Anand Rathi has a buy call on Dilip Buildcon,target price Rs 368

Anand Rathi has given a buy rating to Dilip Buildcon with a target price of Rs 368 based on 8 times FY22E. Dilip Buildcon not only missed its year-end execution spurt due to Covid-19, but order additions also were pushed to the future, according to the brokerage. Nevertheless, debt shrinking for a fifth straight quarter was heartening, and continued early completion of projects reinstates faith in its execution capabilities, says the brokerage. With the Covid-19 situation yet evolving, the company has refrained from “guidance”, but talked of execution returning to normal sooner than later.

A lighter balance sheet augurs well, but the opening balance would need to be attended to. According to the brokerage, the recent reduced dependence on a single segment (roads) would help. Proven execution capabilities, a lighter balance sheet (efforts continuing) and attractive valuations would make it retain buy rating for the company.

Investment Rationale


With the year-end spurt in awarding impacted by Covid-19, inflows were weak in the fourth quarter. Hence, the opening balance shrank by Rs 21 billion quarter on quarter to Rs 191 billion, but it is still good to deliver in FY21 and FY22. However, growth beyond would need more, and the company banks on Rs 560 billion of road tenders, and Rs 250-300 billion in other segments to bag enough to keep growth going.

Adjusting for the Covid-impact, FY21e earnings were slashed 47 per cent (37 per cent for FY22 on changed tax assumption). At the CMP, the stock (excluding investments) quotes at a price to earnings ratio of 6.5 times FY22e, against the target price implied 8 times.

Risk: Prolonged Covid-19 impact.


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2729.66 crore, up 6.45 per cent from last quarter sales of Rs 2564.39 crore and up 6.14 per cent from last year's same quarter sales of Rs 2571.64 crore. The company reported net profit after tax of Rs 190.98 crore in the latest quarter.

Promoter/FII Holdings

The promoters held 74.99 per cent stake in the company as of March 31, 2020 while FIIs held 9.35 per cent, DIIs 6.25 per cent and public and others 9.34 per cent.