Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Visit Note Dilip Buildcon Buy FY18E a bumper year! Show continues! Company and Strategy DBL with its differentiated business model that lays on project selection and execution with operational efficiency continues to remain one of the prime beneficiaries of Govt s Bharatmala project (` 6.95tn). With its presence across 13 states of India (as on Mar 18) and signing of an agreement with Shrem Group (Aug 17) to exit 1% from its 24 BoT projects for ` 16bn, DBL is in much better placed to benefit from an upcoming pick up in the road awarding activity. DBL s stock price rose >27% post our initiation (click here) dated 1 th Apr 17 due to constant better performance, reduction in working capital and deleveraging of the balance sheet through the sale of BoT portfolio. Despite the furious spike in the stock price, we reiterate BUY due to its differentiated business model, proven execution capability, growth trajectory coupled with improving financials. Site visit of Lucknow-Sultanpur HAM project 42% completed Our site visit to Lucknow-Sultanpur HAM project in UP gave us a first-hand understanding of faster execution on the ground. DBL received appointed a date for this NHAI project on 8 th May 17 and completed 42% (in 9 months and 18 days) of EPC value of ` 17.8bn. The company targets to complete the entire project by 1 months ahead of the scheduled completion date of 4 th Nov 19. The scope of the project includes 127.4 km rigid pavement of NH-56. Outlook We upgraded our revenue estimates by 3.9%/ 14.8%/ 15.8% for FY18E/ FY19E/ FY2E due to higher order inflow of ` 115.8bn in YTDFY18 vs. earlier estimate of ` 9bn and better execution on HAM projects. We factored higher capex of ` 11.8bn vs. ` 8.3bn and higher average debt of ` 26bn vs. ` 23.1bn during FY18-2E to support revenue growth, resulting into higher depreciation and interest cost. Hence, we raised Adj. PAT estimates by 6.7%/ 19.5%/ 12.8% for FY18E/ FY19E/ FY2E respectively. We expect DBL s revenue/ Adj. PAT to grow at a healthy CAGR of 33.3%/ 54.5% over FY17-2E. We expect DBL to witness traction in revenue, best EBITDA margin among peers, superior net profit margin, comfortable working capital, robust order inflow and order book, robust FCFF, declining leverage, and improving healthy return ratios (RoE/ RoCE of 26.5%/ 29.4% by FY2E) over FY17-2E. Thus, we reiterate Buy on the stock with an upward revised SOTP of ` 1,423 (Exhibit 1). FINANCIALS (` Mn) Particulars FY16 FY17 FY18E FY19E FY2E Revenue 4,853 5,976 75,366 1,319 12,811 Growth (%) 55.7 24.8 47.8 33.1 2.4 EBITDA excl. OI 7,992 9,923 13,792 18,358 22,18 EBITDA excl. OI (%) 19.6 19.5 18.3 18.3 18.3 Adj. PAT 1,697 2,77 5,22 8,159 1,183 Growth (%) 58.2 63.2 88.5 56.3 24.8 EPS (`) 12.4 2.3 38.2 59.7 74.5 Growth (%) 58.2 63.2 88.5 56.3 24.8 PER(x) 78.1 47.8 25.4 16.2 13. ROANW (%) 17.8 19. 24.1 28. 26.5 ROACE (%) 19.1 19.4 23. 27.4 29.4 March 2, 218 CMP Target / Upside `969 `1,423/47% BSE Sensex 32,923 NSE Nifty 1,94 Scrip Details Equity / FV Market Cap 52-week High/Low `1,368mn/`1/- `133bn USD 2bn `1,59/315 Avg. Volume (no) 466,875 NSE Symbol Bloomberg Code Shareholding Pattern Dec 17(%) DBL DBL IN Promoters 75.6 MF/Banks/FIs 4.6 FIIs 11.1 Public / Others 8.7 27 25 23 21 19 17 15 13 11 9 7 DBL Relative to Sensex DBL BSE Sensex Sr. Analyst: Shravan Shah Tel: +9122 496 9749 E-mail: shravans@dolatcapital.com Associate: Maulik Shah Tel: +9122 496 9775 E-mail: mauliks@dolatcapital.com
SOTP Valuation Component Valuation Method ` /sh % Standalone cons business 18x FY2E EPS 134.2 94.2 Road BOTs 1x FY2E P/B 82.5 5.8 Total 1422.7 1. CMP 969. Potential upside (%) 46.8 We have not valued DBL s equity investment in 24 BOT projects which it signed an agreement in Aug 17 to sell 1% to Shrem Group for ` 16bn (` 6bn/ ` 1bn to be received in FY18E/ FY19E). However, we have assumed `63 bn (7% of total inflow of ` 9bn) as HAM projects order inflow in FY19E and FY2E each year. We assumed 9% equity requirement for the same (higher than 8.4% in 6 HAM projects won in Q4FY18) and 5% of it to be infused in FY2E and FY21E for HAM order inflow in FY19E. We have also factored ` 8.5bn (5% in FY19E and 5% in FY2E) equity investment for 6 HAM projects won in Q4FY18. Accordingly, we have valued its equity investments in fresh (Q4FY18 + FY19E) HAM projects win at 1x FY2E book value. Upside/ Downside risk to our valuation Higher debt reduction in debt vs. expectation If DBL manages to reduce its debt at much lower level due to a faster reduction in NWC cycle compared to our estimates, then it will positively impact its profitability by a reduction in interest cost and balance sheet by a further dip in leverage. This may lead to further expansion in its valuation multiples and poises upside risk to our target price. Under utilisation of large fleet of equipment and manpower DBL owns a large fleet of equipment and has high employees base, resulting in higher fixed costs. It may have an adverse impact on its profitability if DBL is unable to utilise them properly. Execution delays Though the company has managed to complete most of its projects on or before time, any delay due to an impediment at the client s end or other regulatory bottlenecks could adversely affect DBL s revenue and profitability. Early completion bonus and O&M revenue DBL earned early completion bonuses (average 2.1% of revenue during FY13-17) which is likely considering its excellent track record of completing most of its projects before time. We have factored in 1% of revenue as an early completion bonus. If it earns more/less early completion bonuses vs. our estimates, then it will positively/negatively impact its revenue and profitability. We have not factored O&M order book of ` 67bn and its revenue poises upside risk to our target price. March 2, 218 2
Key highlights from interaction with the management Guidance DBL raised the revenue guidance from >` 7bn/ ` 8-84bn to >` 75bn/ ` 1bn in FY18E/ FY19E and 2-25% growth for next couple of years. Fresh EPC order inflow stood at `115.8 bn during YTDFY18 and another `8-1bn of inflows in FY19. DBL has bided for projects worth `115.1 bn which are yet to be opened. DBL would like to maintain order book at 2-2.5x of next year of revenue. DBL s bid to success rate remained at 36%/ 34%/ 27% during FY16/ FY17/ YTDFY18. EBITDA margin at 18-19% in FY19 and FY2. Capex of ` 4.15bn/ ` 3bn in FY18/ FY19, of which, already incurred ` 2.29bn in 9MFY18. Gross fixed asset turnover can reach to 3.5x due to improvement in utilisation of plant and machinery. Absolute gross debt level will continue to reduce from Q3FY18 levels for next couple of years. D:E to reduce below 1x in FY19 and to.5x in next couple of years. Projects won during YTDFY18 Project Authority Segment State `. mn Length in km During Parallel Taxi Track AAI Urban Development Goa 1,25 Q1FY18 Davanagere-Haveri Pkg.1B Karnataka 1,572 7 IRCON Davanagere-Haveri Pkg.2 Karnataka 3,66 4 Seoni MP/MH Border Karodi - Telwadi Road Road - EPC Maharashtra 5,65 56 NHAI MP 7,31 29 Varanasi - Dagamagpur (Pkg-l) UP 6,75 34 Kamataka/Goa Border Karnataka 3,81 52 Dagamagpur-Lalganj (Pkg-2) UP 7,7 48 Chandikhole-Bhadrak Odisha 15,22 75 Anandapuram-Pendurthi-Anakapalli AP 2,13 51 Bangalore-Nidagatta Karnataka 21,9 56 Road HAM Nidagatta-Mysore Karnataka 22,83 61 Gorhar-Khairatunda Jharkhand 9,17 4 Churhat Bypass of Rewasidhi section MP 1,4 15 Total Inflow 136,875* * Total EPC value - `. 115.8 bn Q4FY18 March 2, 218 3
Opportunities Live Road Tenders worth ` 89 bn Road tenders shared by DBL to be awarded in next 6 months Mode ` bn EPC 295 HAM 49 Others 25 Total 89 Key highlights of site visit of Lucknow-Sultanpur NHAI HAM project Project details Bid Project cost - ` 2.16bn EPC cost - ` 17.8bn Four laning of 127.43 km of Lucknow - Sultanpur section of NH-56 in UP under NHDP Phase-IV. Appointed date 8 th May 17. Schedule completion date 4 th Nov 19. Expected completion date 31 st Dec 18 (1 months early). Construction period 91 days (2.5 years). Maintenance period 15 years. Cumulative financial progress - `7.5 bn (42%) Financial progress ` mn Q4FY17 Q1FY18 Q2FY18 Q3FY18 Unexecuted Order Book 17,8 16,558 15,32 12,918 Revenue 1,242 1,238 2,43 % completion 7. 13.9 27.4 Site progress - Earthwork Site progress - GSB March 2, 218 4
Site progress Dry Lean Concrete Site progress Cement Paver Site progress Finished cement layer Site progress Kerb Laying Site progress Hot mix plant Site progress Quality testing March 2, 218 5
19.5 24.1 24.5 26.2 23.7 23.9 FY15 FY16 FY17 FY18E FY19E FY2E Order book (` 124bn) break-up Order book trend Road 8% Mining 16% Urban Development 3% (` bn) 24 2 16 12 8 4 (x) 4 3 2 1 Irrigation 1% Order book Order inflow Revenue CAGR of 33.3% over FY17-2E (` bn) (%) 14 6 12 5 1 8 4 6 3 4 2 2 1 FY15 FY16 FY17 FY18E FY19E FY2E Revenue YoY growth (RHS) Superior EBITDA Margin to continue (` bn) (%) 25 21.6 22 2 21 19.6 19.5 15 18.3 2 18.3 18.3 19 1 18 5 17 16 FY15 FY16 FY17 FY18E FY19E FY2E EBIDTA (Excl. O.I.) EBIDTA margin (RHS) Deleveraging balance sheet Improving return ratios (` bn) 5 4 3 2 1 2.3 2.3 1.3 1.1.7.6 (x) 2.5 2. 1.5 1..5 18.5 19.1 19.4 17.8 19. 13.7 23. 24.1 27.4 28. 29.4 26.5 FY15 FY16 FY17 FY18E FY19E FY2E Net Debt Networth Net D:E (RHS). FY15 FY16 FY17 FY18E FY19E FY2E RoE (%) RoCE (%) March 2, 218 6
Q3FY18 performance (Standalone) Y/E Mar (` mn) Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%) 9MFY18 9MFY17 YoY (%) Total revenue 19,421 13,891 39.8 15,818 22.8 51,88 33,474 55. (Inc)/dec in stocks & WIP (183) 71 - (1,3) - (1,65) 859 - Material consumption 15,121 1,299 46.8 13,274 13.9 41,64 24,6 72.9 Employees cost 349 226 54.5 341 2.4 1,41 667 56. Other expenditure 687 52 32.3 38 8.8 1,583 1,512 4.7 Operating expenditure 15,974 11,115 43.7 12,965 23.2 42,578 27,99 57.1 EBITDA 3,447 2,776 24.2 2,853 2.8 9,32 6,375 45.9 Depreciation 698 593 17.6 676 3.2 2,24 1,656 22.2 Operating profit 2,749 2,183 26. 2,177 26.3 7,278 4,719 54.2 Other income 56 27 112.1 31 8.3 114 82 39. EBIT 2,86 2,29 27. 2,29 27. 7,393 4,82 54. Interest 1,168 1,62 1. 1,11 5.2 3,385 3,15 9. EBT 1,638 1,147 42.8 1,98 49.2 4,8 1,697 136.2 Income tax (9) 61 - (58) - (22) 22 - Net income 1,647 1,86 51.6 1,156 42.5 4,29 1,675 14.6 Adjustments (28) (235) - (275) - (826) (353) - Adjusted net income 1,367 851 6.6 881 55.2 3,23 1,321 142.4 EPS (`) 1. 6.2 6.6 6.4 55.2 23.4 9.7 142.4 bps bps bps EBIDTA Margin (excl. O.I.) 17.7 2. (223) 18. (29) 17.9 19. (112) EBIDTA Margin (incl. O.I.) 18. 2.2 (213) 18.2 (2) 18.2 19.3 (114) NPM (%) 7. 6.1 9 5.6 146 6.2 3.9 222 Tax/PBT (%) (.5) 5.3 (587) (5.3) 472 (.5) 1.3 (183) Material cost/sales (%) 76.9 74.7 226 77.4 (49) 77. 74.4 257 March 2, 218 7
Income Statement (Standalone) Particulars (` mn) Mar17 Mar18E Mar19E Mar2E Revenue 5,976 75,366 1,319 12,811 Growth (%) 24.8 47.8 33.1 2.4 Total Expenditure 41,54 61,574 81,961 98,72 Cost of construction 37,93 57,618 76,443 91,937 Employee cost 1,25 1,57 2,6 2,416 Other Expenses 2,99 2,449 3,511 4,349 Other Income 114 137 144 151 EBIDTA (Excl. OI) 9,923 13,792 18,358 22,18 Growth (%) 24.1 39. 33.1 2.4 EBIDTA (Incl. OI) 1,37 13,929 18,53 22,26 Depreciation 2,274 2,793 3,184 3,583 EBIT 7,763 11,136 15,318 18,677 Interest 4,162 4,4 3,7 3,47 Profit Before Tax 3,61 6,736 11,618 15,27 Tax (9) 316 2,759 5,24 Net Profit 3,69 6,42 8,859 1,183 Adjustments (84) (1,2) (7) - Adj. Net Profit 2,77 5,22 8,159 1,183 Growth (%) 63.2 88.5 56.3 24.8 Balance Sheet (Standalone) Particulars (` mn) Mar17 Mar18E Mar19E Mar2E Sources of Funds Equity Capital 1,368 1,368 1,368 1,368 Reserves 17,161 23,416 32,111 42,129 Net Worth 18,529 24,784 33,478 43,496 Long Term Loans 9,93 12,231 12,871 12,216 Short Term Loans 15,731 15,851 12,451 12,451 Loan Funds 25,634 28,82 25,322 24,667 Deferred Tax Liability 759 591 623 659 Total Capital Employed 44,922 53,458 59,424 68,823 Applications of Funds Gross Block 24,276 28,426 32,226 36,26 Less: Accumulated Dep. 7,451 1,244 13,429 17,12 Net Block 16,825 18,181 18,797 19,14 Capital Work in Progress - - - - Investments 4,695 4,782 4,227 11,289 Current Assets, Loans & Advances Inventories 16,639 21,859 27,867 32,572 Sundry Debtors 1,165 15,827 2,264 23,316 Cash and Bank Balance 1,137 1,926 1,634 718 Loans and Advances 4,591 5,326 6,957 7,83 Other Current Assets 12,441 13,65 16,273 18,17 sub total 44,973 58,3 72,995 82,58 Less: Current Liabilities & Provisions Current Liabilities 21,267 27,93 36,63 43,429 Provisions 34 416 533 631 sub total 21,571 27,59 36,595 44,6 Net Current Assets 23,42 3,494 36,399 38,52 Total Assets 44,922 53,458 59,424 68,823 E Estimates Cash Flow (Standalone) Particulars (` mn) Mar17 Mar18E Mar19E Mar2E Profit before tax 3,61 6,736 11,618 15,27 Depreciation 2,274 2,793 3,184 3,583 Finance Cost 4,162 4,4 3,7 3,47 Other Income (93) (137) (144) (151) Other 395 - - - Direct taxes paid (835) (484) (2,727) (4,988) Change in Working Capital (2,966) (6,33) (6,197) (3,36) (A) CF from Operations 6,537 7,5 9,434 14,84 Capex (4,884) (4,15) (3,8) (3,8) Free Cash Flow to Firm 1,653 2,855 5,634 1,284 Inc./ (Dec.) in Investments (1,797) (87) 555 (7,62) Other 9 137 144 151 (B) CF from Investments (6,592) (4,99) (3,11) (1,711) Issue of Equity/ Preference 4,3 - - - Inc./(Dec.) in Debt (5) 2,448 (2,76) (655) Interest exp net (4,162) (4,4) (3,7) (3,47) Dividend Paid (Incl. Tax) (4) (165) (165) (165) Other 3 (C) CF from Financing 132 (2,116) (6,625) (4,29) Net Change in Cash 78 789 (292) (916) Opening Cash balances 1,59 1,137 1,926 1,634 Closing Cash balances 1,137 1,926 1,634 718 Important Ratios Particulars Mar17 Mar18E Mar19E Mar2E (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) 19.5 18.3 18.3 18.3 EBIDTA Margin (incl. O.I.) 19.7 18.5 18.4 18.4 EBIT Margin 15.2 14.8 15.3 15.5 Interest/EBIT 53.6 39.5 24.2 18.6 Tax/PBT (.2) 4.7 23.7 33. Net Profit Margin 5.4 6.9 8.1 8.4 (B) As Percentage of Net Sales Raw Material 74.4 76.5 76.2 76.1 Employees expenses 2. 2. 2. 2. Other Expenses 4.1 3.3 3.5 3.6 (C) Measures of Financial Status Debt / Equity (x) 1.4 1.1.8.6 Interest Coverage (x) 2.4 3.2 5. 6.4 Average Cost of Debt (%) 16.4 16.4 13.9 13.9 Debtors Period (days) 73 77 74 7 Closing stock (days) 119 16 11 98 Working Capital (days) 168 148 132 116 Fixed Assets Turnover (x) 2.1 2.7 3.1 3.4 (D) Measures of Investment Diluted EPS (`) 2.3 38.2 59.7 74.5 CEPS (`) 43. 67.4 88.1 1.7 DPS (`) 1. 1. 1. 1. Book Value (`) 135.5 181.2 244.8 318. RoANW (%) 19. 24.1 28. 26.5 RoACE (%) 19.4 23. 27.4 29.4 RoAIC (%) 21.7 25.9 3.5 33.8 (E) Valuation Ratios CMP (`) 969 969 969 969 P/E (x) 47.8 25.4 16.2 13. Market Cap. (` Mn) 132,53 132,53 132,53 132,53 MCap/ Sales (x) 2.6 1.8 1.3 1.1 EV (` Mn) 156,86 157,857 157,452 156,348 EV/Sales (x) 3.1 2.1 1.6 1.3 EV/EBDITA (x) 15.8 11.4 8.6 7.1 P/BV (x) 7.2 5.3 4. 3. FCFE Yield (%) (1.9).7 (.6) 4.6 Dividend Yield (%).1.1.1.1 E Estimates March 2, 218 8
Feb-17 Feb-17 Mar-17 Apr-17 Apr-17 May-17 Jun-17 Jun-17 Jul-17 Aug-17 Aug-17 Sep-17 Oct-17 Nov-17 Nov-17 Dec-17 Jan-18 Jan-18 Feb-18 Mar-18 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % Rating and Target Price History 14 12 1 8 6 4 2 Month Rating TP (`) Price (`)* Apr-17 Buy 493 355 May-17 Buy 612 51 Aug-17 Buy 635 521 Oct-17 Buy 1,231 869 Feb-18 Buy 1,261 986 * As on Recommended Dated DBL Target DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 496 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 496 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 496 979 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 496 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 496 9735 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 496 975 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 496 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 496 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 496 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 496 9748 Dolat Capital Market Private Limited. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 4 1
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