Ahluwalia Contracts is poised for a robust growth recovery ahead. Buy for target price of ₹880 (31% upside): ICICI Direct

Weak Performance in Q3; Recovery likely in FY26 …

About the stock: Ahluwalia Contracts (India) Limited is a leading construction company operating across residential/commercial complex, hotels, hospitals, institutional/corporate offices, IT parks, Railway station redevelopment, metro station/depot, parking lot etc.

• The order book stood at ₹ 16,258 crore as of Q3FY25 (4x book to bill). Ahluwalia enjoys a healthy balance sheet and is a net cash company (net cash of ₹ 724 crore in Q3FY25).

Q3FY25 Performance: Ahluwalia reported revenue at ₹952 crore, down 7.3% YoY. EBITDA stood at ₹84.4 crore, down 24.5% YoY given the negative operating leverage. Effectively, EBITDA margin reported at 8.9% was down 200 bps YoY. PAT reported at ₹49.4 crore was down 30% YoY given the weak operating performance.

Investment Rationale:

• NGT Ban impacts Q3; Execution to ramp up in FY26: The weak operating performance was largely attributable to the impact of the NGT ban in the Delhi-NCR region (forms 33% of the orderbook). Consequently, the topline growth guidance was also revised downward to 8.5-9% (vs. 10% earlier) for FY25. We highlight that the company has now lowered its FY26 topline guidance to 15%+ (vs. 20% earlier). Nonetheless, Ahluwalia has a strong order book of ₹ 16258 crore as of Q3 (4x book to bill). It has received order inflows of ₹7,794 crore in 9MFY25. Given the bid pipeline of ₹25000 crore, it expects order inflows of ₹ 8000 crore for FY25 and FY26. Given the robust orderbook, we expect strong revenue CAGR of ~13.6% over FY24-27E to ₹ 5655 crore, with recovery from FY26.

• Margin to improve in FY26: The management is optimistic with margins improving to double digits in FY26 (exceeding 10%) owing to the completion of slow-moving projects, better management of the NGT issue and absence of additional expenses. For Q4, it expects incremental margin improvement over Q3 in the range of 9-10% given that January month was also affected by the NGT bans. With strong execution and price escalation in ~85% of the order book, we expect margins to bounce back to 10% and 10.5% in FY26 and FY27, respectively vs. 8.3% in FY25, driving 19.4% adjusted earnings CAGR over FY24-27E.

Rating and Target Price

• Given the expertise of 5 decades, strong order book visibility, history of robust execution and balance sheet strength, Ahluwalia is poised for a robust growth recovery ahead

• We value Ahluwalia at ₹ 880 i.e. 15x on FY27E EPS and maintain our BUY rating

IDirect Ahluwalia Co Update Feb 25