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  • Stock recommendation: Dilip Buildcon Ltd – BUY – TP Rs.1276

    Publish date: August 17, 2018


    Result Update

    DBL results for the quarter were ahead of our estimates led by better than expected execution and margins. Better than expected order inflow during FY18 and a robust order book provides healthy visibility of future earnings and company expects to achieve Rs 100 bn of revenues in FY19


    Key Highlights

    • Revenue growth of 46.4% YoY for Q1FY19 stood ahead of our estimates. Operating margins witnessed a slight decline on sequential basis. Net profit performance stood ahead of our estimates due to strong execution and deferred tax benefits.
    • Order inflow for the company stood healthy at Rs 27.4 bn during Q1FY19, taking the order book to Rs 241 bn. Healthy order inflows provide good visibility on revenue growth.

    Valuation & Outlook

    • At current price of Rs 852, stock is trading at 14.2x/12.7x P/E and 7.9x/6.2x EV/EBITDA on FY19/20 respectively. We marginally reduce our valuation multiples to factor in delays in land acquisition process from the government side and the current liquidity crunch with the public sector banks in funding HAM projects. We now value the company at 18x FY20 earnings (20x earlier) and add value of the expected investments till FY20. We arrive at a revised price target of Rs 1276 and maintain BUY on the stock. We believe that DBL will continue to trade at premium multiples as compared to its peers owing to faster pace of execution, strong margins, excellent return ratios as well as lower leverage.
    • Key risk to our recommendation would come from lower than expected order inflow or slower execution or delays in financial closure of HAM projects. Along with this, high asset base of equipment may pose a challenge in difficult times owing to high depreciation costs.

          

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