RESULT REVIEW 1QFY19 16 AUG 2018

Dilip Buildcon
BUY
INDUSTRY INFRASTRUCTURE Strong comeback
CMP (as on 16 Aug 2018) Rs 847 DBL delivered strong execution with 1QFY19 revenue Highlights of the quarter
Target Price Rs 1,434 beat of 3.7%. Revenue for 1QFY19 came in at Rs  HAM projects on track: Out of the 12 HAMs, FC for 3
24.4bn. Margins continued to be higher than has already been achieved. FC for the remaining 9 is
Nifty 11,385 targeted over Sep-Nov 18. Except minor delays of 30-
industry at 17.8%. APAT at Rs 2.5bn was 30.9% above
Sensex 37,664 40days DBL does not expect any significant issues in
our estimates on account of deferred tax reversal
KEY STOCK DATA getting appointed dates. These projects could start
impact of Rs 173mn. Adjusted for deferred tax APAT contributing from 4QFY19E and mobilization and camp
Bloomberg DBL IN was 22.0% above estimates. There was no early preparations have already started as has been DBL’s
No. of Shares (mn) 137 completion bonus in 1QFY19. strategy.
MCap (Rs bn) / ($ mn) 116/1,656  Mining projects a meaningful diversification: Current
During 1QFY19, DBL added Rs 27.4bn of orders order book is concentrated towards roads (~93%). Post
5m avg traded value (Rs mn) 509
(order book now Rs 240.9bn) in mining and roads 1QFY19, DBL has won two mining projects – OB
STOCK PERFORMANCE (%)
segment. DBL expects to add ~Rs 100bn inflows in removal (~Rs 8bn) and MDO project (~Rs 6bn annually
52 Week high / low Rs 1,248/524 at current prices for 55years). Though in the near term
FY19 as NHAI bidding resumes from 2HFY19E.
3M 6M 12M DBL will focus on roads, it aims to take the non-roads
Absolute (%) (27.3) (11.1) 61.6 With noise around DBL’s auditors fading out, DBL segment to 20% of its order book over next 2-3years.
Relative (%) (33.2) (20.9) 41.8 admits its core competency lies in EPC and it will  Focus on BS strengthening: Gross debt has increased
continue to focus on getting out of HAM projects to Rs 32bn. DBL has guided for ~4bn of annual capex
SHAREHOLDING PATTERN (%)
over FY19-20E including (Rs 1bn for mining projects in
Promoters 75.63
once executed. NWC days has improved to 85 vs
FY20E). The Shrem group receivables and strong OCF
FIs & Local MFs 6.45
89days QoQ. We maintain BUY with a TP of Rs generations should be sufficient to meet the
1,434/sh (10x FY20E EV/EBITDA and BOT at 1x equity requirements. We expect debt to stabilize as DBL
FPIs 9.53
invested). strives for reduction in inventory and debtor levels.
Public & Others 8.39
Source : BSE Financial Summary (Standalone)
Year Ending March (Rs mn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%) FY17 FY18 FY19E FY20E
Net Sales 24,363 16,641 46.4 25,579 (4.8) 49,916 77,459 97,124 1,22,942
Parikshit D Kandpal EBITDA 4,327 3,002 44.1 4,726 (8.4) 8,863 14,028 17,288 21,761
parikshitd.kandpal@hdfcsec.com APAT 2,549 1,226 107.9 2,326 9.6 3,612 6,355 8,630 9,374
+91-22-6171-7317 Diluted EPS (Rs) 18.6 9.0 107.9 17.0 9.6 26.4 46.5 63.1 68.5
P/E (x) 32.1 18.2 13.4 12.4
Kunal Bhandari EV / EBITDA (x) 15.8 10.2 8.3 6.6
kunal.bhandari@hdfcsec.com RoE (%) 24.8 29.5 29.9 24.7
+91-22-6639-3035 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Revenue for 1QFY19 came in at Standalone Quarterly Financial (Rs mn)

Rs 24.4bn a beat of 3.7% Particulars 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%)
Net Revenues 24,363 16,641 46.4 25,579 (4.8)
Material Expenses 19,082 12,772 49.4 20,126 (5.2)
Margins continued to be higher Employee Expenses 563 351 60.2 244 130.7
than industry at 17.8% Other Expenses 391 515 (24.1) 483 (19.0)
EBITDA 4,327 3,002 44.1 4,726 (8.4)
DBL delivered EBIDTA beat of Depreciation 754 651 15.9 725 4.0
8.9% EBIT 3,572 2,352 51.9 4,001 (10.7)
Interest Cost 1,211 1,106 9.4 1,260 (3.9)
APAT at Rs 2.5bn came in at Other Income (Inc EO Items) 91 27 244.2 (111) (182.3)
30.9% above our estimates on PBT 2,453 1,272 92.9 2,630 (6.7)
account of an adverse deferred Tax (96) 45 (311.5) 456 (121.1)
tax reversal impact of Rs 173mn. RPAT 2,549 1,226 107.9 2,174 17.3
Adjusted for deferred tax APAT EO Items - - - 152 -
was 22.0% above estimates APAT 2,549 1,226 107.9 2,326 9.6
Source: Company, HDFC sec Inst Research

Margin Analysis
1QFY19 1QFY18 YoY (bps) 4QFY18 QoQ (bps)
Material Expenses % Net Sales 78.3 76.7 157.5 78.7 (35.7)
Employee Expenses % Net Sales 2.3 2.1 19.9 1.0 135.7
Other Operating Expenses % Net Sales 1.6 3.1 (149.1) 1.9 (28.3)
EBITDA Margin (%) 17.8 18.0 (28.2) 18.5 (71.7)
Tax Rate (%) (3.9) 3.6 (749.9) 17.3 (2,126.0)
APAT Margin (%) 10.5 7.4 309.4 9.1 137.0
Source: Company, HDFC sec Inst Research

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 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Roads contribute ~93% to the Order Book By Sector: 1QFY19 % Order Book By Clientele: 1QFY19 %
Mining
1QFY19 order backlog. Mining Urban
7% State Govt. Private
Development 0.1%
contribution is 7% 1%
7.0%

Irrigation
0%

Total order book is Rs 240.9bn

Roads, Central
Highways & Govt.
Bridges 93.0%
10% of the order book is from 93%
MP (DBL’s home state)
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
31% of the backlog is
concentrated in Maharashtra
and 20% in Karnataka Share Of Orders Outside MP % Changing Composition Of Order Book %
Outside MP (%) MP (%) Government Orders (%) Private Orders (%)
100% 100%
90%
80% 80%
Government projects contribute 70%
~93% to the order backlog and 60% 60%
7% MSRDC projects 50%
40% 40%
30%
20% 20%
10%
0% 0%
FY12

FY13

FY14

FY15

FY16

FY17

FY18

1QFY19

1QFY19
FY12

FY13

FY14

FY15

FY16

FY17

FY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 3
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Key Assumptions & Estimates

Expect DBL to continue to
Key Assumptions FY19E FY20E Comments
replenish its backlog with bid
Closing order book 291,374 309,430
pipeline looking promising
Order book growth (%) 14.6 6.2
Expect DBL to continue to replenish its backlog with
New order booking 134,284 140,999
bid pipeline looking promising
Book to bill ratio 3.0 2.5 Book-to-bill ratio to remain comfortable
Total Revenue 97,124 122,942 26.0% revenue growth in FY20E
Growth (%) 25.4 26.6
Expect margins to remain stable EBIDTA 17,288 21,761
around 17.8% EBIDTA margin (%) 17.8 17.7 Expect margins to remain stable
Depreciation 3,299 3,789
Expect finance cost to be stable as debt increase will
Financial Charges 4,953 5,148
be limited
Other Income (Including EO Items) 1,117 1,168 This includes early completion bonus
PBT 10,153 13,992
PBT margin (%) 10.5 11.4 PBT margins to expand by ~90bps
Tax rate assumed at 15% for Tax 1,523 4,617
FY19E and 33% for FY20E as Tax rate assumed at 15% for FY19E and 33% for FY20E
Tax rate (%) 15.0 33.0
as company loses benefit of MAT credit
company loses benefit of MAT
APAT 8,630 9,374
credit APAT margins to decline on account of higher tax
Net margin (%) 8.9 7.6
rate
Gross Block Turnover 2.9 3.3
NWC cycle to improve as debtor collection improves
NWC Days 151.1 142.6
There are no major changes in and strict control exercised on inventory
Higher profitability coupled with ease in NWC to
estimates Cash flow from operations 8,363 9,842
drive robust cash flow generation
Capex (4,500) (4,500) Capex to be limited to roads segment only
Free cash flows 3,863 5,342
Cash flow from investments (2,882) (4,732)
Debt issuance (706) (1,000) Debt to reduce over FY19-20E
Cash flow from financing (5,659) (6,148)
Total change in cash - a+b+c (179) (1,038)
Source: HDFC sec Inst Research

Page | 4
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Outlook and valuation

We value standalone EPC
business at Rs 1,394/share (10x
one-year forward
Mar-20E EV/EBITDA)
Robust order intake, strong
private debtors’ recovery, stable
balance sheet and stellar
execution are key factors
contributing to our 10x multiple
attribution. The valuation
multiple is in line with peers like
KNR
BOT assets at Rs 40/share (At 1x
P/BV(x) of expected invested
equity as at FY20E)
Maintain BUY - Target Price Of Rs 1,434/Sh
 Valuation methodology: We have valued DBL on
EV/EBITDA basis in line with peers viz. KNR at 10x.
Our investment premise is based on (1) Robust order
book of Rs 240.9bn spread across Roads, mining &
Urban (2) Significant ramp up in execution with
26.0% revenue CAGR over FY18-20E (3) Above-
average EBIDTA margins ~17.8%, (4) Regular early
completion bonuses expected (>Rs 1.0bn annually)
and (5) BOT asset monetisation, which makes DBL a
pure-play EPC company.
 Further expansion in multiples is premised on robust
execution and debt stabilization from the current
level of Rs 32bn to 27.6bn by Mar-20E.
 Investments in the Roads, Mining, Irrigation and
Urban infra sectors would continue to drive the
stock’s performance. DBL, with strong credentials, is
likely to benefit from the pick- up in ordering
activity.
 We value standalone EPC business at Rs 1,394/share
(10x Mar-20E EV/EBITDA), and BOT assets at Rs
40/share (At 1x P/BV(x) of expected invested equity
as at FY20E). We arrive at a SOTP-based target price
of Rs 1,434/share. We maintain BUY

We arrive at SOTP based TP of Rs

1,434/sh SOTP Valuation
Value Value per share
Particulars Segments Rationale
(Rs mn) (Rs)
At 10x Mar-20E EV/EBITDA in line
Standalone Core construction business 190,735 1,394
with peers like KNR.
At 1x P/BV(x) of expected invested
BOT Assets Roads toll 5,428 40
equity as at FY20E
Total 196,163 1,434
Source: HDFC sec Inst Research

Page | 5
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Peer Set Comparison: Core EPC

MCap CMP TP Adj. EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)
COMPANY RECO
(Rs bn) (Rs) (Rs) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E
Dilip Buildcon 115.8 847 BUY 1,434 46.5 63.1 68.5 17.4 12.8 11.8 9.8 7.9 6.3 14.6 14.4 14.6
IRB Infra
67.1 191 BUY 328 22.6 29.1 26.7 3.2 3.9 3.0 3.5 3.5 2.9 30.3 25.3 30.9
Developers
NCC 59.9 100 BUY 174 5.2 7.2 8.6 17.4 12.7 10.6 8.6 6.5 5.7 4.2 4.3 4.2
Sadbhav
46.5 271 BUY 436 12.9 15.4 16.6 9.7 8.1 7.5 8.7 6.7 5.3 11.8 12.5 12.0
Engineering
PNC Infratech 42.9 167 BUY 322 4.1 8.7 10.5 27.0 12.4 7.7 11.1 7.4 5.0 6.2 11.9 16.5
Ashoka Buildcon 38.7 138 BUY 225 8.4 9.3 9.6 7.6 6.9 6.7 6.2 5.6 4.9 12.5 12.8 11.8
KNR
31.0 221 BUY 392 13.6 10.1 14.9 12.3 16.7 11.3 6.6 7.0 5.1 18.7 11.3 14.3
Constructions
ITD
23.0 134 BUY 211 6.1 10.8 12.3 21.9 14.9 11.4 9.9 6.9 5.8 16.2 17.9 16.8
Cementation*
Ahluwalia
21.6 322 BUY 486 17.3 22.2 25.3 17.9 13.9 12.2 9.0 7.3 6.2 20.5 21.4 19.9
Contracts
J. Kumar
16.7 221 BUY 415 18.1 22.2 27.7 12.2 9.9 8.0 6.7 5.2 4.5 9.4 10.7 12.2
Infraprojects
JMC Projects 17.3 516 BUY 844 31.6 33.4 39.9 12.4 11.7 9.8 6.7 6.3 5.3 14.4 13.3 14.0
PSP Projects 17.0 472 BUY 639 18.0 27.7 35.5 26.1 17.0 13.3 14.6 9.6 7.1 31.7 28.4 28.2
HG Infra 15.5 238 NR NR 12.9 19.6 24.7 18.4 12.2 9.6 8.6 5.5 4.6 23.5 21.1 21.5
Average (Core
16.7 21.4 24.7 15.7 11.8 9.5 8.5 6.6 5.3 16.4 15.8 16.7
EPC)
Source: Company, HDFC sec Inst Research *ITD Cementation FY19E/FY20E should be read as 15MFY19E/FY20E, 14th August 2018 Prices

Page | 6
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Income Statement (Standalone) Balance Sheet (Standalone)

Y/E-Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E Y/E-Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Net Revenues 40,176 49,916 77,459 97,124 122,942 SOURCES OF FUNDS
Growth (%) 56.0 24.2 55.2 25.4 26.6 Share Capital 1,171 1,368 1,368 1,368 1,368
Material Expenses 30,005 37,930 60,080 73,911 93,805 Reserves 9,450 17,161 23,203 31,833 41,208
Employee Expenses 873 1,025 1,524 2,331 2,828 Total Shareholders Funds 10,621 18,529 24,571 33,201 42,575
Other Expenses 1,983 2,099 1,827 3,594 4,549 Long Term Debt 10,204 9,903 10,427 9,903 9,903
EBIDTA 7,316 8,863 14,028 17,288 21,761 Short Term Debt 14,910 15,731 18,913 18,731 17,731
EBIDTA (%) 18.2 17.8 18.1 17.8 17.7 Total Debt 25,114 25,634 29,340 28,634 27,634
EBIDTA Growth (%) 41.4 21.1 58.3 23.2 25.9 Deferred Taxes 775 759 1,067 759 759
Depreciation 1,835 2,274 2,750 3,299 3,789 Other Non Current Liabilities - 4,158 10,591 12,709 15,251
EBIT 5,481 6,589 11,278 13,989 17,972 TOTAL SOURCES OF FUNDS 36,510 49,080 65,569 75,303 86,219
Other Income (Incl EO APPLICATION OF FUNDS
834 1,175 3 1,117 1,168
Items+bonus) Net Block 14,204 16,825 18,319 19,520 20,231
Interest 3,814 4,162 4,644 4,953 5,148 Investments 3,785 6,808 4,528 4,028 5,428
PBT 2,501 3,601 6,637 10,153 13,992 Other Non Current Assets - 4,707 8,432 10,118 12,142
Tax 293 (9) 434 1,523 4,617 Total Non-current Assets 17,989 28,340 31,279 33,666 37,800
RPAT 2,208 3,610 6,203 8,630 9,374 Inventories 15,803 16,639 20,262 26,609 33,683
EO (Loss) / Profit (Net Of
(3) 2 152 - - Debtors 9,119 10,165 16,040 18,893 24,252
Tax)
Cash & Equivalents 1,059 1,137 1,613 1,435 397
APAT 2,205 3,612 6,355 8,630 9,374
Loans & Advances 789 2,479 5,599 5,322 5,389
APAT Growth (%) 54.3 63.8 76.0 35.8 8.6
Other Current Assets 8,079 7,734 15,938 18,094 21,894
Adj. EPS 16.1 26.4 46.5 63.1 68.5
Total Current Assets 34,849 38,153 59,453 70,353 85,614
Adj. EPS Growth (%) 54.3 63.8 76.0 35.8 8.6
Source: Company, HDFC sec Inst Research Creditors 10,232 8,886 15,078 15,360 21,701
Other Current Liabilities 5,893 8,223 9,986 13,020 15,142
Short Term Provisions 202 304 100 335 352
Total Current Liabilities & Provns 16,327 17,413 25,163 28,716 37,195
Net Current Assets 18,522 20,740 34,290 41,637 48,419
TOTAL APPLICATION OF FUNDS 36,510 49,080 65,569 75,303 86,219
Source: Company, HDFC sec Inst Research

Page | 7
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Cash Flow (Standalone) Key Ratios (Standalone)

Y/E-Mar (Rs mn) FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18 FY19E FY20E
Reported PBT 2,501 3,601 6,637 10,153 13,992 PROFITABILITY (%)
Non-operating & EO items 205 302 (3) (1,117) (1,168) GPM 25.3 24.0 22.4 23.9 23.7
EBITDA Margin 18.2 17.8 18.1 17.8 17.7
Interest expenses 3,814 4,162 4,644 4,953 5,148
EBIT Margin 13.6 13.2 14.6 14.4 14.6
Depreciation 1,835 2,274 2,750 3,299 3,789 APAT Margin 5.5 7.2 8.2 8.9 7.6
Working Capital Change (3,498) (2,966) (10,057) (7,402) (7,302) RoE 23.2 24.8 29.5 29.9 24.7
Taxes (589) (835) (434) (1,523) (4,617) Core RoCE 17.3 18.1 21.0 18.4 16.0
OPERATING CASH FLOW ( a ) 4,268 6,537 3,537 8,363 9,842 RoCE 16.6 18.2 18.7 18.2 15.9
Capex (4,156) (4,884) (4,245) (4,500) (4,500) EFFICIENCY
Free cash flow (FCF) 112 1,653 (708) 3,863 5,342 Tax Rate (%) 12 (0) 7 15 33
Asset Turnover (x) 2.1 2.1 2.7 2.9 3.3
Investments (109) (1,797) 2,280 500 (1,400)
Inventory (days) 144 122 95 100 100
Other Income + E.O Items 44 90 3 1,117 1,168 Debtors (days) 83 74 76 71 72
INVESTING CASH FLOW ( b ) (4,221) (6,592) (1,962) (2,882) (4,732) Loans & Advances (days) 7.2 18 26 20 16
Share capital Issuance - 4,300 - - - Other Current Assets (days) 73.4 57 75 68 65
Debt Issuance 2,488 (5) 3,706 (706) (1,000) Payables (days) 93.0 65 71 58 64
Interest expenses (3,814) (4,162) (4,644) (4,953) (5,148) Other Currt Liab & Provns (days) 55.4 62 48 50 46
FCFE (1,214) (2,515) (1,646) (1,796) (806) Cash Conversion Cycle (days) 158.6 143 154 151 143
Debt/EBITDA (x) 3.4 2.9 2.1 1.7 1.3
Dividend (4) (0) (160) - -
Net D/E 2.3 1.3 1.1 0.8 0.6
FINANCING CASH FLOW ( c ) (1,329) 132 (1,098) (5,659) (6,148) Interest Coverage 1.4 1.6 2.4 2.8 3.5
NET CASH FLOW (a+b+c) (1,283) 78 477 (179) (1,038) PER SHARE DATA
Non-operating and EO items - - EPS (Rs/sh) 16.1 26.4 46.5 63.1 68.5
Closing Cash & Equivalents 1,059 1,137 1,614 1,435 397 CEPS (Rs/sh) 29.5 43.0 66.6 87.2 96.2
Source: Company, HDFC sec Inst Research DPS (Rs/sh) 0.0 1.0 1.0 1.0 1.0
BV (Rs/sh) 77.7 135.5 179.6 242.8 311.3
VALUATION
P/E 52.5 32.1 18.2 13.4 12.4
P/BV 10.9 6.3 4.7 3.5 2.7
EV/EBITDA 19.1 15.8 10.2 8.3 6.6
EV/Net Revenues 3.5 2.8 1.9 1.5 1.2
OCF/EV (%) 3.1 4.7 2.5 5.8 6.9
FCF/EV (%) 0.1 1.2 (0.5) 2.7 3.7
FCFE/Market Cap (%) (1.0) (2.2) (1.4) (1.6) (0.7)
Dividend Yield (%) 0.0 0.1 0.1 0.1 0.1
Source: Company, HDFC sec Inst Research
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

RECOMMENDATION HISTORY
Date CMP Reco Target
Dilip Buildcon TP
11-Oct-17 695 BUY 831
1,500
15-Nov-17 855 BUY 942
1,300 12-Jan-18 970 NEU 966
1,100 12-Apr-18 1154 BUY 1,449
900 14-Apr-18 1141 BUY 1,449
700 30-May-18 918 BUY 1,434
10-Jul-18 722 BUY 1,434
500
16-Aug-18 847 BUY 1,434
300
100
Rating Definitions
-100
Aug-17

Aug-18
Apr-18
Jan-18
Sep-17

Feb-18

Jul-18
Nov-17

Jun-18
May-18

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Dec-17

Mar-18
Oct-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 9
 DILIP BUILDCON : RESULTS REVIEW 1QFY19

Disclosure:
We, Parikshit Kandpal, MBA, and Kunal Bhandari, ACA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the
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related to the specific recommendation(s) or view(s) in this report.
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Any holding in stock –No
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HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066
Compliance Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022) 3045 3600

HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF
C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193
Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

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 DILIP BUILDCON : RESULTS REVIEW 1QFY19

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

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