Whilst CIL missed our revenue/EBIDTA estimates by 12/11%, EBITDA margin outperformance led to in-line APAT. Despite multiple headwinds (urban areas were the worst hit by COVID-19, large exposure to real estate sector), CIL execution is gradually recovering towards normalcy with the company guiding for Rs 20bn+ of revenue and 17.5-18.5% EBITDA margins (including other income). The uptick in private real estate (~40% of order book) and government push on health/housing (~60% of order book) augurs well for the overall growth outlook and order bookings (we believe Rs 30bn FY22E inflow guidance is conservative). CIL expects NWC to improve further as share of low NWC CIDCO projects execution ramps up. Given execution ramp-up and increase in share of Government orders, CIL is well-placed for re-rating. We retain our estimates and roll forward our valuation to Mar-23E. Maintain BUY with Rs 320/sh target price vs. Rs 293/sh earlier.
* Strong comeback during 3QFY21: Revenues: Rs 3bn (-24.5% YoY, +68.7% QoQ, 12% miss). EBITDA stood at Rs 546mn (-24.4% YoY, +39.9% QoQ, 12% miss). EBITDA margin at 17.9% (+2bps YoY, -367bps QoQ, 20bps beat). Interest cost at Rs 174mn (+7.7% YoY, +28.9% QoQ). APAT: Rs 152mn (-35% YoY, ~3.3x 2QFY21, in-line), lower-than-expected interest cost and higher other income resulted in in-line APAT.
* Positive guidance on balance sheet strengthening, NWC and debt reduction: CIL expects to reduce gross debt to Rs 2.6bn (pre-COVID levels) by 1QFY22 vs Rs 3.7bn (-Rs 400mn QoQ) in 3QFY21. This may be driven by conversion of CC limits to LC limits. NWC is expected to stabilise in line with historical trend at ~70-72days. CIL has removed all slow-moving orders and is carrying Rs 600mn of ECL provisions in the books already. The current order book of Rs 91.5bn is an active one. Residential order book has Tier 1 clients like Oberoi, Godrej, Brigade, CIDCO, BSNL, K Raheja, and Brookfield and, hence, we believe NWC will reduce as share in mix of these clients increases. CIL remains focused on maintaining optimal debtor/creditor mix. Gross D/E has improved QoQ from 0.5x to 0.4x.
* Order book mix tilts towards government (Rs 55.3bn, 60% order book) execution ramps up, augurs well: CIL has ramped up government share in the order backlog to 60% vs near zero over the past two years on expectations of limited opportunities of order inflow from Tier 1 developers and likely pain in the sector, given NBFC crisis. Now with real estate recovery, market share gains for organised players and pick-up in government ordering, CIL stands to gain. The company has indicated about Rs 400bn of government bid pipeline and Rs 260bn on the private side. Given this backdrop, ~Rs 30bn order inflow guidance for FY22E seems conservative. Other segments like the Metro project depot and BDD Chawl will add incrementally to the overall order book.
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