ITD Cementation :61 % upside possible
Call & Research Report by HDFC Securities Research
Report Date: 15 November 2021
CMP Rs. 78, Target Rs. 126
Target Period : 2 Quarters
ITD Cementation (ITD) reported weak revenue/EBITDA/PAT at INR
8.1/0.5/0.15bn, with revenue in line but EBITDA/PAT below our estimates by
37%/27%. Operating margin was subdued at 6.2% on account of higher
commodity costs, a margin booking threshold yet to be reached on projects
worth INR 41bn (moved into execution in Q2FY22), and a provision of INR
250mn on the Bengaluru elevated metro project. The order backlog (OB) is
robust at INR 115bn (4.2x FY21 revenue). 20% of contracts are without price
escalation clauses. Given we expect a strong recovery, we have increased our
revenue estimate. We retain BUY with TP of INR 126 (10x Sep-23E EPS).
Financial performance: ITD’s reported revenue of INR 8.1bn (+47%/-2%
YoY/QoQ) was in line with our estimates. EBITDA came in at INR 504mn
(37% miss). EBITDA margin stood at 6.2% (-326bps QoQ, est. 10.0%). Interest
cost was flat sequentially at INR 359mn. APAT came in at INR 149mn (INR
(497)/179mn in Q2FY21/Q1FY22), missing our estimate by 27%. ITD expects
to maintain a run-rate of INR 10bn per quarter from Q3 onwards and a 15-
20% revenue growth in FY22.
Strong order book, robust pipeline: Order inflow (OI) during Q2FY22 stood
at INR 2bn (INR 18bn FYTD), taking the OB to INR 115bn (excl. INR 2bn of
L1), as of Sep-21. INR 50bn worth of OI is expected for FY22. ITD has
submitted (or will submit in Nov-21) a bid worth INR 250bn, with an
expected inflow of INR 40-50bn. It made a final provision of INR 250mn for
the loss-making Bengaluru elevated metro project and has filed claims with
the client, which it expects would materialise in its favour. The project,
which is currently 98% complete, is likely to be finished by Jul-22. ITD
gained certification from the insurance authority in the Kolkata
underground metro project, which is 95% complete. No provision will be
made for this project. Myanmar project of INR 5.6bn is on track (INR 2.7bn
worth of work completed), with INR 420mn received in Q2FY22. ITD
expects to finish it by the middle of FY23.
Balance sheet comfortable: ITD’s consolidated gross debt increased
marginally to INR 5.2bn (INR 5.1bn as of Jun-21) with D/E at 0.5x. It was due
to payment delays and mobilsation expenditure. Debt is expected to reduce
to INR 5bn by Mar-22-end on account of better execution in H2FY22.