Execution back on track with return of labour and availability of raw materials: Dilip Buildcon

Update on the Indian Equity Market:
On Thursday, NIFTY closed in red at 11,312 (-0.8%). Top gainers in NIFTY50 were NTPC (+6.9%), ONGC (+3.3%), and Power grid (+2.6%). The top losers were Tata Motors (-2.6%), HDFC (-2.3%), and Axis bank (-2.2%). The top sectoral gainers were MEDIA (+3.1%), METAL (+1.0%) and REALTY (+0.4%) and sectoral losers were FIN SERVICES (-1.3%), PVT BANKS (-1.3%), and BANK (-1.3%).

Excerpts of an interview with Mr Rohan Suryavanshi, Head -Strategy & Planning, Dilip Buildcon with ET now dated 18th August 2020:
● 1QFY21 was impacted by Covid but the good news is that they have had a very strong order book. The Rs 8,900 crore worth of orders that they have won are spread across different verticals.
● They have dam irrigation orders, tunnel orders, special bridge orders and also road orders. All these have different lead times of two to four years and these orders will start sort of giving revenues in the later part of this year which would be about the end of Q3FY21 to the start of Q4FY21.
● Execution has definitely picked up from when the lockdown was imposed. They have started seeing reverse migration of now labourers coming back to sites. They have also started seeing normalisation in all the raw material supply chains which has been disrupted.
● 90% plus of their labourers have come back to the sites and all the raw material disruptions are behind barring some sites where there might be local disruptions.
● The only thing that is impacting right now are the monsoons. Since they have had good monsoons across the country that is impacting work for the industry as a whole.
● For the past couple of years, they have been focussing on debt reduction and working capital cycle improvement which had also seen their debt equity ratio falling to 0.81 last year from 1.06 a year before.
● In FY21, because of Covid and because of the impact that it has had, they will avail of a moratorium, and also avail of whatever facilities the RBI has given them.
● Current debt numbers and the current working capital cycle numbers will not go up from here and will actually reduce and this is all obviously dependent on how the rest of the year looks and hopefully they would not have any more large disruptions or shutdowns because all those things will impact revenue and profitability.
● In 1QFY21, their revenues were only reduced by about 17% as a YoY basis from same quarter last year, which is exceptionally good as opposed to the industry average of about 40% plus reduction in revenues.
● The business model of having their own people, having their own equipment, doing everything on their own without any subcontracting has definitely helped them in getting this revenue and being ahead of the curve when the recovery came.

Consensus Estimate: (Source: market screener and investing.com websites)

● The closing price of Dilip Buildcon was ₹ 404/- as of 20-August-2020. It traded at 18x/ 11x the consensus earnings estimate of ₹ 22.0/ 37.7 for FY21E/22E respectively.
● The consensus price target is ₹ 406/- which trades at 11x the earnings estimate for FY22E of ₹ 37.7/-
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