Dilip Buildcon Ltd: Building fortunes
(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.