20 FEB 2018 Quarterly Update

DILIP BUILDCON BUY

ENGINEERING Target Price: Rs 1,338

Another strong quarter

Dilip Buildcon’s (DBL) Q3FY18 sales grew 40% YoY to Rs 19.4 bn, CMP : Rs 984
ahead of our estimate of Rs 18.1 bn and consensus estimate of Potential Upside : 36%
Rs 17.7 bn. EBITDA was up 24% YoY at Rs 3.4 bn and 6% above our
estimate. EBITDA margin was down ~230 bps YoY at 17.7%. PAT came
MARKET DATA
in at ~Rs 1.7 bn (up 52% YoY) on negligible tax rate.
No. of Shares : 137 mn
Free Float : 24%
Weak order inflow so far, but outlook/pipeline strong: There was no Market Cap : Rs 135 bn
major order booking till Dec’17 but DBL has won 4 EPC and 1 HAM 52-week High / Low : Rs 1,059 / Rs 254
projects worth ~Rs 32 bn till date. Including the same, order backlog at Avg. Daily vol. (1mth) : 472,219 shares
~Rs 155 bn is up 18% YoY. Order backlog at 3x FY17 sales lends Bloomberg Code : DBL IB Equity
revenue visibility till FY20. Further, management highlighted strong Promoters Holding : 76%
NHAI/MoRTH order pipeline of ~Rs 1.4 trn to be finalized in Q4 and FII / DII : 11% / 5%

expects to easily garner ~Rs 80 bn worth of orders.

Maintains FY18 guidance: Management expects FY18 order inflow at Rs 80-100 bn, revenue at ~Rs 70 bn and EBITDA
margin at 18%. Management further expects 15-20% growth in topline in FY19 with similar margins. Given the strong
execution YTDFY18, we expect revenue to be ~Rs 75 bn and EBITDA margin to be helped by early completion bonus of
Rs 650-700 mn expected in Q4 (vs. Rs 220 mn in 9MFY18).

Cash conversion cycle deteriorates: Cash conversion days improved to 136 vs. 156 YoY but deteriorated from
132 QoQ. Sequential increase was primarily due to increase in receivable days to 74 (vs. 67 QoQ) on account of
delay in GST refund (~Rs 2.5 bn) and mobilization advance (~Rs 2.5 bn). Focus on working capital and cash inflow
from BOT assets sale should reduce net debt by ~Rs 6 bn from Rs 32 bn currently.

Raise FY18 estimates, roll forward TP; maintain BUY: We increase our FY18 EPS to Rs 53 (vs. Rs 46 earlier) given the
strong execution in Q3. We maintain our FY19 EPS at Rs 66 and introduce FY20 EPS at Rs 74 (driven by 20% topline
growth and stable margin). We roll forward to FY20. Our revised TP stands at Rs 1,338 (18x FY20E EPS) vs. Rs 1,227.
earlier.
Financial summary (Standalone) Key drivers(Rs bn)
Y/E March FY17 FY18E FY19E FY20E FY17 FY18E FY19E
Sales (Rs mn) 50,754 75,246 93,157 111,521 Order inflow 118 100 140

EBITDA (Rs mn) 9,923 14,070 17,384 20,781 Order backlog 175 200 247
Revenue growth 25% 48% 24%
Adj PAT (Rs mn) 3,609 7,282 8,973 10,164
Margin 19.5% 18.7% 18.6%
Con. EPS* (Rs) - - 27.6 35.4
EPS (Rs) 26.4 53.2 65.6 74.3
Change YOY (%) 40.6 101.7 23.2 13.3
Price performance
P/E (x) 35.4 17.6 14.2 12.6
600
Sensex Dilip Buildcon
RoE (%) 24.5 34.0 32.6 29.7
400
EV/E (x) 16.0 10.9 8.6 7.1
200

Source: *Consensus broker estimates, Company, Axis Capital, CMP as on 14 Feb 2018
0
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18

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 20 FEB 2018 Quarterly Update
DILIP BUILDCON
ENGINEERING

Exhibit 1: Results update

Quarter ended 12 months ended
(Rs. mn) Dec-17 Dec-16 % Chg Sep-17 % Chg FY18E FY17 % Chg
Net Sales/Income from op 19,421 13,891 39.8 15,818 22.8 75,246 50,754 48.3
EBIDTA 3,447 2,776 24.2 2,853 20.8 14,070 9,923 41.8
Other income 56 27 112.1 31 80.3 120 114 5.0
PBIDT 3,504 2,802 25.0 2,884 21.5 14,191 10,037 41.4
Depreciation 698 593 17.6 676 3.2 2,582 2,274 13.5
Interest 1,168 1,062 10.0 1,110 5.2 3,944 4,162 (5.2)
PBT 1,638 1,147 42.8 1,098 49.2 7,665 3,601 112.9
Tax (9) 61 (114.7) (58) (84.5) 383 - -
Adjusted PAT 1,647 1,086 51.6 1,156 42.5 7,282 3,609 101.7
No. of shares (mn) 137 137 - 137 - 137 137 -
EBIDTA margin (%) 17.7 20.0 (223.2) 18.0 - 18.7 19.6 (4.4)
PBIDT margin (%) 18.0 20.2 - 18.2 - 18.9 19.8 (4.6)
EPS (Rs) 12.0 7.9 51.6 8.5 42.5 53.2 26.4 101.7
Source: Company, Axis Capital

Other highlights
Sale of BOT assets – right step forward: DBL has signed an agreement with Shrem
Group in Aug’17 for sale of its entire BOT portfolio [14 operational,
4 under-construction projects and 6 Hybrid Annuity Model (HAM) projects] at an
equity value of Rs 16 bn and enterprise value of ~Rs 105 bn. DBL has invested
(equity and sub-debt) Rs 6.8 bn in operational and under-construction assets, while
Rs 8.4 bn is yet to be invested. The transaction is expected to be completed
in tranches, wherein DBL will receive ~Rs 5.5 bn in FY18 (already received
~Rs 1.2 bn so far) and the remaining in FY19, which will be used to strengthen the
balance sheet (reduction of debt).

DBL’s growth has been constrained, as its HAM projects needed equity infusion.
The sale of operational and under-construction BOT assets will allow DBL to
participate in new HAM projects worth Rs 150-200 bn in FY18. Strong order
backlog of Rs 142 bn (as of end Q2FY18) and participation in new HAM projects
will ensure topline growth of 20-25% over next 4-5 years.

On track to lower inventory/ working capital cycle: In FY18, the number of sites
under execution will halve to ~25. This will lower inventory level, as bulk of them
would be in their full-execution phase. Inventory levels are usually higher in the
initial phases and lower during ramp-up and tail-end. Mining segment will constitute
~15% of FY18E revenue. NWC in mining is 45-60 days vs.
135 days in roads EPC. Additionally, reduction in stuck receivables from private
sector will lower NWC to 115-125 days by FY18 vs. ~145 days in FY17.

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 20 FEB 2018 Quarterly Update
DILIP BUILDCON
ENGINEERING

Exhibit 2: Changing composition of order-book…

Private Annuity/Hybrid Govt.

100%

80%
61%
60% 73% 72%
80%

40%
10%

20% 0% 17%
30% 27%
20%
10%
0%
FY14 FY15 FY16 FY17

Source: Company, Axis Capital

Exhibit 3: …would bring debtor days further down

Private Annuity/Hybrid Govt
14
(Rs bn) 148 days
12
73 days
144 days 50 86 days
10
days
8 39 40
days days
6
351
4
days 377
2 days 1,716
days
0
FY14 FY15 FY16 FY17

Source: Company, Axis Capital

Exhibit 4: Net working capital days coming down

Inventory days Debtor days Creditor days* Net working capital
200
161 156
146
136 134 132 132 136
150

100

50

0
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17

Source: Company, Axis Capital

* Creditors adjusted for creditors advance from Mar’17

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 20 FEB 2018 Quarterly Update
DILIP BUILDCON
ENGINEERING
Financial summary (Standalone)
Profit &loss (Rs mn) Cash flow (Rs mn)
Y/E March FY17 FY18E FY19E FY20E Y/E March FY17 FY18E FY19E FY20E
Net sales 50,754 75,246 93,157 111,521 Profit before tax 3,601 7,665 11,216 14,519
Other operating income 222 150 150 150 Depreciation & Amortisation 2,274 2,582 2,882 3,182
Total operating income 50,976 75,396 93,307 111,671 Chg in working capital (2,535) (5,664) (3,592) (4,116)
Cost of goods sold (37,930) (56,434) (69,868) (83,641) Cash flow from operations 7,511 8,144 11,676 12,442
Gross profit 13,047 18,961 23,439 28,030 Capital expenditure (4,895) (3,000) (3,000) (3,000)
Gross margin (%) 25.7 25.2 25.2 25.1 Cash flow from investing (12,089) (1,444) (5,097) (6,213)
Total operating expenses (3,124) (4,891) (6,055) (7,249) Equity raised/ (repaid) 7,566 - - -
EBITDA 9,923 14,070 17,384 20,781 Debt raised/ (repaid) 488 (5,000) (3,000) (3,000)
EBITDA margin (%) 19.6 18.7 18.7 18.6 Dividend paid - (1,456) (2,692) (3,049)
Depreciation (2,274) (2,582) (2,882) (3,182) Cash flow from financing 8,054 (6,456) (5,692) (6,049)
EBIT 7,649 11,489 14,502 17,599 Net chg in cash 3,476 244 887 180
Net interest (4,162) (3,944) (3,413) (3,213)
Other income 114 120 126 133 Key ratios
Profit before tax 3,601 7,665 11,216 14,519 Y/E March FY17 FY18E FY19E FY20E
Total taxation 9 (383) (2,243) (4,356) OPERATIONAL
Tax rate (%) (0.2) 5.0 20.0 30.0 FDEPS (Rs) 26.4 53.2 65.6 74.3
Profit after tax 3,609 7,282 8,973 10,164 CEPS (Rs) 43.0 72.1 86.7 97.6
Minorities - - - - DPS (Rs) - 10.6 19.7 22.3
Profit/ Loss associate co(s) - - - - Dividend payout ratio (%) - 20.0 30.0 30.0
Adjusted net profit 3,609 7,282 8,973 10,164 GROWTH
Adj. PAT margin (%) 7.1 9.7 9.6 9.1 Net sales (%) 26.3 48.3 23.8 19.7
Net non-recurring items - - - - EBITDA (%) 24.1 41.8 23.6 19.5
Reported net profit 3,609 7,282 8,973 10,164 Adj net profit (%) 64.1 101.7 23.2 13.3
FDEPS (%) 40.6 101.7 23.2 13.3
Balance sheet (Rs mn) PERFORMANCE
Y/E March FY17 FY18E FY19E FY20E RoE (%) 24.5 34.0 32.6 29.7
Paid-up capital 1,368 1,368 1,368 1,368 RoCE (%) 18.9 25.6 30.9 34.7
Reserves & surplus 17,161 22,986 29,267 36,382 EFFICIENCY
Net worth 18,529 24,354 30,635 37,749 Asset turnover (x) 1.3 1.7 2.1 2.3
Borrowing 25,626 20,626 17,626 14,626 Sales/ total assets (x) 0.8 1.1 1.2 1.4
Other non-current liabilities 759 759 759 759 Working capital/ sales (x) 0.4 0.3 0.3 0.3
Total liabilities 44,914 45,739 49,020 53,134 Receivable days 73.1 70.0 65.0 65.0
Gross fixed assets 24,319 27,319 30,319 33,319 Inventory days 147.9 135.0 122.7 110.4
Less: Depreciation (7,494) (10,076) (12,957) (16,139) Payable days 189.2 163.2 144.8 126.9
Net fixed assets 16,825 17,243 17,361 17,179 FINANCIAL STABILITY
Add: Capital WIP - - - - Total debt/ equity (x) 1.7 1.0 0.6 0.4
Total fixed assets 16,825 17,243 17,361 17,179 Net debt/ equity (x) 1.7 0.9 0.6 0.4
Total Investment 6,816 1,316 - - Current ratio (x) 2.0 2.0 2.0 2.1
Inventory 16,639 22,677 25,523 27,498 Interest cover (x) 1.8 2.9 4.2 5.5
Debtors 10,165 14,431 16,590 19,860 VALUATION
Cash & bank 1,137 1,381 2,268 2,448 PE (x) 35.4 17.6 14.2 12.6
Loans & advances 3,157 4,123 5,105 6,111 EV/ EBITDA (x) 16.0 10.9 8.6 7.1
Current liabilities 21,579 27,800 30,587 32,183 EV/ Net sales (x) 3.1 2.0 1.6 1.3
Net current assets 21,273 27,180 31,659 35,955 PB (x) 7.3 5.5 4.4 3.6
Other non-current assets - - - - Dividend yield (%) - 1.1 2.0 2.3
Total assets 44,914 45,739 49,020 53,135 Free cash flow yield (%) - - 0.1 0.1
Source: Company, Axis Capital Source: Company, Axis Capital

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 20 FEB 2018 Quarterly Update
DILIP BUILDCON
ENGINEERING

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 20 FEB 2018 Quarterly Update
DILIP BUILDCON
ENGINEERING

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
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