By Nuvama research
Leading highway developer Ashoka Buildcon has entered into an agreement with NIIF to sell 74% of its economic interest in the Jaora Nayagaon (JTCL) toll project.
The JTCL transaction along with the earlier deals to sell stake in five toll and one annuity project will simplify the corporate structure and reduce leverage levels. ABL’s margin trajectory will be a key stock driver, in our view. We increase P/E multiple from 3x to 6x and remove the JTCL and Chennai ORR project from valuations. Our revised SoTP-based TP stands at Rs 110 . Maintain ‘BUY’.
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Jaora Nayagaon stake sale a step in the right direction
ABL has entered into an agreement with NIIF to sell 74% of its economic interest in JTCL; the balance 26% stake in the project is held by Macquarie group. The project has a debt of Rs 150 crore. The equity value for the entire 100% stake is Rs 690 crore, which translates to Rs 510 crore equity value for the company for its 74% stake. Adjusting for the Rs 180 crore loan given by JTCL to the company/ACL, the net cash inflow for the company will stand at Rs 330 crore. The equity invested in the project is Rs 290 crore. Company expects the transaction to be completed by Jul-Aug 2023.
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ABL continues with its asset monetisation strategy
ABL had earlier entered into a transaction with KKR to sell five BOT projects for Rs 1,340 crore. Out of this, it would use Rs 1,200 crore to provide an exit to SBI-Macquarie (SBI-M), which had invested in Ashoka Concessions Ltd (ACL). ABL had also agreed to sell the Chennai ORR annuity project to NIIF for an aggregate financial consideration of Rs 690 crore; out if this, Rs 450 crore will flow to ABL. The company expects the completion of these deals by end-FY23. The conclusion of these transactions will simplify the corporate structure and result in significant deleveraging for the company.
Outlook and valuation:
The BOT stake sale has been a major overhang on the ABL stock for the past couple of years. The proposed deals will de-lever the balance sheet, allow management to focus on the EPC business, and reduce risk perception among investors.