Ashoka Buildcon’s subsidiary Ashoka Concessions has entered into a share purchase agreement with Galaxy Investments II Pte, a KKR entity, for the sale of its entire stake in five toll assets for Rs 13.3 bn. Of this, Rs 12 bn would be used to provide an exit to SBI Macquarie for its stake in Ashoka Concessions. Post regulatory approvals, the deal is expected to be closed by Sep’22. SBI Macquarie’s exit has been pending for long and has been an overhang on the stock.

In the five projects – Ashoka Highways (Bhandara), Ashoka Highways (Durg), Ashoka Belgaum Dharwad Tollway, Ashoka Sambalpur Baragarh Tollway, and Ashoka Dhankuni Kharagpur Tollway, Ashoka Concessions has invested Rs 21 bn (equity). There would be a net impairment of Rs 5.5-6 bn for Ashoka Buildcon from this transaction, which would be accounted for in Q3FY22. Its external debt in these five projects stood at Rs 32 bn.

The company is in advanced discussions to sell stake in Jaora Nayagaon and the Chennai ORR project, and some developments could be expected on this front soon. Ashoka Buildcon is also looking to monetise its HAM assets through outright sale or the InvIT route.

Going forward, mgmt would continue to bid for road projects and also evaluate toll projects where it sees value accretion. It recently participated in the Ganga Expressway toll project tendering process. This deal for toll assets has been long overdue and clears a big overhang on the stock. The mgmt can now focus on other aspects like execution of its order backlog and monetise other assets. With an improvement in mgmt bandwidth and reduction in consolidated debt levels, it would be able to take up additional projects and capitalise on growth opportunities.

Valuation and view
While the deal could take 9-12 months to fructify, it is a step in the right direction. Any developments on the sale of other assets, where discussions are in advanced stages, could be incrementally positive. A robust order book and improvement in the balance sheet augurs well for Ashoka Buildcon. The stock trades at 8x FY23E EPS for the core construction business. We retain Buy with a TP of Rs 175/share, based on SoTP valuation.