Goldman Sachs retains the `Buy’ rating on an existing strong pipeline of road projects and raises the 12-month price target to Rs 326 to reflect some value from potential future projects that the company can win over the next 24 months. IVRCL and IRB currently trade at FY11E P/E of 14.2x and 19.2x versus the historical median 12-month forward P/E of 15x and 17.2x respectively. Goldman Sachs considers these multiples attractive, given their outlook of stronger growth and expanding returns over the next 12-24 months. Apart from faster approvals, the key drivers of this improvement have been numerous structural reforms and urgency in resolving pending issues. Goldman Sachs adds IVRCL to the regional conviction list on:
(1) increasing traction in order inflows,
(2) a stronger balance sheet after restructuring that enhances IVRCL’s ability to win BOT (build, operate and transfer) projects, and
(3) relatively cheaper current valuations that do not adequately reflect the company’s improving margins and returns profile.
Goldman Sachs values the stock at Rs 502, implying a 28% upside from the current levels.
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