Though order backlog of Rs 129bn provides revenue visibility, any mismatch in appointed dates (post Q1FY20) would impact the execution run-rate (as witnessed in FY19).
Q3 revenue of Rs 9.3 bn missed our/street estimate by 14%/10% on slow execution. 9-month revenue stood at Rs 25 bn. With appointed dates for 4 projects (`29 bn) expected by month-end, management retained FY19 revenue guidance of `38 bn; implies stellar Q4 ahead. With appointed dates for 65% of the HAM order book (of `100 bn), and balance expected by Q1FY20, management expects execution on these 12 HAM assets to be key FY20 revenue contributor. Expects additional inflows of `20-25 bn in Q4 (`31 bn in 9M), as pipeline remains robust (`0.9 trn). Debt declined from peak `15 bn in Sept’18 to `14 bn as of Dec’18 (D/E of 0.7x) – target to reduce to `13 bn by FY19-end. Strong order book of `129 bn (OB/sales of 3.5x) lends visibility over 2.5-3 years; Buy.
Recent appointed dates for 4 projects worth `37 bn (2 EPC: `26 bn; 1 HAM: `9.7 bn; 1 irrigation: `2 bn) coupled with appointed date for Kim-Ankleshwar HAM project (`11 bn) by Feb-end (as 78% land available) would increase executable order book and thereby execution run-rate – management retained FY19 revenue guidance of `38 bn and expects 20% growth in FY20; margins in 12% range. Debt declined to `14 bn (vs. `15 bn QoQ) – target to reduce leverage to 0.6x by FY19- end (vs. 0.7x currently) upon improved receivables and pending receipts of mobilization advance (`7 bn).
Though order backlog of Rs 129bn provides revenue visibility, any mismatch in appointed dates (post Q1FY20) would impact the execution run-rate (as witnessed in FY19). We trim our FY19/20 EPS estimate by 10/8% to factor in 9M performance and higher tax outlay (due to completion of projects benefiting from 80-IA tax benefit). Roll forward to FY21 and maintain ‘Buy’ with SoTP-based TP of `259 (standalone at `159/share and BOT at `100/share).