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Add Dilip Buildcom, target price Rs 296: Yes Securities

The brokerage expects revenues to be under pressure in FY21 as Apr’20 has been significantly impacted in terms of execution, and the ramp up would be very gradual.

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Last Updated: Jun 03, 2020, 02.56 PM IST
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Yes Securities has given an add rating to Dilip Buildcon with a target price of Rs 296 based on SOTP valuation.

According to the brokerage, Dilip Buildcon delivered muted topline performance during Q4 FY20 with standalone revenues at Rs 25 billion (-2.8 per cent year on year). This was largely impacted by Covid-19 related shutdown during March. Nearly 15 days of work was impacted leading to revenue loss of Rs 4 billion. While operating margin stood at 16.5 per cent (-98 bps year on year), the higher tax outgo impacted PAT (declined by ~49 per cent year on year). While operating margin stood at 16.5 per cent (-98 bps year on year), the higher tax outgo impacted PAT (declined by ~49 per cent year on year).


Investment Rationale

The order inflow was weak during FY20 leading to order back of 2 times FY20 revenues. The brokerage expects revenues to be under pressure in FY21 as Apr’20 has been significantly impacted in terms of execution, and the ramp up would be very gradual. Shortage of labour and supplies to impact near- term execution while operating margin is likely to stay at ~17 per cent levels. The effective tax rate is expected to be at 30-32 per cent levels during FY21.

The brokerage expects the working capital to be comfortable with better receivables and inventory management. The company is expected to invest Rs .4.2 billion in its HAM projects during FY21. While the money from the Shrem group is largely received, the funds from Cube highways would be received as various conditions are met.

The brokerage believes near term growth would be impacted by significant loss of execution during April and May’20. Also, the company would need to win some projects in quick time to deliver growth beyond FY21. The brokerage has assigned an add rating on the stock for a target of Rs 296.

Risk to the call is slower than expected ramp up in execution

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2729.66 crore, up 6.45 per cent from last quarter sales of Rs 2564.39 crore and up 6.14 per cent from last year's same quarter sales of Rs 2571.64 crore. The company reported net profit after tax of Rs 190.98 crore in the latest quarter.

Promoter/FII Holdings

The promoters held 74.99 per cent stake in the company as of March 31, 2020 while FIIs held 9.35 per cent, DIIs 6.25 per cent and public and others 9.34 per cent.
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