Dilip Build­con Ltd: Build­ing for­tunes

Money Times - - News -

(BSE Code: 540047) (CMP: Rs.653.30) (FV: Rs.10) By Sachin Oak

We had rec­om­mended this stock ear­lier at Rs.422 in May 2017, where­after it touched an all-time high of Rs.1248.35 be­fore be­ing listed un­der the Ad­di­tional Sur­veil­lance Mea­sures (ASM) cat­e­gory. The re­cent fall in its share price is purely based on mar­ket con­di­tions and of­fers a good buy­ing op­por­tu­nity.

Com­pany Back­ground: Pro­moted by Mr. Dilip Surya­van­shi in 1988, Dilip Build­con Ltd (DBL) is one of the largest play­ers in the roads and high­ways EPC (en­gi­neer­ing, pro­cure­ment and con­struc­tion) con­trac­tors seg­ment. Mr. Deven­dra Jain (CEO) was ap­pointed on the Board in 1995 who then built DBL as an EPC com­pany. He holds 31% stake in the com­pany.

DBL bucked the trend fol­lowed by large con­struc­tion com­pa­nies and never took up any toll projects, keep­ing that risk at bay. It took up small sub-con­tracts for a fee from big­ger com­pa­nies like L&T and kept grow­ing steadily. It has com­pleted con­struc­tion of road projects in Mad­hya Pradesh, Gu­jarat, Hi­machal Pradesh, Ra­jasthan and Ma­ha­rash­tra and has also ex­panded its pres­ence in Tamil Nadu, Pun­jab, Ch­hatis­garh, Jhark­hand, Haryana, Te­lan­gana, Andhra Pradesh, Kar­nataka, Goa and Ut­tar Pradesh with its on­go­ing projects. Its achieve­ments in the last five fi­nan­cial years are at­trib­uted to a com­bi­na­tion of fac­tors like its abil­ity to suc­cess­fully bid and timely ex­e­cute EPC projects, its fo­cus on clus­ter­ing its projects ge­o­graph­i­cally for ef­fi­ciency and prof­itabil­ity, its sub­stan­tial in­vest­ments and ef­fi­cient use of its con­struc­tion equip­ment bank and in-house pro­duc­tion of struc­tural parts for its projects.

DBL has one of the largest fleet of con­struc­tion equip­ment in In­dia with over 7,000 mod­ern ve­hi­cles. Its busi­ness com­prises i) Con­struc­tion busi­ness (un­der­takes roads, ir­ri­ga­tion and ur­ban de­vel­op­ment projects on an EPC ba­sis); and ii) In­fra­struc­ture de­vel­op­ment busi­ness (un­der­takes build­ing, op­er­a­tion and de­vel­op­ment of road projects on a BOT ba­sis with a fo­cus on an­nu­ity projects).

Per­for­mance Re­view: Dur­ing Q1FY19, DBL re­ported

47% higher rev­enue of Rs.244543 lakh while PAT more than dou­bled to Rs.25546 lakh. Se­quen­tially also, PAT was 17% higher. Look­ing at its per­for­mance, we can ex­pect a bot­tom-line of Rs.1000 crore in FY19.

Out­look: DBL re­ceived or­der in­flows for 20 projects in

FY18, of which 12 are road HAM (hy­brid an­nu­ity model),

7 road EPC and 1 re­lated to ur­ban de­vel­op­ment.

Its or­der book of Rs.240.9 bil­lion pro­vides rev­enue vis­i­bil­ity of 2.8x TTM rev­enue. At a time when weak bal­ance sheet com­pa­nies are fac­ing dif­fi­cul­ties for fi­nan­cial clo­sure, DBL has proved its ex­cel­lence by com­plet­ing fi­nan­cial clo­sures for 3 HAM projects and ex­pects an­other 9 to be com­pleted within the sched­uled time.

Shrem Deal: DBL signed a Term Sheet with the Ch­hat­wal group in Au­gust 2017 to di­vest its en­tire stake in 24 sub­sidiaries (SPVs). The sale cov­ers 14 op­er­a­tional projects, 4 un­der con­struc­tion projects and 6 HAM projects. As at 30 June 2018, DBL has al­ready in­vested Rs.6.82 bil­lion, which leaves Rs.8.4 bil­lion yet to be in­vested. DBL ex­pects ~Rs.16 bil­lion through this trans­ac­tion.

Dur­ing FY19, the Gov­ern­ment of In­dia (GoI) al­lo­cated Rs.710 bil­lion for de­vel­op­ment of Na­tional High­ways across the coun­try. In FY18, Na­tional High­way con­struc­tion hit a record of 26.93 km/day (up 20%) v/s 22.5 km/day in FY17. The av­er­age length of road projects over the last five years awarded by NHAI was 2,860 km com­pared to 7,400 km in FY18. The GoI plans to in­crease the length of Na­tional High­ways from 1,22,432 km cur­rently to 2,00,000 km. Na­tional high­ways of 9,829 km in length were con­structed in FY18 v/s 8,231 km in FY17.

Con­clu­sion: The stock is avail­able at 48% dis­count to its 52-week high of Rs.1248.35. If the com­pany con­tin­ues to grow at 20-25% an­nu­ally, we can safely as­sume an EPS of Rs.70 for FY19. A P/E of 15x on FY19E EPS will take its share price to Rs.1050 in the medium-term. On an op­ti­mistic FY19E EPS of Rs.20, the stock has the po­ten­tial to cross Rs.1400 in the long-term.

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