Ashoka Buildcon (ABL), traditionally a state player, has transformed into a national player by winning four NHAI projects totaling to a TPC of ~Rs5,156cr. However, this transition has come at a cost, as it entails premium commitments to NHAI (~Rs220cr per year, albeit covered by toll collections during the construction period) and huge equity contributions from ABLs side, which we believe would stretch its leverage (consolidated net D/E is expected to rise from 1.4x in FY2011 to 3.0x by FY2013E). We have valued ABL on an SOTP basis – by assigning 5.0x EV/EBITDA to its standalone business (Rs87/share) and valued its BOT projects on NPV basis (Rs158/share). We initiate coverage with a Buy rating on the stock and a SOTP target price of Rs245/share and key catalyst being raising equity from capital markets.

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