Buy Dilip Buildcon Ltd For Target Rs.663 - Yes Securities
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Result Highlights
* Dilip Buildcon (DBL) has maintained its quarterly revenue momentum and posted strong revenue growth of 17.0% yoy and 18.6% qoq in Q4 FY21. The company reported revenue of Rs.29.3 bn in Q4 FY21. The execution has picked across project segments except mining which saw a degrowth of 8.0% yoy
* However, the operating margins in Q4 FY21 came under pressure due to one off charge of higher than normal CSR expenditure of Rs.450 mn and write-off of Rs.100 mn towards provision for doubtful debts. Excluding these one-off, the operating margin was 17.5%. Going forward the management expects the sharp increase in raw material cost to have near term impact on margins.
* During FY21, DBL witnessed robust order inflow of Rs.220 bn which is the highest every order inflow in a year. The order book also remains at its highest every level of Rs.274 bn with book to bill ratio of ~3.0x.
* The company has completed its project divestment deal with Shrem in FY21 and expects to close the deal with Cube in 1-2 months. The company expects a robust cash inflow of Rs.20.0 bn from its project divestment over FY22 to FY23. This would significantly improve the balance sheet strength of the company.
* The company raised Rs.5.1 bn via QIP in April 2021. This would be used to reduce debt and for Equity Investment in HAM projects. Overall the debt is expected to reduce by Rs.5.0 bn in FY22.
Our view:
The execution has ramped up well over Q4 with better labor availability and execution in full swing. However, April and May have been impacted due to COVID related restrictions (impacting pace of execution) and the rising input costs. While Order book is extremely robust at 3x FY21 revenues, the growth in execution in FY22 is expected at ~15% with margins coming under bit of pressure.
Strong pick up in execution would be expected in FY23 as COVID related challenges subside. The Cube deal payouts that is expected in near term and the QIP funds would help in reducing debt by Rs.5.0 bn in FY22. We have largely retained our estimates for FY23 and maintain our BUY rating on the stock for target price of Rs.663. (on SOTP basis). We have valued the EPC business at 10x FY23 EPS and Investments in BOT at book value.
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