Small Cap Stock Has Slumped 15% In 5 Days, But Analyst Sees 58% Upside

Shares of Ashoka Buildcon have remained under pressure since the company posted its results for the December quarter results. However, analysts at HDFC Securities remain positive about the stock’s long-term prospects.

The Ashoka Buildcon Analyst: Parikshit D Kandpal for HDFC Securities maintained the “buy” rating raising the price target to ₹254 from ₹239. The revised target indicates an around 58% upside from the stock’s last closing price of ₹160.35.

The Ashoka Buildcon Thesis: The brokerage said that the company’s December quarter results beat its expectations. The company’s revenue, EBITDA, and APAT surpassed the brokerage’s estimates by 20/6.1/3%.

However, the EBITDA margin of 8.3% fell short of the estimated 9.4%, primarily due to weaker margins in legacy projects. The analysts pointed out that the company anticipates achieving EBITDA margins of 10% or more from Q1/Q2FY25, with further improvement to 11-11.5%.

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As of December 2023, the order book stands at ₹13,170 crore, equivalent to around 2.1 times FY23 revenue. The analysts highlighted that the order book is well-diversified across roads, power T&D, railways, and buildings, constituting 43/42/9/6% respectively. Geographically, the highest contribution comes from the west/south regions at 33/27%, followed by central/east/overseas at 13/9/10%. State/central governments are major clients, making up 43/29% of the OB, with overseas/HAM/private at 10/10/8%.

The brokerage also remarked that the company has a comfortable balance sheet, the standalone gross/net debt as of December 2023 is ₹1,100/830 crore, compared to ₹1,120/890 crore as of September 2023.

Price Action: Ashoka Buildcon’s share price was up 2.12% to trade at ₹163.75 in early trade on Tuesday.

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