Long road to recovery
Whilst Capacite Infraprojects Ltd (CIL) delivered Rev/EBIDTA/PAT beat of 19/35/100%the headline numbersremain weak. COVID-19 pandemic resultedin CIL missing Mar-20,2ndhalf billing,migrant labour issues led to further challenges.We expect CIL 1HFY21 financial performance to be weak with gradual return to normalcy by 3QFY21 end. Building EPC Players have been hit hard as labour availability has dropped to ~15-20% of pre Covid levels. Urban areas turned into containment zones and State Govt imposed restrictions on labour movement. This resulted in projects coming to halt. Stable balance sheet, strong order book (7x FY20 Rev) and gradual unlocking towards normalcywill lead to CIL re-rating. Maintain BUY with Rs 147/sh TP.
* Weak 4QFY20 performance: CIL reported 12 quarters low execution despite order book multiplying2.5 times over the same period.COVID-19 pandemic led to State Govtsstopping all construction activities. Later whenlockdown was relaxed,site labor reduced from ~10,000to ~1,000 and are now at ~2,000 levels. Peak labor requirement will be 13-14,000 when entire order backlog moves into execution. Gradually the labor hasstarted returning and CIL expectssituation to normalize over next 40-45days. CIL is focusing on Top 15 projects which constitute about 85% of the order book. Work has started on 5 sites viz. Oberoi Skycity, Commerz 3, MCGM, Raymonds etc and may start contributing Rs 750mn/month from 2QFY21(Aug-20). This shall get ramped up to Rs 2bn/month executionby Dec/Jan-21.
* CIDCO project (Rs 45bn, 43% order book) approvals in place:CIL has received CRZ/EC approvals for all 7 sites.Except for Vashi site with Rs 8bn work value, other sites (Rs 37bn) have been handed over. Vashi site will be handed once lockdown getseased further. CIL expects to start CIDCO execution from Jul-20 once labor isarranged. Meaningful contribution from CIDCO is expected from 4QFY21.
* Balance sheet debt stable, NWC deteriorates:Gross debt is stable at Rs 3.1bnvs Rs 2.8bn QoQ, gross D/E stood at 0.3x. NWC has deteriorated from 101 days in FY19 to 135 days in FY20, largely on account of CWIP which couldn’t get billed to clients towards Mar-20 end. Collections got impacted due to clients’offices shutting due to lockdown.CIL has Tier 1 clients like Oberoi, Godrej, Brigade, CIDCO, BSNL, K Raheja, Brookfield etc and hence we believe NWC will reduce once clients make payments.
* CIL has de-risked its business model with Govt clients’share in order book increasing from0% in FY18 to 13% in FY19 and 54% in FY20. CIL needs to manage 1HFY21 headwinds and keeping costs under control. We expect recovery from Oct-20 onwards. We Maintain BUY. Key risks (1) Slowdown in real estate (2) Delay in debtors’recovery & (3) Slowdown in GovtCapex.
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