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Monday, June 22, 2009

Ahluwalia Contracts India Ltd:-Future growth prospects and outlook

Scripscan:Ahluwalia Contracts India Ltd
cmp:80
Traded in:Nse-bse

Story:Ahluwalia Contracts is a cash contractor and is engaged in constructing a wide range of structural buildings such as healthcare facilities, hotels, educational institutions, IT parks, commercial and industrial complexes, malls, and housing projects. It also produces ready mix concrete (RMC) on a small scale. It caters to a wide range of players from government to private sector developers.With increasing urbanization and rising incomes, demand for housing, office space, factories, malls, multiplexes and auditoriums are expected to remain high over the longer term in India. Ahluwalia Contracts is going to reap the benefit of these potential growth opportunities. The company's order book of Rs 4,150 crore as of December 2008 stands comfortable at 3.85 times trailing its four quarter sales ending September 2008. It has bid for projects worth Rs 1,200 crore including L1 stage orders of Rs 200 crore whereas its strike rate is 20-25%.The company is planning to include more of government contracts, which now include 20% of the total order book, and work for projects in sectors such as multi-level car parking projects, bus/railway terminal, airport projects, urban infrastructure including solid waste management and sewage treatment plants. This will enable it to diversify its client base and reduce the risk of default.Finding a company that has a good track record, strong balance sheet and cash flows is the key to success in long term investing. It works across sectors. One such company in the construction sector is Ahluwalia Contracts. Though it is depending the real estate sector highly, it has a strong order book and the mix is expected to change for the better. While, the company's compound annual growth rate (CAGR) in sales stood at 31% and both operating profit and net profit posted an increase of 40% between the financial year 2000 and 2008. Besides, the company has been able to generate positive cash flows from operations in eight out of the past 10 fiscals. Also, its debt to equity ratio has remained less than one for the past few years. Going ahead, the company is expected to continue with its growth story.The stock looks cheap given the visibility in demand in the company's new target market segments and strong balance sheet position.A great buy at dips for long term investors.

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