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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 18.9%.  Work at MHADA project (under SPV Co. Share 35%) has commenced on 2 towers and work on additional 14 towers will start by FY23end. Possession of land parcel for CIDCO 7th project is expected in Q3 and will start contributing to revenue from Q4. Company’s credit rating has been upgraded from ‘BBB’ to ‘BBB+’ by India rating. Gross debt (excl promoter’s debt) has been at Rs3.6bn with gross Debt: Equity at 0.3x and expects to become net debt free by FY24E. Management plans to improve the net working capital cycle going ahead to 60days in 1QFY24E vs 88days in 2QFY23 on the back of improvement in collections. With strong bid pipeline, healthy order book and robust execution, management has maintained its revenue guidance for FY23E of Rs18bn with EBITDAM of 18?18.5%

We believe that CAPACITE is well?positioned to gain traction driven by a) impressive execution track record with stable margins, b) healthy order book (Rs90bn as on 2QFY23), c) lean balance sheet with healthy return ratios, d) strong management pedigree and e) asset?light business model. We have revised our EBITDA / PAT estimates by 8%/ 18% for FY24E while also introducing our FY25E estimates with revenue / PAT growth of 15% / 19% YoY. We expect CAPACITE to post 24%/57% revenue/PAT CAGR over FY22?25E. We continue to maintain BUY rating on the stock with a revised TP of Rs210.

Result Highlights

* For Q2FY23, CAPACITE’s revenues grew 25.6% YoY to Rs4.3bn (YSec estimate Rs4.0bn) with pickup in execution.

* EBITDA came in at Rs816mn up 33% YoY (above Ysec estimate of Rs631mn), with EBITDAM witnessing a growth of 108bps to 18.9% (above our and street estimate of 15.8% / 16.9%). Margins were higher than expected due to lower raw material and other expense cost.  

* On bottom?line front, company posted a profit of Rs219mn (above our estimate of Rs163mn and street estimate of Rs208mn). This was mainly on account of higher operating margins.

* In Q2, company has bagged orders worth Rs8.3 bn.  

* At the CMP, the stock trades at a PE of 11.4x and 8.4x FY23E and FY24E EPS.

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