Result Update Dilip Buildcon Buy Stellar performance continues DBL s standalone revenue grew sharply by 72.6% YoY to `15.8bn in Q2FY18 (37.2% above estimates) due to better execution run rate in Road and Mining segments. EBITDA margin expanded 17 bps YoY to 18.% (in line with estimates) primarily due to better operating efficiency. Adj. PAT grew sharply by 12.6x YoY to `881mn due to stellar operating performance coupled with lower tax rate which stood at (5.3%) vs. nil. We reiterate Buy on the stock due to its differentiated business model, proven execution capability, growth trajectory coupled with improving financials. Strong inflow and robust order book enhances revenue visibility With H1FY18 order inflow and order book at `1.3bn/ `142bn (2.2x TTM revenue) and fresh inflow of `9 bn expected in FY18E/ FY19E/FY2E each, will improve revenue visibility for DBL. Strong execution momentum to continue We expect DBL s revenue to grow at a healthy CAGR of 26.% over FY17-2E driven by the continuation of execution momentum and pick-up in execution on orders won in FY17. We expect a sharp jump in Mining revenue over FY17-2E. Strong OCF, improving NWC, lower capex to reduce leverage DBL s Net D:E to decline to.4x/.3x by FY19E/FY2E vs. 2.3x/ 1.3x for FY16/ FY17 led by 48.3% adj. PAT CAGR, strong OCF of `32.5bn (FY18E+FY19E+FY2E), lower capex (`7.5 bn) and robust FCFF of `25bn (FY18E+FY19E+FY2E). Outlook and Valuation We expect DBL to witness traction in order inflow and 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 25.1%/ 29.9% by FY2E) over FY17-2E. Thus, we reiterate Buy on the stock with an upward revised SOTP of `1,261 (Exhibit 1). Q2FY18 Result (` Mn) Particulars Q2FY18 Q2FY17 YoY(%) Q1FY18 QoQ(%) Total revenue 15,818 9,163 72.6 16,641 (4.9) Operating expenditure 12,965 7,68 7.4 13,639 (4.9) EBITDA 2,853 1,555 83.5 3,2 (5.) Depreciation 676 539 25.4 651 3.9 Operating profit 2,177 1,16 114.3 2,352 (7.4) Other income 31 36 (12.) 27 18.1 EBIT 2,29 1,52 11. 2,378 (7.1) Interest 1,11 959 15.8 1,16.4 EBT 1,98 92 1,87.6 1,272 (13.6) Income Tax (58) - - 45 - Net income 1,156 92 1,15.2 1,226 (5.7) Adjustments (275) (23) - (271) - Adj. Net income 881 7 1,162.2 955 (7.8) bps bps EBIDTA Margin (ex. O.I.) 18. 17. 17 18. () EBIDTA Margin (in. O.I.) 18.2 17.4 88 18.2 3 NPM (%) 5.6.8 48 5.7 (17) Tax/PBT (%) (5.3). (527) 3.6 (883) Const. Cost/Rev. (%) 77.4 73.7 367 76.7 66 November 14, 217 CMP ` 855 Target / Upside ` 1261/48% BSE Sensex 32,942 NSE Nifty 1,187 Scrip Details Equity / FV ` 1,368/1 Market Cap ` 117.3bn USD 1.8bn 52-week High/Low ` 925/`191 Avg. Volume (no) 539,26 NSE Symbol Bloomberg Code Shareholding Pattern Sept 17(%) DBL DBL IN Promoters 75.6 MF/Banks/FIs 5. FIIs 11.6 Public / Others 7.8 Valuation (x) FY18E FY19E FY2E P/E 24.9 17.2 12.9 EV/EBITDA 1.7 8.5 7. ROE 21.9 24.4 25.1 ROCE 23. 26.9 29.9 Estimates (` mn) FY18E FY19E FY2E Net Sales 7,654 85,68 12,43 EBITDA 12,93 15,567 18,674 PAT 4,686 6,798 9,3 EPS 34.3 49.7 66. Sr. Analyst: Shravan Shah Tel: +9122 96 9749 E-mail: shravans@dolatcapital.com Associate: Maulik Shah Tel: +9122 96 9775 E-mail: mauliks@dolatcapital.com
SOTP Valuation Component Valuation Method `/sh % Standalone cons. business 18x FY2E EPS 1188.4 94.2 Road BOTs 1x FY2E P/B 72.7 5.8 Total 1261.1 1. CMP 854.8 Potential upside 47.5% 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 `16 bn (`5 bn/ `11 bn to be received in FY18E/ FY19E). However, we have assumed `45 bn (5% of total inflow of `9 bn) as HAM projects order inflow each year during 2HFY18-2E. We assumed 13% equity requirement for the same (higher than 1.4% in 6 HAM projects won in FY17) and 7% of it to be infused in FY19E and FY2E for HAM order inflow in 2HFY18E/ FY19E. Accordingly, we have valued its equity investments in fresh HAM projects win at 1x FY2E book value. Upside/ Downside risk to our valuation Higher debt reduction in debt vs. expectation If DBL can manage 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 reduction in leverage. This may lead to further expansion in its valuation multiples and poises upside risk to our target price. Higher/ lower HAM projects award If proportion of HAM order inflow is higher/ lower and/ or equity required is higher/ lower vs. our estimates, then it will affect adversely/ positively to its debt, interest cost and profitability. Further rise/ reduction in NWC cycle Any further rise/ reduction in NWC cycle led by particularly inventory days and delay in/ early recovery of old private debtors compared to our estimate of marginal decline in NWC cycle may result into higher/ lower debt and interest cost which will adversely/ positively affect its profitability. 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 utilize them properly. Execution delays Though the company has managed to complete most of its projects on or before time, any project delays due to an impediment at the client s end or other regulatory bottlenecks could adversely affect DBL s revenue and profitability. Early completion bonus 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 early completion bonus. If it earns higher/less early completion bonuses vs. our estimates, then it will positively/negatively impact its revenue and profitability. November 14, 217 2
Q2FY18 Performance (Standalone) Y/E Mar (` mn) Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%) H1FY18 H1FY17 YoY (%) Total Revenue 15,818 9,163 72.6 16,641 (4.9) 32,459 19,583 65.8 (Inc)/dec in stocks & WIP (1,3) 2,583 - (437) - (1,467) 788 - Consumption of materials 13,274 4,173 218.1 13,29.5 26,482 13,762 92.4 Staff cost 341 255 33.4 351 (3.1) 692 442 56.7 Other expenses 38 597 (36.3) 515 (26.2) 896 992 (9.7) Total expenditure 12,965 7,68 7.4 13,639 (4.9) 26,63 15,983 66.4 EBITDA 2,853 1,555 83.5 3,2 (5.) 5,855 3,6 62.7 Depreciation 676 539 25.4 651 3.9 1,327 1,63 24.8 Operating profit 2,177 1,16 114.3 2,352 (7.4) 4,529 2,537 78.5 Other income 31 36 (12.) 27 18.1 58 56 4. EBIT 2,29 1,52 11. 2,378 (7.1) 4,587 2,592 76.9 Interest 1,11 959 15.8 1,16.4 2,217 2,43 8.5 EBT 1,98 92 1,87.6 1,272 (13.6) 2,37 549 331.4 Provision for current tax 3 (5) - 271 48.6 674 114 493.6 Deferred tax (186) 27-45 - (1) (34) - MAT credit (275) (23) - (271) - (546) (118) - Reported net income 1,156 92 1,15.2 1,226 (5.7) 2,382 588 35. Adjustments (275) (23) - (271) - (546) (118) - Adjusted net income 881 7 1,162.2 955 (7.8) 1,836 47 29.6 EPS (`) 6.4.5 1,162.2 7. (7.8) 13.4 3.4 29.6 bps bps bps EBIDTA Margin (excl. O.I.) 18. 17. 17 18. () 18. 18.4 (34) EBIDTA Margin (incl. O.I.) 18.2 17.4 88 18.2 3 18.2 18.7 (45) NPM (%) 5.6.8 48 5.7 (17) 5.6 2.4 325 Tax/PBT (%) (5.3). (527) 3.6 (883) (.5) (7.1) 657 Material cost/sales (%) 77.4 73.7 367 76.7 66 77.1 74.3 277 November 14, 217 3
19.5 24.1 24.5 17.3 13.6 14. FY15 FY16 FY17 FY18E FY19E FY2E Order book (`142bn) break-up Order book trend Road 81% Mining 16% Urban Development 2% Irrigation 1% (` bn) 2 2 16 12 8 (x) 4 3 2 1 Order book Order inflow (` bn) 12 1 8 6 2 Revenue CAGR of 26.% over FY17-2E (%) 6 5 3 2 1 FY15 FY16 FY17 FY18E FY19E FY2E Revenue YoY growth (RHS) Superior EBITDA Margin to continue (` bn) (%) 2 21.6 22 21 15 19.6 19.5 18.3 2 1 18.3 18.3 19 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 3 2 1 2.3 2.3 1.3.7.4.3 (x) 2.5 2. 1.5 1..5 18.5 19.1 19.4 17.8 19. 13.7 23. 21.9 26.9 29.9 24.4 25.1. FY15 FY16 FY17 FY18E FY19E FY2E Net Debt Networth Net D:E (RHS) FY15 FY16 FY17 FY18E FY19E FY2E RoE (%) RoCE (%) November 14, 217 4
Income Statement (Standalone) Particulars (`mn) Mar17 Mar18E Mar19E Mar2E Revenue 5,976 7,654 85,68 12,43 Growth (%) 24.8 38.6 2.4 2. Total Expenditure 41,54 57,724 69,5 83,369 Cost of Construction 37,93 52,78 63,12 75,716 Employee Benefit exp 1,25 1,554 2,42 2,449 Other Expenses 2,99 3,462 4,338 5,24 Other Income 114 12 126 133 EBIDTA (Excl. OI) 9,923 12,93 15,567 18,674 Growth (%) 24.1 3.3 2.4 2. EBIDTA (Incl. OI) 1,37 13,5 15,694 18,86 Depreciation 2,274 2,679 2,89 3,179 EBIT 7,763 1,371 12,83 15,627 Interest 4,162 3,6 2,98 2,57 Profit Before Tax 3,61 6,771 9,823 13,57 Tax (9) 885 2,325 4,27 Net Profit 3,69 5,886 7,498 9,3 Adjustments (8) (1,2) (7) - Adj. Net Profit 2,77 4,686 6,798 9,3 Growth (%) 63.2 69.2 45.1 32.8 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 22,882 3,216 39,81 Net Worth 18,529 24,25 31,583,449 Long Term Loans 9,93 6,417 4,356 3,71 Short Term Loans 15,731 15,231 13,231 11,231 Loan Funds 25,634 21,649 17,587 14,932 Deferred Tax Liability 759 786 815 846 Total Capital Employed 44,922 46,684 49,985 56,227 Applications of Funds Gross Block 24,276 26,276 28,776 31,776 Less: Accumulated Depreciation 7,451 1,13 13,21 16,2 Net Block 16,825 16,145 15,755 15,576 Capital Work in Progress - - - - Investments 4,695 2,371 4,95 9,945 Current Assets, Loans & Advances Inventories 16,639 21,69 24,325 28,345 Sundry Debtors 1,165 15,544 18,715 22,449 Cash and Bank Balance 1,137 4,396 3,98 958 Loans and Advances 4,591 1,843 1,929 2,67 Other Current Assets 12,441 12,295 13,697 15,873 sub total 44,973 55,147 62,645 69,693 Less: Current Liabilities & Provisions Current Liabilities 21,267 26,553 31,97 38,35 Provisions 34 426 5 638 sub total 21,571 26,979 32,51 38,988 Net Current Assets 23,2 28,168 3,135 3,76 Total Assets 44,922 46,684 49,985 56,227 E Estimates Cash Flow (Standalone) Particulars (`mn) Mar17 Mar18E Mar19E Mar2E Profit before tax 3,61 6,771 9,823 13,57 Depreciation 2,274 2,679 2,89 3,179 Finance cost 4,162 3,6 2,98 2,57 Other income (93) (12) (126) (133) Others 395 - - - Direct taxes paid (835) (858) (2,296) (3,996) Change in Working Capital (2,966) (1,57) (2,383) (3,593) (A) CF from Operations 6,537 1,564 1,888 11,86 Capex (4,884) (2,) (2,5) (3,) Free Cash Flow to Firm 1,653 8,564 8,388 8,86 Inc./ (Dec.) in Investments (1,797) 2,324 (1,724) (5,85) Others 9 12 126 133 (B) CF from Investments (6,592) 445 (4,98) (8,717) Issue of Equity/ Preference 4,3 - - - Inc./(Dec.) in Debt (5) (3,985) (4,62) (2,655) Interest exp net (4,162) (3,6) (2,98) (2,57) Dividend Paid (Incl. Tax) (4) (165) (165) (165) Others 3 (C) CF from Financing 132 (7,75) (7,26) (5,39) Net Change in Cash 78 3,259 (416) (3,22) Opening Cash balances 1,59 1,137 4,396 3,98 Closing Cash balances 1,137 4,396 3,98 958 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 14.7 15.1 15.3 Interest/EBIT 53.6 34.7 23.3 16.4 Tax/PBT (.2) 13.1 23.7 3.8 Net Profit Margin 5.4 6.6 8. 8.8 (B) As Percentage of Net Sales Cost of Construction 74.4 74.6 74.2 74.2 Employee Cost 2. 2.2 2.4 2.4 Other Expenses 4.1 4.9 5.1 5.1 (C) Measures of Financial Status Debt / Equity (x) 1.4.9.6.4 Interest Coverage (x) 2.4 3.6 5.3 7.3 Average Cost of Debt (%) 16.4 15.2 15.2 15.8 Debtors Period (days) 73 8 8 8 Closing stock (days) 119 19 14 11 Working Capital (days) 168 146 129 11 Fixed Assets Turnover (x) 2.1 2.7 3. 3.2 (D) Measures of Investment Diluted EPS (`) 2.3 34.3 49.7 66. CEPS (`) 43. 62.6 76. 89.3 DPS (`) 1. 1. 1. 1. Book Value (`) 135.5 177.3 23.9 295.7 RoANW (%) 19. 21.9 24.4 25.1 RoACE (%) 19.4 23. 26.9 29.9 RoAIC (%) 21.7 26.3 31.3 35.8 (E) Valuation Ratios CMP (`) 855 855 855 855 P/E (x) 42.2 24.9 17.2 12.9 Market Cap. (` Mn) 116,94 116,94 116,94 116,94 MCap/ Sales (x) 2.3 1.7 1.4 1.1 EV (` Mn) 141,18 137,779 132,334 13,695 EV/Sales (x) 2.8 2. 1.6 1.3 EV/EBDITA (x) 14.2 1.7 8.5 7. P/BV (x) 6.3 4.8 3.7 2.9 FCFE Yield (%) (2.2).8 1.2 2.4 Dividend Yield (%).1.1.1.1 E Estimates November 14, 217 5
15/11/216 28/11/216 9/12/216 22/12/216 4/1/217 17/1/217 31/1/217 13/2/217 27/2/217 1/3/217 24/3/217 7/4/217 21/4/217 5/5/217 18/5/217 31/5/217 13/6/217 27/6/217 1/7/217 21/7/217 3/8/217 17/8/217 31/8/217 13/9/217 26/9/217 1/1/217 24/1/217 6/11/217 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % Rating and Target Price History 1 12 1 8 6 2 DBL Target Month Rating TP (`) Price (`)* Apr-17 Buy 493 355 May-17 Buy 612 51 Aug-17 Buy 635 521 Oct-17 Buy 1231 869 * As on Recommendation Date DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 96 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 96 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Kishor Bagri, CFA VP - Equity Sales kishorb@dolatcapital.com +9122 96 9746 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 96 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 96 9735 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 96 9773 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 96 975 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 96 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 96 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 96 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 96 9748 Dolat Capital Market Private Limited. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 1
Analyst(s) Certification The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil) II. Disclaimer: This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited. and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its affiliated company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or completeness. Dolat Capital Market Private Limited. may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market Private Limited. reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market Private Limited. and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Dolat Capital Market Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions. For U.S. Entity/ persons only: This research report is a product of Dolat Capital Market Private Limited., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a- 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered broker-dealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer/entity as informed by Dolat Capital Market Private Limited. from time to time. Dolat Capital Market Private Limited. Corporate Identity Number: U6599MH1993PTC75189 Member: BSE Limited and National Stock Exchange of India Limited. SEBI Registration No: BSE - INB17152 & INF17152, NSE - INB237131& INF237131, Research: INH685 Registered office: Office No. 141, Centre Point, Somnath, Daman 396 21, Daman & Diu Board: +9122 9697 Fax: +9122 22651278 Email: research@dolatcapital.com www.dolatcapital.com Our Research reports are also available on Reuters, Thomson Publishers, DowJones and Bloomberg (DCML <GO>)