Buildcon’s (ABL) Q2FY18 revenue was impacted by: (a) GST uncertainty; (b) Floods in Bihar; and (c) Local agitation against the Eastern Peripheral Expressway project. These issues which impacted billing to the tune of Rs 2 billion in Q2FY18 have now been resolved and management expects execution to recover going ahead. Traffic grew 4 % y-o-y with Dhankuni-Kharagpur, Jaora-Nayagaon, Sambalpur and Belgaum-Dharwad projects continuing to witness robust growth. ABL’s Rs 61 billion order book is ~2.9x TTM EPC revenues. Management expects Rs 30·40 billion order intake in H2FY18 which we believe will be a key stock catalyst. Maintain ‘buy’ with SoTP-based target price of Rs 263. Standalone revenue declined 15 % y-o-y with work on power T&D projects marred by GST related uncertainty and floods in Bihar. Local agitation held up work on the Eastern Peripheral Expressway for 50 days. These issues have now been sorted out and work is progressing smoothly. EBITDA margin fell 240bps y-o-y. Dhankuni-Kharagpur, Sambalpur, Jaora-Nayagaon and Belgaum-Dharwad projects clocked 10-13 % y-o-y traffic growth; however, traffic on projects situated on NH-6 like Bhandara, Durg and Wainganga remained muted.
Management has guided for 20·25 % top-line growth in FY18 and 13-15% margins going ahead. Order book at Q2FY18 end stood at Rs 61bn (book-to-bill at 2.9x). While order intake remained muted in H1FY18 due to GST impact/low NHAI project awards, bidding gathered pace thereon. ABL is bidding for Rs 300 billion worth of NHAI projects apart from state roads and power T&D projects. Management expects to win Rs 30-40 billion worth of projects in H2FY18. Healthy revenue visibility, improving traffic growth and lean balance sheet render ABL an attractive bet. Order intake in H2FY18, EPC revenue trajectory and BOT traffic growth will be key monitorables.