Edelweiss Research Report – Dilip Buildcon Ltd
Dilip Buildcon (DBL) is one of the largest road EPC contractors in India with more than INR 17,500 cr order-book and INR 5,000 cr revenue (in FY17). Over the years, the company has created a sustainable business model by focusing on fostering end-to-end execution capability, expanding presence across geographies and securing higher revenue share of government projects. Moreover, by virtue of its efficient & in-house execution and early compeletion bonus, it earns the highest EBITDA margin and RoCE among peers. After spending aggressively to expand vertically and horizontally, DBL will rein in capex over the next few years and its NWC cycle too is envisaged to improve. Also, the company’s 12 completed road projects are consistently generating positive cash flow and considering their healthy positioning one can expect it to garner INR350–380cr from their sale, which is an option value. DBL is expected to repay debt of INR 400 cr over the next 4 years as FCF from standalone operations will be sufficient to fund the capital requirement of 12 under-construction projects. Higher growth, limited capex and repayment of debt are estimated to boost RoCE up to 21% in FY20E. We reiterate our ‘BUY’ ratings.
Superior execution push the revenue growth high; Margin traction continues
DBL reported standalone topline growth of 29% YoY to INR 1,750 cr in Q4FY17. Among the segments, Road sector reported revenue growth of 23% YoY to INR 1,570 cr and contributed 90% to the overall revenue of the company. Mining segent also started showing traction and reached INR 70 cr revenue runrate in the previous quarter. For the full year of FY17, DBL reported INR 5,098 cr of revenue; 25% growth YoY. With higher growth and contained expenses, EBITDA margin came back to 20% levels in Q4FY17 as compared to 16% reported in the corresponding quarter of previous year. For the full year of FY17, reported EBITDA margin was 19% which is similar to last year. The company reported INR 83 cr of early completion bonus in Q4FY17 and for the full year early completion bonus was INR 106 cr as compared to INR 60 cr in FY16. Without considering the early completion bonus, core EBITDA margin came at 16% for Q4FY17 and 18% for the full year of FY17 which is like-to-like basis 60 bps lower than previous year.
Orderbook reported at INR 17,568 cr; Highest among the peers
DBL reported total order book of INR17,568 cr at the end FY17, a 63% jump YoY and highest among peers. In the road segment, the company got more than INR 9,000 cr of oreder-inflow in FY17 stood at INR 14,500 cr of orderbook, which provides more than 3 years of revenue visibility. In mining, the company accumulated INR 2,775 cr orderbook in the previous financial year. Among the order book 99% are from governemnt authorities and PSUs which offers better revenue visibility and receivable security. Moreover, the orderbook is spread in 13 differetn states with MP, Rajasthan, Maharashtra and UP contributing the maximum.
Limited Capex & improved NWC benefitted RoCE
DBL did a capex of INR 483 cr in FY17 which is segnificantly lower than previous three years. NWC in quarter four also showing improvement in trend and partially reduced to 129 days ascompared to 136 days in the corresponding quarter. Inventory cycle reduced to 120 days against 139 days, debtor cycle also improved by 16 days in FY17. Due to limited investment both in standalone and consolidated operation, debt level of the standalone company remained stable at INR 2,100 cr. With growth in profitabilty, limited capex and NWC improvement, overall RoCE improved to 18% in FY17 as compared to 17% achieved in FY16.
Valuation: Maintain BUY with TP of INR 618
At CMP of INR500, DBL’s standalone operation is currently trading at 15-20% discount to peers. We value the standalone operation at INR 530/share after ascribing 14x P/E on FY19E EPS of INR38. The completed and under construction BOT, annuity and HAM projects will contribute another INR90/share. We reiterate with a revises target price of INR 620/share.
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