FY20/FY21e EPS cut 9/10%; ‘Buy’ maintained with TP revised to Rs 566 from Rs 620.
In our recent meeting, Dilip Buildcon’s (DBL) management highlighted that unanticipated delay in appointment dates for HAM projects pose risk to revenue guidance (5-8% miss to FY19 target of Rs 100 bn). Consequent rise in debt however will moderate from peak of Sept-18 (`35 bn) upon receipt of mobilisation advance though working capital would be stretched in the interim.
Despite robust tendering by NHAI, ordering to be weak (with election code of conduct kicking in), only to pick up in H2FY20. With road awarding peaking out, DBL is diversifying into mining, metros, railways—but roads to contribute 80% revenue. On draft concession agreement, DBL indicated it to be positive for quality developers, but tightening norms are likely to add to challenges.
Near-term challenges underway, execution capabilities to stay; maintain BUY
We expect awarding to remain tepid in near time. Balance sheet to remain stretched in the interim due to higher working capital requirements. While deferment in appointment date adds risk to management’s guidance – we lower our FY20/FY21e EPS by 9/10% to factor in lower awarding, rise in interest cost and working capital in interim. While near-term pain is to continue, we expect DBL’s execution forte to drive growth; maintain Buy with revised TP of Rs 566 (10xFY20 EPS) vs. Rs 620 earlier.