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“Execution” remains the key

Our view

Capacite reported strong set of numbers led by healthy execution across all the key projects with EBITDA margins at 20.7%.  Higher margins were on account of change in accounting policy which had a positive impact of Rs80mn, excluding which the margins stood at 19.1%. Work at MHADA project (under SPV Co. Share 35%) has commenced and revenue of Rs1.4bn is expected to be booked in FY23E. Further land parcel for CIDCO 7th project has been allotted and management expects revenue of Rs4.3bn in 9MFY23E. Management plans to improve the net working capital cycle going ahead to 60 days in 1QFY24 vs 91 days in 1QFY23 on the back of improvement in collections. Managementindicated bid pipeline to remain strong and expects to bag Rs20bn order inflows in FY23E.

We believe that CAPACITE is well?positioned to gain traction driven by a) impressive execution track record with stable margins, b) healthy order book (Rs82bn as on 1QFY23), c) lean balance sheet with healthy return ratios, d) strong management pedigree and e) asset?light business model. We expect CAPACITE to post 29%/66% revenue/PAT CAGR over FY22?24E. We continue to maintain BUY rating on the stock with a TP of Rs178.

Result Highlights

* For Q1FY23, CAPACITE’s revenues grew 70.4% YoY to Rs4.8bn (above YSec estimate Rs4.0bn) with pickup in execution.

* EBITDA came in at Rs989mn (up 1.5x YoY), with EBITDAM witnessing a growth of 666bps to 20.7% (above our and street estimate of 15.8% / 16.3%). Margins were higher than expected due to lower raw material and employee cost.  

* On bottom?line front, company posted a profit of Rs285mn (above YSec estimate of Rs163mn and street estimate of Rs208mn). This was mainly on account of higher operating margins.

* In Q1, company has bagged orders worth Rs8.3 bn.  

* At the CMP, the stock trades at a PE of 9.2x and 6.7x FY23E and FY24E EPS. We have a BUY rating on the stock with TP of Rs176.

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