Accumulate IRCON stock at current price for good returns

IRCON International Ltd (IRCON) is a leading government company incorporated by the Indian Central government, under the Ministry of Railways working in the competitive field of turnkey construction. IRCON International Ltd is a specialised constructions organisation covering the entire spectrum of construction activities and services towards the infrastructure sector. The company is known for its quality commitment and consistency towards performance. The major core competence areas of operation of the company are related to railways, highway construction, EHP sub-station engineering and construction, etc. IRCON works in a highly competitive environment along with working in difficult regions and terrains, towards building prestigious national projects important to the country. Despite periodic Covid challenges, IRCON has resumed operations in a full-fledged manner and currently operating and functioning at pre-Covid levels. As of 31 December 2021 the order book of the company stood at Rs 43505 crores and notably Rs 11000 crore worth of orders were won during Q3FY22. IRCON has 5 highway projects under HAM which it is implementing under 5 Special Purpose Vehicles or SPVs. The financial performance of the company for Q3FY22 was quite solid with income growing to Rs 1709 crore and EBITDA at Rs 107 crore. Profit after Tax climbed to Rs 169 crore for the December ended quarter of 2021. The company management has projected a very conservative financial projection for the next financial year with just a 5% overall growth target and around 7-8% realistic operating margins. This is due to highway HAM projects taking a lot of development time. Even though the coal SPVs orders are reflected in the order book, these are still in the development stage. The company is also implementing a solar power project at a cost of around Rs 2500 crore and financed under a debt equity ratio of 80:20 to be completed by mid 2024. IRCON has already signed the purchase power agreement or PPA with Indian Railways wherein the latter will be entirely purchasing the 500 megawatts produced. While Indian Railways is already buying power in the range of Rs 5-6 per unit, IRCON will be supplying to them at a fixed cost of around Rs 2.45 per unit. This would substantially benefit the Indian Railways. As of 31 December 2021 there is no debt on the books of IRCON as any reflection is a pass through entry guaranteed by the Government of India, wherein the repayment is to be done by the Government. The Union Budget has also put a lot of thrust towards infrastructure development in the country and hence long term visibility for IRCON and many other similar companies like L & T look extremely positive. The stock price of IRCON is currently quoting at around Rs 43 on the Indian bourses and patient investors looking at long term can add the stock to their investment portfolio for superior gains. Investors should do their due diligence and risk assessment plus consult their financial advisors before buying this or any other stock.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.