Rs73b), Reliance Infra (1,936 kms, Rs80b), L&T (1,726kms, Rs162b), GVK (1,319 kms, Rs174b), GMR Infra (926 kms, Rs98b) etc.   Of the initial 27 projects taken up for bid evaluation, HCC and Maytas - NCC consortiums had been shortlisted for 21 projects each. Post withdrawals, shortlisted consortiums in the fray for submitting financial bids are Maytas-NCC (1,022 kms), Reliance Infra (1,017 kms), L&T (851 kms), HCC (700 kms), GVK (382 kms), and GMR Infra (314 kms).   Credit squeeze delaying financial closures: Several developers are facing challenges in terms of financial closure for road projects, given tightening credit scenario. For instance, financial closure of five road projects awarded under NHDP Phase V during January 2008, have been delayed. We also understand that for projects under construction phase, sanction terms are being revised, leading to construction delays.   Tight credit scenario, execution challenges, etc have impacted project returns: Given the current tight credit scenario, increased interest rates and execution constraints, RoE's for road projects have been impacted. We believe companies with robust cash flow profile like L&T, Reliance Infrastructure and IRB Infra are relatively better positioned to address the financing issues.   Further, most of the projects in the existing portfolio have already achieved financial closure.. Companies with large road BOT portfolios include IRB (782 kms, Not Rated), L&T (400 kms, Neutral), GMR (346 kms, Neutral), Gammon Infra (217 kms, Not Rated), Reliance Infra (197 kms, Buy), etc.

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NHAI Releases Road Construction Contracts, Beneficiaries Are The Usual Names

NHAI project releases Road Construction Contracts, more to be released by March 2009...credit squeeze, execution challenges remain.   Key Beneficiaries: L&T, Reliance Infra   16 projects left with less than 5 bidders each, indicating lower interest from bidders; No project awards till October 2008:   NHAI has commenced the process of bid evaluation and award for 53 projects, under NHDP Phase III and Phase V. Initial bids for 27 projects that were targeted to be awarded by November 2008 have been delayed, given the bid withdrawals post clause 2.1.18 of RPF which restricts the number of bidders and the tightening credit scenario. Please Refer Annexure A for complete list of bidders for 27 projects and Annexure B for clause 2.1.18 of RFP.    Of the 27 highway stretches for which initial bids have been received and evaluated, 16 projects are left with less than five bidders each, while for 2 projects there are no bidders. In a significant relaxation, NHAI has stated that restrictions imposed by clause 2.1.18 will not be applicable for new offers made, in case the number of short listed bidders is less than 5.   L&T, Reliance Infra, Maytas - NCC at the forefront, in terms of short-listings: Based on the initial short listing by NHAI for bid submission at RFP stage, consortiums with highest pre-qualifications include Maytas-NCC (total length 2,231kms, total project cost Rs192b), HCC (2,148 kms, Rs73b), Reliance Infra (1,936 kms, Rs80b), L&T (1,726kms, Rs162b), GVK (1,319 kms, Rs174b), GMR Infra (926 kms, Rs98b) etc.   Of the initial 27 projects taken up for bid evaluation, HCC and Maytas - NCC consortiums had been shortlisted for 21 projects each. Post withdrawals, shortlisted consortiums in the fray for submitting financial bids are Maytas-NCC (1,022 kms), Reliance Infra (1,017 kms), L&T (851 kms), HCC (700 kms), GVK (382 kms), and GMR Infra (314 kms).   Credit squeeze delaying financial closures: Several developers are facing challenges in terms of financial closure for road projects, given tightening credit scenario. For instance, financial closure of five road projects awarded under NHDP Phase V during January 2008, have been delayed. We also understand that for projects under construction phase, sanction terms are being revised, leading to construction delays.   Tight credit scenario, execution challenges, etc have impacted project returns: Given the current tight credit scenario, increased interest rates and execution constraints, RoE's for road projects have been impacted. We believe companies with robust cash flow profile like L&T, Reliance Infrastructure and IRB Infra are relatively better positioned to address the financing issues.   Further, most of the projects in the existing portfolio have already achieved financial closure.. Companies with large road BOT portfolios include IRB (782 kms, Not Rated), L&T (400 kms, Neutral), GMR (346 kms, Neutral), Gammon Infra (217 kms, Not Rated), Reliance Infra (197 kms, Buy), etc.

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