Management Speak: Dilip Buildcon (Unrated) - Robust order backlog and strong order inflows to drive growth
Key highlights of our visit to Zuari bridge and Goa airport runway project sites and our meeting with Dilip Buildcon (DBL).
Projects provide major boost to DBL’s technical capabilities: We visited DBL’s Zuari bridge project site to gauge its complexity and execution progress and came back impressed. The project involves construction of a cable stayed bridge on Zuari river and requires strong design and technical skills. All activities including steel fabrication & marine piling are carried out in-house. The project is awarded by MoRTH at a total project cost (TPC) of Rs14bn (outstanding order backlog (OB): Rs8.4bn). As of Mar 2019, project completion stood at 35% for Package-1, 44% for package-2 and 51% for package-3. We also visited a parallel taxi track being constructed by DBL at Dabolim airport in Goa with TPC of Rs1.3bn and outstanding OB of Rs657m as on Dec 2018. DBL is targeting to complete this project by May 2019.
Robust OB, order inflows to improve: DBL had a robust OB of Rs231bn as on Dec 2018 (2.5x its TTM revenues). The company received order inflows of Rs55.4bn in FY19, much below guidance of Rs80bn. However, DBL’s bid pipeline is strong at Rs1trn, of which 70% is EPC and the company targets to win orders of Rs100bn in FY20E. Also, DBL is focussing on newer segments like airports, urban infra and railways, given immense opportunities here. With a robust OB and strong anticipated order inflows, management has guided 15-20% revenue growth for FY20E.
Appointed dates (AD) awaited for two-thirds of its HAM portfolio: While DBL’s recently won 12 HAM projects have achieved financial closure, only 4 have received AD. Land acquisition issue for the remaining 8 projects has delayed receipt of AD which impacted DBL’s execution momentum in FY19. Of these 8 projects, the management expects to receive AD for 4 projects in Apr 2019, 2 in May 2019 and 2 in Sep 2019. The new HAM portfolio has total equity requirement of Rs15.6bn, of which, Rs2.7bn was infused until 7 Feb 2019, with Rs7.9bn to be invested in FY20E and Rs3.4bn in FY21E. The company has cited disinterest in bidding for new HAM projects, unless it is able to divest its existing HAM portfolio.
Unrated; Execution to improve hereon: DBL is well placed to capture robust opportunities in the road sector and is confident of timely execution. It has a strong OB of Rs231bn (2.5x TTM revenues) and expects order inflows of Rs100bn in FY20E. DBL expects to maintain 17-18% EBITDA margins and reduce its D/E from 1.1x currently to 0.8x by FY20E. The company has also clocked average RoE/RoCE of 25.2%/20.5%, respectively, over FY14-18. Currently, the stock trades at 13.4x FY18 EPS. Unrated.
Dilip Buildcon Ltd. Dilip Buildcon Limited is an India-based company engaged in the business of infrastructure facilities on engineering procurement and construction (EPC) basis. The Company undertakes contracts from various government and other parties and special purpose vehicles promoted by the Company. It operates through construction and engineering contracts segment. Its business of construction and development of real estate is at nascent-stage and no operations have commenced. Its subsidiaries include DBL Ashoknagar-Vidisha Tollways Limited, DBL Bankhlafata Dongawa Tollways Limited, DBL Jaora Sailana Tollways Limited, DBL Mundi-Sanawad Tollway Limited, DBL Nadiad Madosa Tollways Limited, DBL Sardarpur Badanwar Tollways Limited, DBL Silwani Sultanganj Tollways Limited, DBL Sitamou Suwasara Tollways Limited, DBL Uchera Nagod TollwaYs Limited, DBL Betul SarniTollwaYs Limited, DBL Tikamgarh Nowgaon Tollways Limited, Suryavanshi Infrastructure Pvt. Limited and Bhavya Infra & Systems Private Limited.
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