Maintain ADD on ITD Cementation - Lacking triggers - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

ITD Cementation (Q4FY20): Lacking triggers. Maintain ADD
(TP Rs 54, CMP Rs 49, MCap Rs 9 bn)

Despite COVID-19 impact, ITD's reported strong 4QFY20 execution leading to Rev/EBIDTA beat of 25/54%. ITD APAT stood at Rs 356mn vs. our estimate of Rs 35mn. With robust FY20 order inflow/backlog of Rs 60/107bn, FY21 should have been a strong year for ITD with Rev of Rs 40bn+. Covid-19 has resulted in migrant workers going home and construction work coming to halt. At best we expect ITD to record 50% Rev in 1QFY21 (Rs 3.5bn) with gradual rampup to Rs 10bn by 4QFY21E. Though ITD has taken cost control measures, negative oplev in 1HFY21 will result in PAT breakeven for FY21E. Weak 1HFY21 will limit further re-rating whilst stable BS with net D/E of 0.2x will limit correction. Maintain ADD with an increased TP of Rs 54/sh (8x Mar-22E EPS vs Rs 44/sh earlier). TP increase driven by 22.3% FY22E EPS upgrade.

Strong 4QFY20 impacted by one off: During 4QFY20, ITD has written off Rs 409mn of receivable and unbilled revenue for the ILFS Power Plant project in Cuddalore. With ILFS moving into NCLT, ITD auditors advised to take write off. ITD will pursue the claims with new buyer (post NCLT process). The jetty is crucial for linking imported coal to power plant and currently coal is transported from Chennai port by road to power plant. Reported loss stood at Rs 54mn and APAT at Rs 356mn.

Otherwise strong FY21E, impacted by COVID headwinds: ITD has won new orders worth Rs 60bn (FY20) taking total order book to Rs 107bn. Bid pipeline is strong at Rs 240-250bn with 20%+ marine projects up for grabs. ITD stayed away from giving inflow guidance but expects revenue run rate target of Rs 10bn/qtr from 2QFY21 to shift to 4QFY21. Labor at site has reduced from peak of 18,000 to 8,500 and reverse migration is expected to normalize by Aug-20 end as inter State transportation improves. Labor migration and large presence in urban cities viz. Mumbai, Pune, Nagpur, Bengaluru, Delhi and Kolkata would severely impact FY21E execution.

Net debt reduces by Rs 2.4bn YoY, NWC days decrease to 68: ITD's consolidated gross/net debt decreased to Rs 4.6/1.8bn vs Rs 5.3/4.2bn YoY. Bengaluru elevated metro project debt reduced from Rs 2.3bn to Rs 1.6bn. This project is expected to get completed by Dec-20/June-21 and WC debt will gradually unwind. Robust client payments/advances has resulted in NWC days decreasing to 68days vs 114days YoY. Consolidated net D/E stands at 0.2x vs 0.4x YoY.

Limited downside: ITD lacks near term triggers for upsides on back of weak 1HFY21. Stable balance sheet and strong order book will limit downside. We maintain ADD. Key risks (1) High competitive intensity in marine segment with competition from L&T, (2) Sustained cost overruns in projects, and (3) BS and NWC deterioration.

Shares of ITD CEMENTATION INDIA LTD. was last trading in BSE at Rs.48.85 as compared to the previous close of Rs. 49.4. The total number of shares traded during the day was 43420 in over 596 trades.

The stock hit an intraday high of Rs. 52.5 and intraday low of 48.55. The net turnover during the day was Rs. 2179538.

Source : Equity Bulls

Keywords