Heavy Steel And Data Center Demand Will Drive Long-Term Upside Potential

Catalysts

About Interarch Building Solutions

Interarch Building Solutions designs, engineers, manufactures and erects fully integrated pre-engineered and heavy steel buildings for industrial and infrastructure customers across India.

What are the underlying business or industry changes driving this perspective?

• Accelerating shift toward faster, steel based industrial and infrastructure construction, supported by government incentives in manufacturing, electronics, renewables and data centers, should deepen Interarch’s order book and support revenue growth.
• Ongoing capacity additions, including the fourth integrated PEB plant in Andhra Pradesh and the upcoming Gujarat facility, combined with better execution productivity, are likely to lift annual throughput toward INR 2,000 crores plus and improve operating leverage driven earnings.
• Entry into heavy steel structures and multistory buildings, where single projects can demand very large tonnage, can create a second, higher volume growth engine that supports topline expansion while helping stabilize blended margins over the medium term.
• Rising complexity and scale of projects in sectors such as semiconductors, EVs and data centers favor incumbents with in house design, engineering and pan India execution capability, which can support premium pricing, higher net margins and stickier, repeat customer driven earnings visibility.
• Early investment in export partnerships and global marketing, including collaborations with JSPL and Moldtek, positions Interarch to tap international demand for offsite fabricated steel buildings, adding a new revenue stream and diversifying earnings beyond the domestic cycle.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Interarch Building Solutions's revenue will grow by 18.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.5% today to 8.4% in 3 years time.
• Analysts expect earnings to reach ₹2.4 billion (and earnings per share of ₹130.92) by about December 2028, up from ₹1.3 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 37.8x on those 2028 earnings, up from 31.8x today. This future PE is greater than the current PE for the IN Construction industry at 18.4x.
• Analysts expect the number of shares outstanding to grow by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.1%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business is increasingly geared to complex, large ticket projects in semiconductors, EVs, data centers and heavy structures, so any cyclical or policy driven slowdown in capex in these new age sectors, or delays in project approvals and site clearances, could leave high fixed capacity underutilized and weigh on revenue growth and operating leverage driven earnings.
• Management is simultaneously scaling new plants, building export markets and entering heavy steel and multistory segments, and if execution bandwidth, engineering capacity or project management do not keep pace, quality or delivery slippages could erode the current advantage with repeat customers and compress both revenue and net margins.
• Rising competition from newly listed and expanding PEB players targeting similar market share and order sizes could intensify price based bidding in what is still a project driven business, forcing Interarch to accept lower realizations to keep its order book filled and putting sustained pressure on gross margins and EBITDA margins.
• The model depends on tightly coordinated supply chains, specialized grades and sizes of steel, and satellite job work units, so any prolonged disruption in raw material availability, logistics or outsourced fabrication reliability could drive inventory build ups, cost overruns and working capital stretch, hurting cash conversion and reported earnings.
• The strategy to push exports and heavy structures entails upfront spending on people, partnerships, branding and overseas business development with long lead times before sizable orders materialize, and if these new verticals scale slower than planned, the added overheads could dilute return on capital employed and cap net margin expansion despite strong domestic demand.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹3450.0 for Interarch Building Solutions based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹28.3 billion, earnings will come to ₹2.4 billion, and it would be trading on a PE ratio of 37.8x, assuming you use a discount rate of 15.1%.
  
• Given the current share price of ₹2417.4, the analyst price target of ₹3450.0 is 29.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.