What stocks to buy? - Invest In Ramky Infra

 

 

Infrastructure Outlook: There is immense thrust from Government of India to improve the Indian infrastructure. In the twelfth plan 2012-17, the government has planned to increase the expenditure in infrastructure from 5.7% of the GDP in eleventh plan to 8%. This initiative has already been taken not only from central government but also from individual states. Where the government has taken initiative to improve the infrastructure, the private parties are also encouraged to take part in this initiative. This will be done in a Public Private Partnership route.

 

Strong Order Book : Ramky infrastructure has a strong order book position of 13702 crores as of March-12, which is nearly 4 times its yearly revenue. The order book breaks up as below as on beginning of this financial year

1.       Roads, Highways & Bridge Project – 43.7%

2.       Building – 16.3%

3.       Water and waste water Projects – 16.0%

4.       Irrigation project – 11.8%

5.       Industrial Projects – 7.5%

6.       Power Transmission and distribution – 4.7%

More over more potential orders are there in the pipeline.

 

Strong financials : Ramky infrastructure is growing over last four years at CAGR 31% in terms of revenue, In terms of net profit, it is growing at CAGR 29.5%.  In the last financial year, the stand alone revenue for Ramky has been grown at the rate of 13.32% to 3094.25 crores and the net profit (before tax) has grown marginally by 0.58% to 212.17 crores. On a consolidated basis, Ramky’s revenue has grown by 22.4% to 3934 crores and net profit to 244 crores (an increase of 18.43%). Though owing to input cost and high interest rate, the net profit margin has been plunged to 4.58% from 5.73%. Barring the profit margin, the performance of the company is quite significant when the broader economy has played a spoil sports. Also, this is worth to be mentioned here that the company has a moderate RONW of 14%.

 

Cheap valuation : Ramky’s share is available at a very cheap valuation. This is currently trading at a trailing PE of 4.3. The Price to Book Value ratio stands at 0.6. If we consider a 20% topline growth for 2013, the stock is currently trading at 4 forwarding PE for 2013, whereas its peer Jaypee Infra is trading at 5.45 and Patel engineering is trading at 12.3.

 

 

 Risk – multiple subsidiaries : Ramky has invested in multiple businesses and having good number of subsidiaries. All of these subsidiaries are not profit making or having good profit margin. Over all this makes the entire business model complex and difficult to manage. The investors also may find it difficult to track all of them. This is posing a risk in terms of improper visibility and outlook.

 

Risk – Jagan case : The share price of Ramky infrastructure has been beaten down drastically from the time its 2400 acre Pharma city at Vishakhapatnam came under the scanner after the arrest of Jagan Mohan Reddy. This issue has not been resolved yet and any decision against Ramky may have some adverse effect on its share price.

 

 Considering both positive and negatives, it is recommended to buy the stock at the current valuation. In case, there is any adverse impact of the case, the lower side is limited as stock has already discounted most of the negative factors.

 

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