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Balance sheet recovery
We maintain BUY on DBL, with a TP of Rs 466/sh. We have valued EPC business at 8x FY22E EPS and HAM Projects invested equity at 1x P/BV. DBL 4QFY20 financial performance was impacted by Rs 4-5bn of COVID-19 revenue loss towards Mar-20 end. Standalone gross/net debt reduction of Rs 3.2/4.5bn aided meet net D/E guidance of 0.81x. DBL EBIDTA/CFO of 1.3x helped generate Rs 18bn and retire debt. On back of COVID-19 DBL has not given FY21E growth guidance, labour availability at sites stood at 65-70%.
COVID-19 resulted in 4QFY20 revenue miss of Rs 4-5bn:
DBL reported 4QFY20 revenue of Rs 24.6bn (1.6% miss). Extended monsoon, delay in AD and COVID-19 led disruption led to FY20 Revenue of Rs 88.6bn vs Rs 100bn guidance at start of FY20. EBIDTA/APAT miss came in at 15/24% respectively on account of lower than expected EBIDTA margins of 15.2% vs 17.5% expectations. DBL earned Rs 1.3/0.4bn of early completion bonus during FY20/4QFY20 of which Rs 450mn was realized during FY20 balance will come in with first annuities of HAM assets.
Weak order inflows on back of muted FY20 ordering:
DBL bagged new orders worth Rs 67.3bn during FY20 (vs guidance of Rs 110-140bn) with closing order book at Rs 191bn. No guidance has been given for FY21E though NHAI bid pipeline is pegged at Rs 560bn and non NHAI at Rs 300bn where DBL will be bidding. We expect DBL to win new orders of Rs 70/120bn for FY21/22E. Net working capital improved from 127 to 120days and net D/E reduced from 1.1x to 0.8x YoY.
Migrant labour availability at 65-70%, all sites except Metro working:
DBL labour availability after peaking at 80% has reduced to 65-70% due to resumption of Shramik trains. DBL expects it to stabilize at current levels until monsoon when it may reduce to 60% due to seasonal factors. Supply chain issues have been ironed out and DBL with its strong equipment/machinery fleets is substituting labour with mechanization.
Asset monetization hit by bank rate reduction:
Whilst the Shrem Deal has concluded with pending dues of Rs 1.1bn to be received by 1QFY21. Cube Highways deal valuation (for 5HAMs) may get impacted due to collapse in Bank Rate (200bps reduction over last 2yrs). Balance 7 HAM projects deal may also get delayed as valuation concerns linger. DBL BS deleveraging may get pushed back due to asset monetization.
We maintain BUY on DBL, whilst HAM projects valuation corrections are concerning, we expect NHAI to come out with relief so as to maintain project IRRs. Developers and Investors SPA provides for 2yrs window for first annuity receipt and by then Bank Rate issue may get sorted. DBL execution capabilities, FY20 deleveraging and cross segment expertise makes it well placed for post COVID recovery. Key risks (1) Further debt build-up; (2) Deterioration in NWC days and (3) Delay in balance 7 HAM monetization.
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