Maintain BUY on Capacite Infraprojects - The worst is over - HDFC Securities

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

CIL reported broadly in-line 1QFY21 performance. The good part is that the worst is over as we foresee MoM/QoQ execution ramp-up. CIL is well-placed for cyclical recovery on the back of robust order backlog (7x FY20 revenue). Management allayed liquidity concerns with no plans of equity fund raise and likely reduction in debt as execution and collections improve. The order book is well balanced between Public/Pvt at 55:45. Balance sheet is stable, labour availability has improved to ~45%, and all sites have restarted. CIL has received further Rs 1.1bn of CIDCO project advance, implying project remains on track (43% of order book). We maintain BUY with Rs 147/sh target price.

Massive urban exposure led to sharp revenue de-growth: Revenue: Rs 237mn (-94% YoY, -92% QoQ, 53% miss); execution was severely impacted as most of CIL projects (entire Rs 105bn order backlog) are concentrated in cities which are one of the worst affected by COVID-19. Cost rationalization both on account of fixed and variable costs contained EBITDA loss to Rs 235mn (vs. estimate of Rs 211mn loss). Interest expense and depreciation led to higher PBT loss of Rs 549mn. CIL reported loss stood at Rs 424mn (vs estimated loss of Rs 416mn). Cost savings resulted in in-line losses.

Labour situation improving execution to normalise by 4QFY21: CIL has started seeing the return of migrant workers with the numbers improving from 2,000 (third week of June-20) to 4,000 as of now and expected to further ramp-up to 5,000 by Aug-20 end. CIL has restarted 90% of the private sites and 99% of government sites. The execution is ramping up and expected to stabilise by 3QFY21 and normalise by 4QFY21, in the absence of a second COVID wave. We estimate CIL to start clocking Rs 1bn/month revenue from Sep-20 with gradual ramp-up to Rs 2bn/month by Jan-21. We believe that the worst is over for the company, and 1QFY21 performance may have been the bottom.

CIDCO project (Rs 45bn, 43% order book) execution kick-started, augurs well: CIL has received CRZ/EC approvals for all seven sites. Work has started on 5/7 sites with balance two sites groundbreaking planned for Aug/Sep-20 respectively. Labour ramp-up will take place from Sep-20. Meaningful contribution from CIDCO is expected from 4QFY21.

Balance sheet debt stable, marginal increase: Gross debt has marginally increased to Rs 3.5bn (part conversion of LC to debt) vs Rs 3.1bn QoQ, while gross D/E stood at 0.4x. CIL is focusing on collections and has seen improvement in Jul-20. No major ECL provisioning is envisaged for private order backlogs. CIL has Tier 1 clients like Oberoi, Godrej, Brigade, CIDCO, BSNL, K Raheja, Brookfield, etc., and, hence, we believe NWC will reduce.

Shares of Capacite Infraprojects Ltd was last trading in BSE at Rs.119.6 as compared to the previous close of Rs. 114.65. The total number of shares traded during the day was 23305 in over 1584 trades.

The stock hit an intraday high of Rs. 120.9 and intraday low of 115. The net turnover during the day was Rs. 2750681.

Source : Equity Bulls

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