Maintain BUY on Dilip Buildcon - Execution surprise - HDFC Securities

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

Dilip Buildcon (DBL) reported 1QFY21 APAT at Rs 336mn (73%/71% YoY/QoQ), marginally behind our estimate, as revenue declined by 16%/23% YoY/QoQ. However, execution was 9% ahead of our estimate as labour availability improved to 90%. CFO during the quarter was negative at Rs 2bn as NWC days increased to 114 days from 93 days at FY20 end. Net D/E also increased from 0.8x on Mar-20 to 0.92x on Jun-20. Nonetheless, despite muted ordering in the sector, the company has won orders of Rs 107bn till date in FY21. We maintain BUY on DBL, with a target price of Rs 466/sh, given its (1) strong and diversified order book of Rs 261bn and (2) continued focus on asset recycling. We have valued EPC business at 8x FY22E EPS and HAM at 1x P/BV.

Marginal miss on APAT despite positive surprise in execution: DBL reported 1QFY21 revenue/EBITDA at Rs 19/3 bn, 9%/12% ahead of our estimate, as labour availability improved to 90%. However, APAT at Rs 336mn missed our estimate marginally on account of lower other income and higher taxes. DBL earned Rs 1.1bn of early completion bonus for a HAM project during the quarter.

Labour availability at 90%; all sites operating: Labour availability, which had reduced to 65-70%, has improved to 90% currently. DBL expects it to normalise after the monsoon. While DBL shied away from giving revenue guidance, with improved labour availability and its superior execution capabilities, it expects to achieve execution level similar to that in FY20. We remain conservative and maintain our revenue estimate for FY21.

Strong order book provides earnings visibility in the medium term: DBL has bagged new orders worth Rs 107bn till date in FY21, across road, irrigation and tunnel segments and expects to win additional orders of Rs 50bn during FY21. It has successfully diversified its order book over the past few years as roads contribute only 50%, compared to 87% at FY18-end. With closing order book at Rs 261bn, DBL provides earnings visibility for three years on FY20 revenue.

Deleveraging contingent on monetization of assets: Delay in collection led to increase in NWC days to 114 days from 93 at FY20-end. However, the company received Rs 2.5bn in early July and expects working capital to stabilise around the target range of 90-100 days in the near term. Consolidated net debt increased to Rs 33.5bn (vs Rs 29bn on Mar-20) and net D/E increased to 0.92x (up from 0.81x at FY20-end). DBL has taken moratorium on the loans and does not expect debt to rise further. While it continues to focus on reducing the debt, we expect deleveraging to happen only after completion of the Cube deal and successful monetization of the balance seven HAM assets.

Shares of Dilip Buildcon Ltd was last trading in BSE at Rs.373.25 as compared to the previous close of Rs. 350.55. The total number of shares traded during the day was 52898 in over 2398 trades.

The stock hit an intraday high of Rs. 376.3 and intraday low of 349.75. The net turnover during the day was Rs. 19014443.

Source : Equity Bulls

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