Orderbook up 100% but stock down 2%; this could be a good value pick in depressed market

Infrastructure player Dilip Buildcon has a growth story to tell. And investors remain sanguine about it, given its robust revenue visibility and execution track record.

Its orderbook has already jumped nearly 100 per cent to Rs 24,144 crore as of March 1, 2018, against Rs 12,357 crore at the end of December 2017.

However, shares of Dilip Buildcon have slipped to Rs 967.10 on March 16, 2018 from Rs 984.15 on January 1, indicating a fall of nearly 2 per cent on a year-to-date basis. But experts are still bullish on the stock.

According to Kotak Institutional Equities, the recent uptick in ordering has tested the ability of the sector to absorb large order inflows and has started benefitting nimble companies to scale up operations. Dilip Buildcon, Sadbhav Engineering, KNR and Ashoka Buildcon all have either matched or exceeded their FY2017 order levels.

This is significant in terms of order inflow as most of which got bundled up in the second half of FY18.

“The going would only get better for the sector (more for able construction players) with another Rs 15,000-20,000 crore of orders expected in March 18 and another Rs 1 lakh crore of tenders to convert into orders during the first half of the next fiscal. NHAI awarded around Rs 60,000 crore of orders in FY2017,” Kotak said in a report.

This is also among the recently listed stocks that have delivered multibagger returns to investors since listing. Dilip Buildcon multiplied investors’ wealth by over three-fold since listing on August 11, 2016. The scrip zoomed 290 per cent to Rs 982.25 on March 6 this year against the closing price of Rs 251.95 on the day of listing.

The company has received more than 10 orders in 2018 so far, ranging from Rs 157 crore to Rs 2,300 crore from various states, including Madhya Pradesh and Maharashtra with a construction period of 24-30 months.

Due to higher working capital requirements backed by strong execution and delay in getting appointed date in 4 Hybrid Annuity Model (HAM) projects, debt soared to Rs 3,165 crore for the quarter ended December 2017.

Edelweiss Investment Research believes that with the inflow of Rs 250-300 crore from asset sales and recovery of GST receivables, gross debt will come down to Rs 2,600 crore in FY18E and Rs 2,500 crore in FY19E.

The central government is expected to award 35,000 km of highways over the next two years and Dilip Buildcon is expected to get a reasonable share, according to analysts. In FY17, the award run rate was 25km per day (both EPC and HAM) and the company got 10 per cent market share.

Dilip Buildcon is a Bhopal-based company which is into the business of infrastructure facilities on engineering procurement and construction (EPC) basis. It carries out contracts from various governments and other parties, with a special purpose vehicle in place. It operates through construction and engineering contracts segment.

The company is also an established player in irrigation, urban development and mining space.

Over FY13-17, the company’s top line, operating profit and bottom line have grown at a CAGR of 29 per cent, 26.1 per cent and 16.8 per cent, respectively.

The management is also looking confident about the growth prospects. “We should be around Rs 12,000 crore in terms of top line by 2020 and also believe that bottom line will continue to increase at the same pace,” Rohan Suryavanshi, head strategy and planning at Dilip Buildcon, told ETMarkets.com.

For the year ended March 31, 2017, the company reported net sales and net profit of Rs 5,097.62 crore and Rs 360.94 crore, respectively.

For the December quarter of 2017-18, net profit grew 51 per cent to Rs 164 crore from a year ago.

Long-term outlook for the infrastructure sector appears positive on the back of major investments expected from the government as well as the private sector, which augurs well for the company and its top line as far as fresh orders are concerned.

For instance, the Bharatmala project as well as a higher Budget allocation for highways looks positive for the company.

“Company’s orderbook is expected to grow in future backed by new orders which will generate around Rs 8,000 crore worth of order inflows over next 3-4 months,” said Choice Broking in a report.

Global brokerage firm Nomura has ‘Buy’ rating on the stock with a target price of Rs 1,265, indicating an upside of over 25 per cent from the current levels.

“Dilip Buildcon continues to surprise positively on execution with 9MFY18 revenue, up 55 per cent year-on-year. Further, with tendering activity gathering momentum, we continue to remain positive on the stock,” Nomura added.

Foreign portfolio investors including East Bridge Capital Master Fund, Abu Dhabi Investment Authority and Legato Capital Management Investments LLC held over 11 per cent stake in the company as of December 31, 2017.