Dilip Buildcon announced a deal with Shrem Infraventures for sale of all BOT assets for a consideration of Rs 16 bn over FY18/19. Based on the available details, management expects cash inflows over FY18/FY19F. These amounts will lead to release of already invested equity of Rs 6.8 bn and also save on Rs 8.4 bn in further equity commitments, especially for the hybrid annuity model (HAM) projects. DBL asset sale at slightly higher than BV is in line with our estimates: We have valued DBL’s BOT assets at 1x FY18F BV and the present consideration of Rs 16 bn will imply P/BV of 1.05x. The multiple is slightly ahead of our estimate of 1.0x P/BV.
Asset sales can lead to Rs 15.9 bn reduction in net debt on FY17F level: DBL’s standalone debt was at Rs 24.5 bn while the consolidated debt stood at Rs 40.4 bn, implying Rs 15.9 bn of debt residing in the subsidiaries at FY17-end. Divestment of all these assets can lead to significant deleveraging for the company on FY17 numbers itself. The reduction in standalone net debt over FY18/19F will lead to reduction in financial expenses. The lower interest cost will provide a boost to our EPS estimates for FY18F and FY19F which can lead to revision in our target price.
Positive impact of deleveraging is a big sentiment driver, in our view: We value DBL at 15x FY19F EPS estimate of Rs 38.8 for the EPC business and the subsidiaries at 1x FY18F BV. The deleveraging impact and the freeing up of capital can lead to potential re-rating of multiples in our view.