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FY18E a bumper year! Show continues…!

Company and Strategy DBL with its differentiated business model that lays on project selection and

execution with operational efficiency continues to remain one of the prime

beneficiaries of Govt’s Bharatmala project (` 6.95tn). With its presence

across 13 states of India (as on Mar’18) and signing of an agreement with

Shrem Group (Aug’17) to exit 100% from its 24 BoT projects for ` 16bn,

DBL is in much better placed to benefit from an upcoming pick up in the road

awarding activity.

DBL’s stock price rose >270% post our initiation (click here) dated 10th

Apr’17 due to constant better performance, reduction in working capital and

deleveraging of the balance sheet through the sale of BoT portfolio. Despite

the furious spike in the stock price, we reiterate BUY due to its differentiated

business model, proven execution capability, growth trajectory coupled with

improving financials.

Site visit of Lucknow-Sultanpur HAM project – 42% completed Our site visit to Lucknow-Sultanpur HAM project in UP gave us a first-hand

understanding of faster execution on the ground. DBL received appointed a

date for this NHAI project on 8th May’17 and completed 42% (in 9 months

and 18 days) of EPC value of ` 17.8bn. The company targets to complete

the entire project by 10 months ahead of the scheduled completion date of

4th Nov’19. The scope of the project includes 127.4 km rigid pavement of NH-56.

Outlook We upgraded our revenue estimates by 3.9%/ 14.8%/ 15.8% for FY18E/

FY19E/ FY20E due to higher order inflow of ` 115.8bn in YTDFY18 vs.

earlier estimate of ` 90bn and better execution on HAM projects. We

factored higher capex of ` 11.8bn vs. ` 8.3bn and higher average debt of ` 26bn vs. ` 23.1bn during FY18-20E to support revenue growth, resulting

into higher depreciation and interest cost. Hence, we raised Adj. PAT

estimates by 6.7%/ 19.5%/ 12.8% for FY18E/ FY19E/ FY20E respectively.

We expect DBL’s revenue/ Adj. PAT to grow at a healthy CAGR of 33.3%/

54.5% over FY17-20E. We expect DBL to witness traction in revenue, best

EBITDA margin among peers, superior net profit margin, comfortable

working capital, robust order inflow and order book, robust FCFF, declining

leverage, and improving healthy return ratios (RoE/ RoCE of 26.5%/ 29.4%

by FY20E) over FY17-20E. Thus, we reiterate Buy on the stock with an

upward revised SOTP of ` 1,423 (Exhibit 1).

FINANCIALS (` Mn) Particulars FY16 FY17 FY18E FY19E FY20E

Revenue 40,853 50,976 75,366 100,319 120,811

Growth (%) 55.7 24.8 47.8 33.1 20.4

EBITDA excl. OI 7,992 9,923 13,792 18,358 22,108

EBITDA excl. OI (%) 19.6 19.5 18.3 18.3 18.3

Adj. PAT 1,697 2,770 5,220 8,159 10,183

Growth (%) 58.2 63.2 88.5 56.3 24.8

EPS (`) 12.4 20.3 38.2 59.7 74.5

Growth (%) 58.2 63.2 88.5 56.3 24.8

PER(x) 78.1 47.8 25.4 16.2 13.0

ROANW (%) 17.8 19.0 24.1 28.0 26.5

ROACE (%) 19.1 19.4 23.0 27.4 29.4

CMP `969

Target / Upside `1,423/47%

BSE Sensex 32,923

NSE Nifty 10,094

Scrip Details

Equity / FV `1,368mn/`10/-

Market Cap `133bn

USD 2bn

52-week High/Low `1,059/315

Avg. Volume (no) 466,875

NSE Symbol DBL

Bloomberg Code DBL IN

Shareholding Pattern Dec’17(%)

Promoters 75.6

MF/Banks/FIs 4.6

FIIs 11.1

Public / Others 8.7

DBL Relative to Sensex

Sr. Analyst: Shravan Shah Tel: +9122 4096 9749

E-mail: [email protected]

Associate: Maulik Shah Tel: +9122 4096 9775

E-mail: [email protected]

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DBL BSE Sensex

Dilip Buildcon

Buy

March 20, 2018

https://goo.gl/yNlbZP

March 20, 2018 2

SOTP Valuation

Component Valuation Method ` /sh %

Standalone cons business 18x FY20E EPS 1340.2 94.2

Road BOTs 1x FY20E P/B 82.5 5.8

Total 1422.7 100.0

CMP 969.0

Potential upside (%) 46.8

Source: Company, DART

We have not valued DBL’s equity investment in 24 BOT projects which it signed an

agreement in Aug’17 to sell 100% to Shrem Group for ` 16bn (` 6bn/ ` 10bn to be

received in FY18E/ FY19E). However, we have assumed `63 bn (70% of total inflow

of ̀ 90bn) as HAM projects order inflow in FY19E and FY20E each year. We assumed

9% equity requirement for the same (higher than 8.4% in 6 HAM projects won in

Q4FY18) and 50% of it to be infused in FY20E and FY21E for HAM order inflow in

FY19E. We have also factored ` 8.5bn (50% in FY19E and 50% in FY20E) equity

investment for 6 HAM projects won in Q4FY18. Accordingly, we have valued its equity

investments in fresh (Q4FY18 + FY19E) HAM projects win at 1x FY20E book value.

Upside/ Downside risk to our valuation

Higher debt reduction in debt vs. expectation If DBL manages to reduce its debt at much lower level due to a faster reduction in

NWC cycle compared to our estimates, then it will positively impact its profitability by

a reduction in interest cost and balance sheet by a further dip in leverage. This may

lead to further expansion in its valuation multiples and poises upside risk to our target

price.

Under utilisation of large fleet of equipment and manpower DBL owns a large fleet of equipment and has high employees base, resulting in higher

fixed costs. It may have an adverse impact on its profitability if DBL is unable to utilise

them properly.

Execution delays Though the company has managed to complete most of its projects on or before time,

any delay due to an impediment at the client’s end or other regulatory bottlenecks

could adversely affect DBL’s revenue and profitability.

Early completion bonus and O&M revenue DBL earned early completion bonuses (average 2.1% of revenue during FY13-17)

which is likely considering its excellent track record of completing most of its projects

before time. We have factored in 1% of revenue as an early completion bonus. If it

earns more/less early completion bonuses vs. our estimates, then it will

positively/negatively impact its revenue and profitability. We have not factored O&M

order book of ` 67bn and its revenue poises upside risk to our target price.

March 20, 2018 3

Key highlights from interaction with the management

Guidance

▪ DBL raised the revenue guidance from >` 70bn/ ` 80-84bn to >` 75bn/

` 100bn in FY18E/ FY19E and 20-25% growth for next couple of years.

▪ Fresh EPC order inflow stood at `115.8 bn during YTDFY18 and another `80-

100bn of inflows in FY19. DBL has bided for projects worth `115.1 bn which

are yet to be opened.

▪ DBL would like to maintain order book at 2-2.5x of next year of revenue.

▪ DBL’s bid to success rate remained at 36%/ 34%/ 27% during FY16/ FY17/

YTDFY18.

▪ EBITDA margin at 18-19% in FY19 and FY20.

▪ Capex of ` 4.15bn/ ` 3bn in FY18/ FY19, of which, already incurred ` 2.29bn

in 9MFY18.

▪ Gross fixed asset turnover can reach to 3.5x due to improvement in utilisation

of plant and machinery.

▪ Absolute gross debt level will continue to reduce from Q3FY18 levels for next

couple of years. D:E to reduce below 1x in FY19 and to 0.5x in next couple of

years.

Projects won during YTDFY18

Project Authority Segment State `. mn Length in

km During

Parallel Taxi Track AAI Urban

Development Goa 1,250 Q1FY18

Davanagere-Haveri Pkg.1B IRCON

Road - EPC

Karnataka 1,572 7

Q4FY18

Davanagere-Haveri Pkg.2 Karnataka 3,606 40

Seoni – MP/MH Border

NHAI

MP 7,301 29

Karodi - Telwadi Road Maharashtra 5,650 56

Varanasi - Dagamagpur (Pkg-l) UP 6,705 34

Kamataka/Goa Border Karnataka 3,801 52

Dagamagpur-Lalganj (Pkg-2) UP 7,700 48

Chandikhole-Bhadrak

Road – HAM

Odisha 15,220 75

Anandapuram-Pendurthi-Anakapalli AP 20,130 51

Bangalore-Nidagatta Karnataka 21,900 56

Nidagatta-Mysore Karnataka 22,830 61

Gorhar-Khairatunda Jharkhand 9,170 40

Churhat Bypass of Rewasidhi section MP 10,040 15

Total Inflow 136,875*

* Total EPC value - `. 115.8 bn

March 20, 2018 4

Opportunities

▪ Live Road Tenders worth ` 809 bn

Road tenders shared by DBL to be awarded in next 6 months

Mode ` bn

EPC 295

HAM 490

Others 25

Total 809

Source: Company

Key highlights of site visit of Lucknow-Sultanpur NHAI HAM project

Project details

▪ Bid Project cost - ` 20.16bn

▪ EPC cost - ` 17.8bn

▪ Four laning of 127.43 km of Lucknow - Sultanpur section of NH-56 in UP

under NHDP Phase-IV.

▪ Appointed date – 8th May’17.

▪ Schedule completion date – 4th Nov’19.

▪ Expected completion date – 31st Dec’18 (10 months early).

▪ Construction period – 910 days (2.5 years).

▪ Maintenance period – 15 years.

▪ Cumulative financial progress - `7.5 bn (42%)

Financial progress

` mn Q4FY17 Q1FY18 Q2FY18 Q3FY18

Unexecuted Order Book 17,800 16,558 15,320 12,918

Revenue 0 1,242 1,238 2,403

% completion 0 7.0 13.9 27.4

Site progress - Earthwork Site progress - GSB

Source: Company Source: Company

March 20, 2018 5

Site progress – Dry Lean Concrete Site progress – Cement Paver


Site progress – Finished cement layer Site progress – Kerb Laying


Site progress – Hot mix plant Site progress – Quality testing


March 20, 2018 6

Order book (` 124bn) break-up Order book trend

Source: Company, DART Source: Company, DART

Revenue CAGR of 33.3% over FY17-20E Superior EBITDA Margin to continue


Deleveraging balance sheet Improving return ratios


Road80%

Mining16%

Urban Development

3%

Irrigation1%

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RoE (%) RoCE (%)

March 20, 2018 7

Q3FY18 performance (Standalone)

Y/E Mar (` mn) Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%) 9MFY18 9MFY17 YoY (%)

Total revenue 19,421 13,891 39.8 15,818 22.8 51,880 33,474 55.0

(Inc)/dec in stocks & WIP (183) 71 - (1,030) - (1,650) 859 -

Material consumption 15,121 10,299 46.8 13,274 13.9 41,604 24,060 72.9

Employees cost 349 226 54.5 341 2.4 1,041 667 56.0

Other expenditure 687 520 32.3 380 80.8 1,583 1,512 4.7

Operating expenditure 15,974 11,115 43.7 12,965 23.2 42,578 27,099 57.1

EBITDA 3,447 2,776 24.2 2,853 20.8 9,302 6,375 45.9

Depreciation 698 593 17.6 676 3.2 2,024 1,656 22.2

Operating profit 2,749 2,183 26.0 2,177 26.3 7,278 4,719 54.2

Other income 56 27 112.1 31 80.3 114 82 39.0

EBIT 2,806 2,209 27.0 2,209 27.0 7,393 4,802 54.0

Interest 1,168 1,062 10.0 1,110 5.2 3,385 3,105 9.0

EBT 1,638 1,147 42.8 1,098 49.2 4,008 1,697 136.2

Income tax (9) 61 - (58) - (22) 22 -

Net income 1,647 1,086 51.6 1,156 42.5 4,029 1,675 140.6

Adjustments (280) (235) - (275) - (826) (353) -

Adjusted net income 1,367 851 60.6 881 55.2 3,203 1,321 142.4

EPS (`) 10.0 6.2 60.6 6.4 55.2 23.4 9.7 142.4

bps bps bps

EBIDTA Margin (excl. O.I.) 17.7 20.0 (223) 18.0 (29) 17.9 19.0 (112)

EBIDTA Margin (incl. O.I.) 18.0 20.2 (213) 18.2 (20) 18.2 19.3 (114)

NPM (%) 7.0 6.1 90 5.6 146 6.2 3.9 222

Tax/PBT (%) (0.5) 5.3 (587) (5.3) 472 (0.5) 1.3 (183)

Material cost/sales (%) 76.9 74.7 226 77.4 (49) 77.0 74.4 257

Source: Company, DART

March 20, 2018 8

Income Statement (Standalone) Particulars (` mn) Mar17 Mar18E Mar19E Mar20E

Revenue 50,976 75,366 100,319 120,811

Growth (%) 24.8 47.8 33.1 20.4

Total Expenditure 41,054 61,574 81,961 98,702

Cost of construction 37,930 57,618 76,443 91,937

Employee cost 1,025 1,507 2,006 2,416

Other Expenses 2,099 2,449 3,511 4,349

Other Income 114 137 144 151

EBIDTA (Excl. OI) 9,923 13,792 18,358 22,108

Growth (%) 24.1 39.0 33.1 20.4

EBIDTA (Incl. OI) 10,037 13,929 18,503 22,260

Depreciation 2,274 2,793 3,184 3,583

EBIT 7,763 11,136 15,318 18,677

Interest 4,162 4,400 3,700 3,470

Profit Before Tax 3,601 6,736 11,618 15,207

Tax (9) 316 2,759 5,024

Net Profit 3,609 6,420 8,859 10,183

Adjustments (840) (1,200) (700) -

Adj. Net Profit 2,770 5,220 8,159 10,183

Growth (%) 63.2 88.5 56.3 24.8

Balance Sheet (Standalone) Particulars (` mn) Mar17 Mar18E Mar19E Mar20E

Sources of Funds

Equity Capital 1,368 1,368 1,368 1,368

Reserves 17,161 23,416 32,111 42,129

Net Worth 18,529 24,784 33,478 43,496

Long Term Loans 9,903 12,231 12,871 12,216

Short Term Loans 15,731 15,851 12,451 12,451

Loan Funds 25,634 28,082 25,322 24,667

Deferred Tax Liability 759 591 623 659

Total Capital Employed 44,922 53,458 59,424 68,823

Applications of Funds

Gross Block 24,276 28,426 32,226 36,026

Less: Accumulated Dep. 7,451 10,244 13,429 17,012

Net Block 16,825 18,181 18,797 19,014

Capital Work in Progress - - - -

Investments 4,695 4,782 4,227 11,289

Current Assets, Loans & Advances

Inventories 16,639 21,859 27,867 32,572

Sundry Debtors 10,165 15,827 20,264 23,316

Cash and Bank Balance 1,137 1,926 1,634 718

Loans and Advances 4,591 5,326 6,957 7,803

Other Current Assets 12,441 13,065 16,273 18,170

sub total 44,973 58,003 72,995 82,580

Less: Current Liabilities & Provisions

Current Liabilities 21,267 27,093 36,063 43,429

Provisions 304 416 533 631

sub total 21,571 27,509 36,595 44,060

Net Current Assets 23,402 30,494 36,399 38,520

Total Assets 44,922 53,458 59,424 68,823

E – Estimates

Cash Flow (Standalone) Particulars (` mn) Mar17 Mar18E Mar19E Mar20E

Profit before tax 3,601 6,736 11,618 15,207

Depreciation 2,274 2,793 3,184 3,583

Finance Cost 4,162 4,400 3,700 3,470

Other Income (93) (137) (144) (151)

Other 395 - - -

Direct taxes paid (835) (484) (2,727) (4,988)

Change in Working Capital (2,966) (6,303) (6,197) (3,036)

(A) CF from Operations 6,537 7,005 9,434 14,084

Capex (4,884) (4,150) (3,800) (3,800)

Free Cash Flow to Firm 1,653 2,855 5,634 10,284

Inc./ (Dec.) in Investments (1,797) (87) 555 (7,062)

Other 90 137 144 151

(B) CF from Investments (6,592) (4,099) (3,101) (10,711)

Issue of Equity/ Preference 4,300 - - -

Inc./(Dec.) in Debt (5) 2,448 (2,760) (655)

Interest exp net (4,162) (4,400) (3,700) (3,470)

Dividend Paid (Incl. Tax) (4) (165) (165) (165)

Other 3 0 0 0

(C) CF from Financing 132 (2,116) (6,625) (4,290)

Net Change in Cash 78 789 (292) (916)

Opening Cash balances 1,059 1,137 1,926 1,634

Closing Cash balances 1,137 1,926 1,634 718

Important Ratios Particulars Mar17 Mar18E Mar19E Mar20E

(A) Measures of Performance (%)

EBIDTA Margin (excl. O.I.) 19.5 18.3 18.3 18.3

EBIDTA Margin (incl. O.I.) 19.7 18.5 18.4 18.4

EBIT Margin 15.2 14.8 15.3 15.5

Interest/EBIT 53.6 39.5 24.2 18.6

Tax/PBT (0.2) 4.7 23.7 33.0

Net Profit Margin 5.4 6.9 8.1 8.4

(B) As Percentage of Net Sales

Raw Material 74.4 76.5 76.2 76.1

Employees expenses 2.0 2.0 2.0 2.0

Other Expenses 4.1 3.3 3.5 3.6

(C) Measures of Financial Status

Debt / Equity (x) 1.4 1.1 0.8 0.6

Interest Coverage (x) 2.4 3.2 5.0 6.4

Average Cost of Debt (%) 16.4 16.4 13.9 13.9

Debtors Period (days) 73 77 74 70

Closing stock (days) 119 106 101 98

Working Capital (days) 168 148 132 116

Fixed Assets Turnover (x) 2.1 2.7 3.1 3.4

(D) Measures of Investment

Diluted EPS (`) 20.3 38.2 59.7 74.5

CEPS (`) 43.0 67.4 88.1 100.7

DPS (`) 1.0 1.0 1.0 1.0

Book Value (`) 135.5 181.2 244.8 318.0

RoANW (%) 19.0 24.1 28.0 26.5

RoACE (%) 19.4 23.0 27.4 29.4

RoAIC (%) 21.7 25.9 30.5 33.8

(E) Valuation Ratios

CMP (`) 969 969 969 969

P/E (x) 47.8 25.4 16.2 13.0

Market Cap. (` Mn) 132,530 132,530 132,530 132,530

MCap/ Sales (x) 2.6 1.8 1.3 1.1

EV (` Mn) 156,806 157,857 157,452 156,348

EV/Sales (x) 3.1 2.1 1.6 1.3

EV/EBDITA (x) 15.8 11.4 8.6 7.1

P/BV (x) 7.2 5.3 4.0 3.0

FCFE Yield (%) (1.9) 0.7 (0.6) 4.6

Dividend Yield (%) 0.1 0.1 0.1 0.1

E – Estimates

DART RATING MATRIX

Total Return Expectation (12 Months)

Buy > 20%

Accumulate 10 to 20%

Reduce 0 to 10%

Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)*

Apr-17 Buy 493 355

May-17 Buy 612 501

Aug-17 Buy 635 521

Oct-17 Buy 1,231 869

Feb-18 Buy 1,261 986

* As on Recommended Dated

DART Team

Purvag Shah Managing Director [email protected] +9122 4096 9747

Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709

Kartik Sadagopan VP - Equity Sales [email protected] +9122 4096 9762

Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735

Derivatives Strategist Designation E-mail

Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705

Equity Trading Designation E-mail

P. Sridhar VP and Head of Sales Trading [email protected] +9122 4096 9728

Chandrakant Ware AVP - Equity Sales Trading [email protected] +9122 4096 9707

Derivatives Trading Designation E-mail

Shirish Thakkar AVP - Derivatives [email protected] +9122 4096 9702

Hardik Mehta Sales Trader [email protected] +9122 4096 9748

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Dolat Capital Market Private Limited. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 400 001

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