Company background: Dilip Buildcon Ltd (DBL) is a Bhopal based infra player
focused on (1) Roads & Highways construction (85% of Order Book [OB]), (2)
Irrigation (6% of OB), (3) Bridge (5% of OB) and (4) Urban Development (3% of
OB). In November 2007 it forayed into BOT-Toll & Annuity projects. Currently, it’s
executing 64+ EPC projects and 18 BOT projects; 12 (including 11 Annuity/
Annuity+Toll projects) of the 18 BOT projects are already operational.
Pros: (1) OB to FY2016 sales (for the standalone entity) stands at 2.6x, which
gives good revenue visibility, (2) strong NHAI and MoRTH Roads & Highways bidpipeline
suggests scope for OB growth, (3) superior margin profile and better
return ratios, (4) strong earnings growth potential, (5) scope for improvement in
the Free Cash Flows (FCF).
Risks & Concerns: (1) Delays in execution of projects out of its home state Madhya
Pradesh (MP) (accounts for 60% of its OB), (2) higher dependency on debt to fund
upcoming BOT projects, (3) any negative outcome of legal proceedings against
the company’s promoters.
Valuation: DBL is poised to deliver healthy growth on the top-line as well as the
bottom-line front on the back of its strong order book (FY2016 OB/LTM ratio
stands at 2.6x). On the valuation front, at the higher-end of the issue price band,
the company is available at a slight discount to its other listed road focused EPC
peers on an Adj. P/E basis (on FY2016E EPS). The company reported a RoE of
22.4% in FY2016, which is among the best in the industry. Given the growth
prospects and the likelihood of strong FCF generation (supported by WC cycle
compression), this issue has the potential to deliver good returns for investors in
the near-to-medium term. Accordingly, we advise investors to SUBSCRIBE to the
issue.
