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“Execution” remains the key

Our view

Capacite reported a weak set of numbers led by slower execution on account of continuous headwinds such as delay in receiving project sites, Covid pandemic and change of contract terms for a marquee client (impact of ~Rs450mn).    However, labour availability is improving and has already reach Mar’21 levels. Further liquidity position has improved with promoters opting for preferential shares at premium (Rs160/share) and enhancement of funding (Rs1bn) from various banks. Work at MHADA project (under SPV Co. Share 35%) has commenced and is expected to book revenue of Rs5bn in FY23E. Management indicated bid pipeline to remain strong and expects to bag Rs20‐25bn of 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 (Rs87bn as on 4QFY22), c) lean balance sheet with healthy return ratios, d) strong management pedigree and e) asset‐light business model. On account of subdued execution and delayed in start of construction activity in key projects we have lowered our PAT estimates to Rs768mn/Rs1,197mn from Rs982mn/Rs1,343mn for FY23E/24E. We expect CAPACITE to post 29%/65% revenue/PAT CAGR over FY22‐24E. We continue to maintain BUY rating on the stock with a revised TP of Rs176 (earlier TP Rs198).

Result Highlights

* For Q4FY22, CAPACITE’s revenues de‐grew 6.3% YoY to Rs3.5bn (below YSec Rs4.3bn) as there was slowdown in execution.

* EBITDA came in at Rs557mn (down 16.1% YoY), with EBITDAM witnessing a contraction of 189bps YoY at 16.1% (above our estimate of 15.0%). Margins were higher than expected due to lower raw material cost. 

* On bottom‐line front, company posted a profit of Rs106mn (below of YSec Rs207mn). Profit was lower than expected due to decline in other income.  In Q4, company bagged repeat order from Raymond ltd worth Rs2.3 bn. 

* At the CMP, the stock trades at a PE of 9.9x and 6.3x FY23E and FY24E EPS.

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