2018 infrastructure · 2018-04-16 · sector update 12 apr 2018 infrastructure hdfc securities...

SECTOR UPDATE 12 APR 2018

Infrastructure

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

On a ‘concrete’ high Over the last 3m, CNX Infra has underperformed Nifty by 539bps, despite (1) All time high ordering by NHAI in FY18E, (2) Book/bill for our coverage universe rising ~50% since FY15 to ~4x, (3) Stronger balance sheets with aggregate net d/e at a decadal low of 0.37x, and (4) Strong near term bid visibility in the system. The 1‐yr forward P/E at 13.5x is still lower than the last cycle median and peak of 20/25x. Some challenges, however, persist on multiple fronts such as (1) Ability of developers to financially close HAM projects, (2) Capacity build up to execute projects on ground, (3) Maintaining bid discipline, and (4) Avoiding unrelated diversifications.

Capital allocation and timely execution will be key to further re‐rating, as merely winning orders cannot add more equity value. The ordering visibility is nearly assured and investors will lay strong emphasis on execution within the ‘Working Capital’ thresholds.

Our coverage universe faces stiff competition from unlisted companies with strong execution capabilities. Accessing capital markets will make them financially robust to pose significant challenge to their listed peers. GR Infra, Gawar Infra, Monte Carlo and Megha Engineering are some of the big unlisted players.

We see growth challenges over the long term in case companies fail to diversify from the road segment to other large ordering verticals like (1) Water (2) Urban Infra, incl. MRTS, and (3) Buildings. About 80% of the coverage universe is vulnerable on this front.

HAM project financing may become incrementally challenging for players with leveraged balance sheets. With quite a few PSU/Private banks facing asset quality headwinds, HAM lending may be selective and limited to Tier 1 road developers. As the opportunities landscape remains huge, we remain constructive and believe that the current generation Infra players have learnt from past cycles. New models (HAM) introduced by NHAI have reduced systemic risks.

Investment arguments Robust ordering has led to book/bill of 4x FY18E rev:

NHAI has achieved 7,400km of highways ordering during FY18E. This has led to our coverage universe book/bill increasing 1.5x over FY15‐18E period to 4x.

Most HAM orders at 15%+ premium to NHAI cost: The competitive intensity in HAM remains low with an average of 3‐8 active bidders and bid cost as high as 15%+ vs. NHAI cost. This will aid achieving financial closure as banks are comfortable with bid premium of 10%+. DBL and IRB hold top market share in HAM ordering. DBL is most geographical diversified.

Balance sheet strongest in last decade: Aggregate net D/E at 0.37x end FY18E is at a decadal low. Working capital days is also stable at 125days vs. last decade average of 110days.

Building segment opportunity huge, can be as big as highways: Government/Private led capex in buildings, Hospitals, Schools, Retail/Hospitality business remains large & players like Ahluwalia, PSP Projects & JMC will benefit from this outlay.

CMP

(Rs) TP (Rs)

Reco

Dilip Buildcon 1,154 1,449 BUY

IRB Infra 273 313 BUY

NCC Ltd 128 155 BUY

Sadbhav Engineering 398 445 BUY

Ashoka Buildcon 264 348 BUY

PNC Infratech 178 248 BUY

KNR Construction 300 364 BUY

ITD Cementation 167 211 BUY

Ahluwalia Contracts 411 486 BUY

J.Kumar Infra 284 420 BUY

JMC Projects 615 842 BUY

PSP Projects 522 639 BUY

Parikshit D Kandpal [email protected] +91‐22‐6171‐7317

Kunal Bhandari [email protected] +91‐22‐6639‐3035

INFRASTRUCTURE : SECTOR UPDATE

Page | 2

Investment Thesis

S.No Name Reco TP (Upside %) Investment Thesis

1 Dilip Buildcon BUY 1,449 (26%)

DBL has consistently demonstrated its superior execution capabilities. Led by the backward integration of the entire supply chain and consistent early completion bonuses, expect DBL to continue to maintain >17% EBITDA margins. DBL may resort to equity dilution to raise funds for ~Rs 18bn HAM equity and further capex to support the planned ramp up in execution. We upgrade to BUY with an increased TP of 1,449.

2 IRB Infra BUY 313 (15%)

With BOT projects drying up, IRB has gained strong market share thanks to HAM wins despite conservative bidding (+27.3% vs. NHAI cost). With legal cases approaching closure it remains sentimentally positive. Pune‐Mumbai posted a robust 10% YoY growth. Collection is expected to rise in Kaithal post completion of adjoining corridors and full tariff levy. We maintain BUY with an increased TP of Rs 313/sh.

3 NCC Limited BUY 155 (21%)

Record FY18E inflows of ~Rs250bn lend visibility for growth. International operations shutdown to curtail losses. Balance Sheet remains strong with a net D/E of 0.43x aided by the timely QIP in 4QFY18. Expect re‐rating post monetization of real estate which will further deleverage balance sheet. We upgrade to BUY with an increased TP of Rs 155.

4 Sadbhav Engineering BUY 445 (12%)

SEL’s execution of projects is on track, order inflows robust and balance sheet strong. Expect high margin HAM projects to be key drivers of performance. Net D/E is expected to reduce to 0.6x by Mar‐18E. Despite a challenging environment, expect SEL to financially close its HAM projects. We upgrade to BUY with an increased TP of Rs 445/sh.

5 Ashoka Buildcon BUY 348 (32%)

With robust HAM inflows of ~Rs 59bn and TOT EPC works of Rs 10bn, the backlog is at a historical high of 4.5x FY18E revenue. With MIAL exit, Rs 2.4bn will be used for pending equity requirement of ~Rs 8.7bn in Roads, city gas and new HAM projects. With a standalone D/E of 0.1x, we expect ABL to meet portfolio requirement through internal accruals. Maintain BUY with an increased TP of Rs 348/sh.

6 PNC Infratech BUY 248 (39%)

PNC's entire Rs 106bn order backlog will move into execution from 3QFY19E post FC of Allahabad‐Chakeri and Aligarh‐Kanpur projects. Expect BOT monetization to aid Rs 7.4bn of HAM projects equity requirement. With a net D/E of 0.1x, the standalone B/S remains strong. We upgrade PNC to BUY with an increased TP of Rs 248/sh.


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S.No Name Reco TP (Upside %) Investment Thesis

7 KNR Construction BUY 364 (21%)

Order book is at 4.3x FY18E revenue. Recent HAM wins are comfortable at 14.4% aggregate premium, financial closure expected without any major hurdles, a stable WC cycle of 46 days end‐3QFY18 and net D/E (excl. promoter loans) at 0.18x lead us to upgrade to BUY with an increased TP of Rs. 364/sh. (Core construction valued at 10x Mar‐20E EV/EBITDA)

8 ITD Cem. BUY 211 (26%)

Upcoming Metro projects pipeline both in the elevated and underground space coupled with cross segment expertise of ITD in marine, MRTS, hydro and irrigation segments may aid future inflows despite competitive intensity on the rise in the MRTS. Post QIP net D/E is stable at 0.2x and a net executable backlog of Rs 85bn provides good revenue visibility. Upgrade to BUY with an increased TP of Rs 211.

9 Ahluwalia Contracts BUY 486 (18%)

With ample opportunities in the buildings segment, expect ~Rs20‐25bn annual inflows if and when the competitive intensity reduces. Balance sheet now net cash with Rs20mn debt reduction in 3QFY18 to ~Rs 610mn and target FY19E debt of Rs 250mn. With huge outlays expected from Tier I/II housing developers and government capex (incl. NBCC) along with negative news flow (CWG scam, PF dues, Delight marketing etc.) behind them, we maintain BUY with an increased SOTP TP of Rs 456/sh

10 J. Kumar Infra BUY 420 (48%)

Order backlog is strong. Peak billing is expected in JNPT/ Metro projects as projects move into advanced stages. Land acquisition issues are sorted out along with resolution of quarrying issues. A stable balance sheet with net D/E at 0.36x post 9MFY18 provides a great opportunity post the recent correction. Maintain BUY with an increased TP of Rs 420/sh (15x Mar‐20E eps)

11 JMC Projects BUY 842 (37%)

With a backlog of Rs 76.9bn, FY18E book to bill stands comfortably at 2.7x. Monetization of BOT projects may lead to massive stock re‐rating and significant deleveraging as combined investment is Rs 6.4bn. JMC may have to resort for restructuring in case loss funding increases substantially. This remains an overhang. With (1) Execution growth finally in sight, (2) Well diversified order book, (3) Debt remaining under control, (4) Consistently improving EBITDA margins and (5) Expected uptick in private institutional capex, we initiate coverage with a BUY and a TP of Rs 844/sh.

12 PSP Projects BUY 639 (22%)

Led by the SDB project, backlog of ~Rs 27.5bn translates into a book‐to‐bill of 3.8x. A strong local presence and track record in Gujarat will aid in future bids. Successful execution of SDB project will lead to Rs 25bn bid credentials. With (1) Strong Revenue visibility, (2) Ramp‐up in execution capabilities, (3) Healthy balance sheet, (4) High EBIDTA margins and (5) Expected order inflows, we initiate coverage with a BUY and a TP of Rs 639/sh.

Source: HDFC Sec Inst Research


Page | 4

Peer Group Valuation Summary (Core EPC Operations)

Company (EPC) MCap (Rs bn)

CMP (Rs)

TP (Rs) RECO

P/E (x) EV/EBITDA (x) RoIC (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ahluwalia 28 411 486 BUY 23.5 19.1 16.7 11.8 10.0 8.6 23.7 25.1 23.9 Ashoka Buildcon 49 264 348 BUY 13.6 12.7 11.5 8.3 7.6 6.6 39.4 53.3 49.6 Dilip Buildcon 158 1,154 1,449 BUY 22.0 17.5 16.1 13.3 10.2 8.1 24.8 23.8 20.4 IRB Infra 96 273 313 BUY 9.4 9.5 7.8 6.4 6.3 5.3 17.9 16.6 17.7 ITD Cem. 29 167 211 BUY 27.3 16.7 14.3 11.9 8.1 7.2 13.4 16.5 17.5 JKIL 20 284 420 BUY 18.2 12.1 10.2 7.9 5.6 5.1 12.6 16.1 16.6 KNR Const. 42 300 364 BUY 16.0 18.8 17.5 9.8 9.7 7.9 31.9 25.8 28.7 NCC 77 128 155 BUY 17.3 19.0 14.6 12.2 10.0 8.3 11.4 10.6 11.8 PNC Infra 46 178 248 BUY 25.9 16.1 11.7 12.9 8.9 6.8 12.8 14.1 16.6 Sadbhav Eng. 68 398 445 BUY 19.7 15.5 15.1 13.1 10.6 8.4 11.7 13.3 12.3 PSP Projects 19 522 639 BUY 31.3 18.8 14.7 18.3 10.8 8.0 42.8 56.2 63.2 JMC Projects 21 615 842 BUY 17.2 14.8 12.4 8.4 7.3 6.1 19.8 20.1 22.2 Average 20.1 15.9 13.5 11.2 8.7 7.2 21.8 24.3 25.0 Source: HDFC sec Inst Research

We summarize the valuations of the core EPC operations of our coverage universe and excluding the value of the asset portfolio, land and any other investment


Page | 5

Contents Infra Sector Has Underperformed Broader Markets .............................................................................................. 7

Despite Robust Ordering By NHAI ............................................................................................................................ 8 And Market Share Gains By Our Universe.............................................................................................................. 10 DBL & IRB Cornered Large Share Of NH Orders ..................................................................................................... 11 Roads Ordering – Regional Market Share (Cumulative FY15‐ FY18) ...................................................................... 12 Order Pipeline Is Still Strong – Hence Winning Orders No More A Challenge ....................................................... 13 Recent Order Wins – Conservative And Significant Premium To NHAI Cost ......................................................... 14 Winning HAM Bids Are ~15%+ Premium Vs. NHAI Cost, Banks Comfortable ........................................................ 15

Roads Spending Has Been Key Focus Of NDA Government .................................................................................. 16 This Has Resulted In Coverage Universe Book/Bill Multiple 1.5x Over FY15‐18 To 4x .......................................... 17 Large Share Of Order Won By NCC & DBL .............................................................................................................. 18 Infra Companies Have Ramped Up Capex Anticipating Strong Ordering .............................................................. 19 Despite This BS Is Strong With – Stable NWC And Decade Low Standalone Net D/E At 0.37x ............................. 20 EBIDTA Margins All Time High ‐ Reflecting Better Bid Discipline ........................................................................... 21

Peer Group – Financial Matrix: Trend Is Robust ................................................................................................... 22 Key Challenges And Risks..................................................................................................................................... 25 National Highways Network ................................................................................................................................ 26

Bharatmala – Subsumes All NH Programs .............................................................................................................. 27 New Trends In Roads Sector ................................................................................................................................... 28 HAM – Perfect Recipe For NH Ordering, Structured As Deferred EPC Contract .................................................... 29

Case Study ‐ What Went Wrong In Last Cycle? ..................................................................................................... 31 Buildings – Immense Opportunities, Key Drivers ................................................................................................. 34

Emerging Trends In Commercial Space .................................................................................................................. 35 Housing: Driven By Affordable Segment ................................................................................................................ 36 Retail Sector ............................................................................................................................................................ 37 Hospitality Market Expansion ................................................................................................................................ 38 Institutional Construction ....................................................................................................................................... 39

Relative Valuation – Through Charts .................................................................................................................... 40


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Companies Dilip Buildcon .......................................................................................................................................................... 42 IRB Infrastructure ................................................................................................................................................... 49 NCC Limited ............................................................................................................................................................ 54 Sadbhav Engineering .............................................................................................................................................. 60 Ashoka Buildcon ..................................................................................................................................................... 68 PNC Infratech .......................................................................................................................................................... 78 KNR Construction ................................................................................................................................................... 85 ITD Cementation ..................................................................................................................................................... 91 Ahluwalia Contracts ................................................................................................................................................ 97 J. Kumar Infraprojects........................................................................................................................................... 103 JMC Projects – Initiating Coverage ....................................................................................................................... 108 PSP Projects – Initiating Coverage ........................................................................................................................ 120


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Infra Sector Has Underperformed Broader Markets Over Last 3M, Infrastructure Sector Has Underperformed Nifty

CMP (Rs)

Absolute Returns (%) Relative to NIFTY Index (%) 1m 3m 6m 12m FYTD 1m 3m 6m 12m FYTD

Nifty Index 10,459 0.4 (2.1) 3.6 13.6 0.2CNX Infra 3,426 1.0 (7.5) 3.4 7.4 (5.8) 0.6 (5.4) (0.2) (6.3) (6.0) Source: Bloomberg, HDFC sec Inst Research

Our Coverage Stocks Have Corrected After Robust 1‐Yr Returns

CMP (Rs)

Absolute Returns (%) Relative to CNX Infra Index (%) 1m 3m 6m 12m FYTD 1m 3m 6m 12m FYTD

Ashoka Buildcon 264 16.5 9.4 40.8 24.1 7.4 15.5 16.8 37.3 16.7 13.2 Dilip Buildcon 1,154 17.2 19.0 59.7 211.6 17.5 16.2 26.5 56.3 204.2 23.3 Ahluwalia Contracts 411 10.1 7.0 37.7 21.3 7.2 9.1 14.5 34.3 13.9 13.0 IRB Infra 273 26.1 9.2 31.2 16.0 16.5 25.1 16.6 27.8 8.7 22.3 ITD Cementation 167 (0.9) (21.6) (2.1) (6.1) (24.0) (1.9) (14.2) (5.5) (13.5) (18.3) J.Kumar 284 (4.0) (18.5) 24.4 12.3 (7.3) (5.0) (11.0) 21.0 4.9 (1.5) IRB Infra 300 2.0 (5.4) 44.8 54.5 (6.1) 1.0 2.1 41.4 47.2 (0.3) PNC Infra 178 11.2 (9.9) 20.9 29.1 (15.9) 10.2 (2.5) 17.5 21.8 (10.1) Sadbhav Eng. 398 3.7 (4.5) 43.5 20.4 (7.3) 2.7 3.0 40.1 13.0 (1.6) NCC Limited 128 3.8 (6.5) 42.8 44.3 (2.7) 2.8 0.9 39.4 36.9 3.1 PSP Projects 522 12.3 (7.2) 26.3 N/A 0.3 11.3 0.3 22.9 N/A 6.1 JMC Projects 615 8.4 (6.0) 34.2 112.3 (0.9) 7.4 1.5 30.8 104.9 4.8 Source: Bloomberg, HDFC sec Inst Research

We believe that despite major corrections on account of political and global economic factors, our coverage stocks remain fundamentally strong. On FY18E projections, the average book to bill is 4x.

With revenue visibility in sight coupled with leaner (and healthier) balance sheets, we believe the companies are poised to deliver on the execution targets while maintaining consistent margins.

CNX Infra index has relatively underperformed w.r.t the broad based NIFTY index over the last 12 months Over last 3M, CNX infra has declined by ~7.4% due to corrections on account of global events as well as political uncertainty Over the last 3m, all our coverage companies have declined, barring DBL, Ashok, IRB & Ahluwalia This short term correction has resulted in our coverage companies trading at attractive valuations (average ‐ 13.7(x) FY20E earnings) Despite robust ordering the correction indicates market shift towards execution on ground


Page | 8

Despite Robust Ordering By NHAI NHAI Awards (Km) NHAI Awards – Breakup (% Of Total Value)

Source: NHAI, HDFC sec Inst Research Source: NHAI, HDFC sec Inst Research, CRISIL Research Expected Investment In National Highways Through Different Models

Source: PIB, HDFC sec Inst Research

After muted awards in FY13 and FY14, NHAI awards, picked up pace post the NDA government winning the 2014 LS polls. After a tepid 9MFY18 marred by GST related issues, the pace of awards in 4QFY18E has been robust with ~7,400km of awards in FY18.

With increasing positive response by both developers and financers towards HAM, awards have increased to ~60% of the value of NHAI awards in FY17 and FY18.

Over the next 5 years, the investment in national highways awards will majorly be under EPC and HAM, a breakaway from past trends. The financial crunch faced by BOT developers and the inability of the players to bear the traffic risk is the reason for the government awarding more tenders under the HAM model.

1,116 1,435

3,067

4,344 4,364

7,400

01,0002,0003,0004,0005,0006,0007,0008,000

2012

‐13

2013

‐14

2014

‐15

2015

‐16

2016

‐17

2017

‐18

Km

8%

92%76% 69%

33% 35%

66%93% 100%

8%24%

17%

8% 2%

26%7% 14%

59% 63%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

EPC BOT‐Toll BOT‐Annuity HAM

After muted awards in FY13 and FY14, NHAI awards, picked up pace post the NDA government winning the 2014 LS polls. After a tepid 9MFY18 marred by GST related issues, the pace of awards in 4QFY18E has been robust with 7,400km of NHAI awards in FY18

30%

10%

60%

EPC BOT(Toll + Annuity) HAM


Page | 9

Aggregate NHAI Awards (FY15‐18)

Region

Sum of Project Cost (bn) Sum of Length (km) Total Sum of Project Cost

(bn)

Total Sum of Length (km)

BOT EPC HAM BOT EPC HAM East ‐ 167.5 44.1 ‐ 1,375 323 211.6 1,698 North 120.1 681.2 321.3 791 4,451 1,290 1,122.6 6,532 South 13.9 193.7 301.8 120 1,757 1,484 509.3 3,361 West 163.3 126.9 349.6 1,441 1,676 1,818 639.8 4,935 Grand Total 297.2 1,169.3 1,016.7 2,352 9,259 4,914 2,483.2 16,525 Source: NHAI, HDFC sec Inst Research

Agg. NHAI Awards (Rs Bn)

Source: NHAI, HDFC sec Inst Research

Over FY15‐18, NHAI awarded ~Rs 2.5tn worth of contracts led by EPC (Rs 1.17tn) and HAM (Rs 1.02tn).

Over FY16 and FY17, HAM awards were majorly in the Western region led by Maharashtra and Gujarat and in the Northern Region in Uttar Pradesh. In FY18, EPC orders were majorly bid out in Northern and Western regions while Southern states had a larger share of HAM awards.

Share of BOT orders witnessed a significant decline, reducing from 28% of total value in FY15 to only 8% in FY17 and 5% in FY18.

HAM has now gathered pace and is likely to improve private participation in the sector. The model has been successful in bringing a new set of players to the private space by mitigating risks related to traffic, interest rate and inflation, and requiring a smaller equity commitment (only 12‐15% of project cost).

0

200

400

600

800

1,000

1,200

1,400

14‐15 15‐16 16‐17 17‐18

BOT EPC HAM

Over FY15‐18, NHAI awarded ~Rs 2.5tn worth of contracts led by EPC (Rs 1.2tn) and HAM (Rs 1.0tn) Share of BOT orders witnessed a significant decline, reducing from 100% of total value in FY13 to only 8% in FY17 and 2% in FY18 HAM has now gathered pace and is likely to improve private participation in the sector. The model has been successful in bringing a new set of players to the private space by mitigating risks related to traffic, interest rate and inflation, and requiring a smaller equity commitment (only 12‐15% of project cost)


Page | 10

And Market Share Gains By Our Coverage Universe Pan India Top 10 Players ‐ NHAI (FY15‐18)

Agency BOT EPC HAM Total

Rs Mn % Share Rs Mn % Share Rs Mn % Share Rs Mn % Share Dilip 10,129 3 109,023 9 187,686 18 306,838 12 IRB 118,374 40 ‐ ‐ 55,080 5 173,454 7 Sadbhav ‐ ‐ 55,482 5 102,723 10 158,204 6 L&T ‐ ‐ 143,351 12 ‐ ‐ 143,351 6 GRIL 18,900 6 69,586 4 46,378 5 134,864 5 PNC ‐ ‐ 52,747 5 68,669 7 121,415 5 Ashoka ‐ ‐ 20,225 2 79,687 8 99,912 4 Gayatri ‐ ‐ 90,215 8 ‐ ‐ 90,215 4 KNR ‐ ‐ 43,106 4 44,660 4 87,766 4 Gammon ‐ ‐ 62,578 5 ‐ ‐ 62,578 3 Source: NHAI, HDFC sec Inst Research

Transformation into ‘Pan – India’ road developers Sadbhav ‐ NHAI FY 15‐18 (Rs Mn) Dilip ‐ NHAI FY 15‐18 (Rs Mn)

Source: NHAI, HDFC sec Inst Research Source: NHAI, HDFC sec Inst Research

Dilip (EPC +HAM), IRB (BOT) and Sadbhav (incl. SIPL) have been the most aggressive bidders over the last 3‐4 years. With BOT awards drying up, IRB has shifted towards HAM projects Players like Dilip Buildcon and Sadbhav (incl. SIPL) have transformed into truly pan – India players. Over FY17 and FY18, there have been significant changes in the geographical concentration for these 2 companies

5,743

43,392

9,8109,507

14,006

2,647

28,21044,890

14‐15 15‐16 16‐17 17‐18

North South West

7,670 11,600

15,56225,192

16,619 45,520

4,011

11,350

6,483

78,281

5,970

40,210

38,370

14‐15 15‐16 16‐17 17‐18

East North South West


Page | 11

DBL & IRB Cornered Large Share Of NH Orders Financial Year ‐ NHAI Market Share Movement (FY15‐18) Agency 14‐15 (Rs bn) % share 15‐16 (Rs bn) % share 16‐17 (Rs bn) % share 17‐18 (Rs bn) % share Trend Dilip 19.6 8.6 42.5 6.2 71.0 11.6 173.8 18.4 IRB 32.6 14.4 16.6 2.4 35.2 5.7 89.1 8.1 Sadbhav 8.4 3.7 43.4 6.3 37.7 6.1 68.7 7.3 L&T 40.4 17.8 57.0 8.3 17.0 2.8 28.9 3.1 GRIL 36.7 16.2 22.5 3.3 36.8 6.0 38.9 2.8 PNC ‐ ‐ 52.7 7.7 42.4 6.9 26.3 4.1 Ashoka ‐ ‐ 15.6 2.3 28.9 4.7 55.4 5.9 Gayatri 2.8 1.2 39.7 5.8 25.1 4.1 22.6 2.4 KNR ‐ ‐ 22.3 3.3 20.8 3.4 44.7 4.7 Gammon ‐ ‐ 21.4 3.1 25.9 4.2 15.3 1.6 Source: NHAI, HDFC sec Inst Research NHAI ‐ % Share – Regional Movement

Agency East North South West

Financial Year (FY) Financial Year (FY) Financial Year (FY) Financial Year (FY) 15 16 17 18 15 16 17 18 15 16 17 18 15 16 17 18

Dilip ‐ ‐ 14 12 12 5 8 14 11 18 6 26 ‐ 6 17 16 IRB ‐ ‐ ‐ ‐ 11 4 ‐ 10 ‐ ‐ ‐ 11 36 ‐ 14 9 Sadbhav ‐ ‐ ‐ ‐ 5 9 ‐ 3 ‐ ‐ 9 5 5 ‐ 12 19 L&T ‐ 45 ‐ ‐ 26 2 ‐ 7 19 35 8 ‐ ‐ ‐ 4 2 GRIL ‐ 9 ‐ 5 20 4 17 2 ‐ ‐ ‐ ‐ 22 ‐ ‐ 12 PNC ‐ ‐ ‐ ‐ ‐ 11 12 8 ‐ ‐ 10 ‐ ‐ ‐ 3 ‐ Ashoka ‐ 7 ‐ ‐ ‐ 2 9 3 ‐ ‐ 10 10 ‐ 4 ‐ 7 Gayatri ‐ ‐ 45 10 ‐ 9 ‐ 4 7 ‐ ‐ ‐ ‐ ‐ ‐ ‐ KNR ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 35 20 15 ‐ ‐ ‐ ‐ Gammon ‐ ‐ ‐ 6 ‐ 5 7 3 ‐ ‐ 11 ‐ ‐ ‐ ‐ ‐ Source: NHAI, HDFC sec Inst Research

DBL market share in NHAI ordering has increased from 8.6% to 18.4%. DBL has emerged as a top EPC player in the NHAI ordering IRB Infra absolute order book has increased but market share has gone down. This is to do with limited new BOT toll projects coming up for bidding and IRB foraying into HAM bid only from 4QFY18 L&T market share has fallen sharply on back of its rationale bidding in EPC segment and hence no major wins. Another reason being L&T not bidding for HAM projects as it is on an embargo DBL has been consolidating its presence across India with leading position in North, South & East and 2nd position in Western India


Page | 12

Roads Ordering – Regional Market Share (Cumulative FY15‐ FY18)


The southern states have always been KNR’s forte with a 22/15% share in EPC/HAM inflows. Dilip and L&T are the other major players in South PNC Infra dominates in the Northern states with a 8/16% share in EPC/HAM wins. Other major players include Dilip, L&T and GR Infra Sadbhav has a 9/22% share in west in EPC/HAM. Post 3 projects for port connectivity in FY16, JKIL has moved its focus to the Urban MRTS segment

L&T10%

Dilip9%

Gayatri8%

PNC8%

GRIL7%

Others59%

North EPC

KNR22%

L&T20%

Dilip16%

Gammon6%

Sadbhav Group5%

Others31%

South EPCDilip23%

KNR15%

Ashoka13%IRB

11%

Patel Infra9%

Others29%

South HAM

PNC16%

GRIL11%

Dilip10%

APCO10%

MBL10%

Others42%

North HAM

Sadbhav21%

Dilip21%

Patel Infra8%

MEP8%

IRB6%

Others36%

West HAMJKIL13%

L&T11%

Dilip9%

GRIL9%GHV

8%

Others50%

West EPC


Page | 13

Order Pipeline Is Still Strong – Hence Winning Orders No More A Challenge NHAI Open Tenders: HAM+EPC (Rs Bn)


NHAI has started the tendering process for projects worth ~Rs 1tn. Out of this HAM accounts for ~65% of the tender value with EPC accounting for the rest. Currently BOT projects are not being actively tendered by NHAI.

Majority of the upcoming tenders are concentrated in Maharashtra (Rs 143.8bn), UP (Rs 98.1bn), Chhattisgarh (Rs 63.6bn) and Rajasthan (Rs 50.8bn).

~Rs 25.8bn of NHAI EPC projects will be tendered in Uttar Pradesh in addition to ~Rs 72.4bn under HAM.

In Southern and Western region tendering will majorly be under the HAM model (61% and 76% of the total respectively).

Maharashtra will have tenders under HAM worth Rs 132.2bn in addition to Rs 72.3bn in UP.

Out of Rs 395.4bn tendering expected in North, ~64% will be under the HAM model. Chhattisgarh currently has a spate of NHAI open HAM tenders (~Rs 63.6bn).

NHAI Open Tenders EPC + HAM (Rs Bn)


As per the approved SOP of Bharatmala Pariyojana the base case scenario is to take up 60 % of projects under Hybrid Annuity Mode (HAM) and 10 % under BOT (Toll) and remaining on Engineering, Procurement, Construction (EPC) Mode Majority of the upcoming tenders are concentrated in Maharashtra (Rs 143.8bn), UP (Rs 98.1bn), Chhattisgarh (Rs 63.6bn) and Rajasthan (Rs 50.8bn)

0

50

100

150

200

250

300

East North South West

EPC HAMRs bn

Maharashtra144

UP98

Rajasthan51

Tamil Nadu48

Chhattisgarh64West Bengal

46Telangana

47

Others422


Page | 14

Recent Order Wins – Conservative And Significant Premium To NHAI Cost

HAM developers bid project cost is ~15‐30% higher than the NHAI cost : From the HAM data for Feb‐Mar’18 (38 projects, ~Rs 440bn value, ~65‐70% of last two months bidding) we find that Road EPC players have bid for HAM project with 15‐30%+ premium to the NHAI cost. Our checks with leading financial institutions suggest that any premium> 0% is good enough for Financial closure. About Rs ~450‐500bn HAM bids have been awarded and Rs ~600bn plus bids are yet to be awarded with Rs 200bn/Month award estimate over next 2‐3month.

HAM Bidding Intensity In Projects Won‐ Q4FY18

Source: HDFC sec Inst Research

HAM L1 vs. L2 gap about 4‐5%: Most of the players’ cumulative bid is about 4‐5% lower than the L2 bids. Dilip – 4.9%, Sadbhav‐3.2%, Ashoka‐2.9%, IRB‐12.5%, PNC‐0.4 and KNR – 6.3%, lower vs. the L2 bids. The bid variation also depends on the home advantage or region advantage.

O&M Component has been lower ~0.1‐0.6%: Most of the developers are bidding low O&M component. This implies that the developers will have to foot in allocation from the Bid Project Cost for the shortfall. Bankers will do the FC keeping in mind the O&M requirement on normalized basis.

EPC bids at 10‐15% lower than projects: EPC bids have been 10% lower than EPC cost. This has been a trend for last 12M as well. L&T is bidding in EPC segment of Roads only (not in HAM, equity holiday policy in assets) and hence the competitive intensity is little higher vs. HAM projects which are going at premium to project cost. EPC projects L1/L2 gap is about 1‐4%.

Fatigue setting in system as most developers now nearing order guidance, 3‐5x book/bill ratio: With robust inflows most of the EPC players have exceeded the order inflow guidance viz. Dilip, Sadbhav, Ashoka & KNR. PNC has been missing in these bids but may focus on upcoming UP HAMs. With Rs 3‐10bn equity requirement now across developers, fatigue is setting in. This augurs well for sector as competitive intensity may further decrease going forward. The early winners like Dilip are now getting farther away from the winning L1 bids.

HAM developers bid project cost is ~15‐30% higher than the NHAI cost Fatigue setting in system as most developers now nearing order guidance, 3‐5x book/bill ratio

17.2

28.8

21.6

14.5

27.329.6

4.9 3.2 2.9

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12.5

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Dilip Buildcon

Sadbhav Ashoka KNR IRB Infra PNC Infra

Avg premium on NHAI cost (%)Average difference (L1 vs L2 (%))


Page | 15

Winning HAM Bids Are ~15%+ Premium Vs. NHAI Cost, Banks Comfortable HAM Bidding Intensity In Projects Won ‐ Q4FY18

Source: HDFC Sec Inst Research Dilip Buildcon ‐ Dilip’s cumulative HAM NPV was 4.8%

lower vs. L1 and 9.4% lower vs. L2. HAM bid cost is 13.8% above of NHAI cost.

Ashoka Buildcon – has won 5 HAM projects worth Rs 55.4bn with 22.5% premium to NHAI cost. This is slightly higher than the average premium in the projects hence comfortable.

Sadbhav Engineering (incl. SIPL) ‐ In HAM SEL has won projects worth Rs 52.7bn with 26.3% premium to NHAI cost.

KNR Constructions – has won HAM projects worth Rs 54.7bn (excl. KSHIP HAM of Rs 11.7bn) with 14% premium to NHAI cost. This is in line with average premium in the projects hence very competitive.

IRB Infra – With BOT orders drying up, IRB has entered the HAM space with 3 wins till date. IRB’s bidding has been comfortable with a 27.3% average premium over NHAI cost.

PNC Infra – PNC Infra has won just 1 HAM project in 4QFY18E, which was 29.6% above NHAI cost.

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L1 vs

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)

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Dilip Buildcon Sadbhav Ashoka KNR IRB Infra PNC Infra

We have mapped the bid premiums and the competitor differential for each individual NHAI project won by our coverage universe in 4QFY18 Majority of the projects have been awarded at 5‐15% premium on NHAI project bid cost In majority of the awards the bidding differential between L1 and L2 is <10%


Page | 16

Roads Spending Has Been Key Focus Of NDA Government Aggregate EPC Order Book Has Multiplied ~2.1x Under NDA Government

Source: HDFC Sec Inst Research

The aggregate order book of our coverage universe (core construction segment) has grown 2.1x from Rs 731bn at end of FY15 to Rs 1,528bn as of FY18E.

After cummulative order book growth of 19% and 11.7% in FY11 and FY12 respectively led by large awards of ~12,200km under BOT model, the sector witnessed a downturn in in FY13 and order book grew by a meagre 0.6% in FY13 as only 1,961 km of roads (NHAI+MoRTH) were awarded in FY13.

Ordering picked up from FY16 onwards and FY17 witnessed a stellar 29.6% order book growth led by ~16,034km of total road awards (NHAI + MoRTH).

NHAI tendering remained slow in 9MFY18E as 1HFY18E was marred by lack of clarity over GST implementation.

Post Dec 17, there has been a rapid pick up in NHAI ordering with over ~Rs 750bn of awards of which bulk has gone to our coverage companies ‐ Dilip Buildcon ~Rs 170bn, KNR Construction ~ Rs 45bn, Sadbhav – Rs 60bn, Ashoka Buildcon – Rs 54bn.

The pipeline is robust with ~Rs 1tn of bid still outstanding from NHAI and Rs 350bn from States.

Majority of our coverage companies are sitting on a comfortable order backlog which provides revenue visibility beyond FY20E. Other Companies like PNC Infra are confident of grabbing orders in the upcoming months as major bids in UP go under the hammer.

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Total (Standalone) YoY(%) ‐ RHSNDA GovernmentRs mn


Page | 17

This Has Resulted In Coverage Universe Book/Bill Multiple 1.5x Over FY15‐18 To 4x EPC Book To Bill(X)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E Ahluwalia 2.4 1.9 2.5 3.2 2.9 2.5 2.0 Ashoka 3.9 2.3 2.3 1.6 2.1 3.3 4.5 Dilip 2.2 1.8 2.3 2.9 2.7 3.5 3.8 IRB 4.3 3.5 5.2 6.8 3.5 2.9 3.9 ITD 1.7 1.7 2.4 2.8 1.7 2.2 4.8 JKIL 2.7 3.7 2.6 2.2 2.3 6.3 4.7 KNR 4.1 3.8 1.6 1.5 3.8 2.4 4.3 NCC 3.8 3.2 3.4 2.3 2.1 2.3 4.4 PNC 2.6 2.4 2.4 2.3 2.7 5.3 5.9 Sadbhav 2.8 5.6 3.8 2.8 2.7 2.8 4.3 PSP 2.1 0.8 2.1 1.7 0.7 1.8 3.2 JMC 2.7 2.2 1.9 2.4 2.7 3.1 2.9 Average 2.9 2.7 2.7 2.7 2.5 3.2 4.0 Source: HDFC Sec Inst Research

EPC Inflows (Agg)

Source: Hdfc Sec Inst Research

With companies like NCC, Dilip, Ashoka, Sadbhav and KNR witnessing record inflows especially in 4QFY18E, our coverage universe’s backlog is poised to be comfortably placed at 4x FY18E revenues. During FY18E, our coverage universe has grabbed orders worth Rs 866.9bn (+55.9% YoY)

(30.0)

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Inflows YoY(%) ‐ RHSRs mn


Page | 18

Large Share Of Order Won By NCC & DBL

Source: HDFC Sec Inst Research Source: HDFC Sec Inst Research FY18E has been a landmark year in terms of NHAI

projects, with a record ~7,400km (~Rs 1.2tn) of highways being awarded.

For companies like Ashoka (Rs 58.8bn), Dilip (Rs 162.4bn), Sadbhav (Rs 105.0bn), IRB (Rs 70.7bn), and KNR (Rs 55.2bn) NHAI awards constitute the majority of the inflows in FY18E. Current backlog translates into strong revenue visibility over next 3‐4 years.

NCC, a diversified player, has won historic ~Rs 233.3bn of projects in FY18E with Buildings continuing to dominate its order book (64%).

Cities like Delhi, Mumbai, and Bengaluru etc. have seen additional metro projects, which has benefited companies like JKIL and ITD.

PSP projects won the marquee Rs 15.7bn Diamond Bourse project in Surat. This project is expected to aid its ambitious growth and successful execution will further strengthen its credentials.

Ahluwalia33,911

Ashoka113,712

Dilip279,565

IRB135,192

ITD99,132 JKIL

86,844 KNR78,364

NCC337,838

PNC105,848

Sadbhav158,838

PSP23,030

JMC76,620

FY18E Orderbook (Rs mn) Ahluwalia15,000

Ashoka58,812

Dilip162,435

IRB70,724

ITD29,900

JKIL15,000

KNR55,184

NCC233,765

PNC60,080

Sadbhav105,048

PSP23,000

JMC33,500

FY18E Inflows (Rs mn)


Page | 19

Infra Companies Have Ramped Up Capex Anticipating Strong Ordering Order Book Ramp Up Has Led To Capex

Source: HDFC Sec Research

Agg. Revenue Trends

Source: HDFC Sec Research

The aggregate gross debt of our coverage universe has increased from Rs 57.9bn in FY12 to Rs 116.3bn in FY17 and Rs 124.8bn in FY18E as the order backlogs swelled. Additional short term financing was required

considering the ramp up in execution especially in FY15 and FY16.

Execution ramped up over FY15 and FY16 as our coverage universe posted strong growth of 16% and 18.5% respectively. Despite changes in accounting for associates under IND AS along with GST related slowdown in 1HFY18, we expect aggregate revenues to grow by 15.9% in FY18E.

Our coverage companies have aggressively built up their execution capabilities by investing heavily in plant and machinery. FY14‐18E saw improved inflows and this coincided with an aggregate capex of ~Rs 80.2bn in our coverage universe

Slowdown in economy in 2HFY17 affected by demonetization and persistent delays in land acquisition in certain projects impacted the overall growth as our coverage universe managed to post a 6% overall growth in a constrained environment with companies like NCC and PNC reporting declines.

Aggregate EPC revenue of our coverage universe increased at a CAGR of 10.5% over FY12‐18E FY14‐18E saw improved inflows and this coincided with an aggregate capex of ~Rs 80.2bn by our coverage universe Despite changes in accounting for associates under IND AS along with GST related slowdown in 1HFY18, we expect aggregate revenues to grow by 15.9% in FY18E

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Agg Gross Debt Agg Capex (Rs mn) ‐ RHSRs mn Rs mn

25.7

7.5

4.2

16.0

18.5

5.5

15.9

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Agg. EPC Revenue YoY(%) ‐ RHS

Rs mn


Page | 20

Despite This BS Is Strong With – Stable NWC And Decade Low Standalone Net D/E At 0.37x Balance Sheet Is Stronger With NWC Days Peaking Standalone Net D/E Down At Decade Low Of 0.37x

Source: HDFC sec Inst Research Source: HDFC sec Inst Research

Slower project execution in FY13 and FY14 (YoY growth

of 7.5% and 4.2% respectively) was seen due to projects stalling because of RoW issues and other approvals. This led to the Net D/E increasing and eventually peaking in FY14 at 0.73x against a historical average of 0.58x.

Few of the companies in quest to deliver faster execution utilized WC facilities to mobilize projects before receiving ‘Appointed Date’ so as to complete projects before time. This would make them eligible for early completion bonus. The negative side was

higher debt and elevated NWC days as companies awaited reciept of mobilization advances from NHAI.

This also led to the average net working cycle (NWC) of our coverage universe peaking in FY15 at 132 days as the companies faced issues while scaling up execution aggresively. Also certain projects faced delays in debtor recoveries along with delays in reaching billing milestones in certain projects.

Over the FY15‐18E period, the de‐leveraging is on account of internal accruals and asset monetization & primary and secondary fund raises.

The average NWC of our coverage universe saw expansion from 88 to 132 days over FY12‐15. Post that it has stabilized to around 120‐125 days Net D/E at 0.37x is at a decadal low

88

100

111

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120 125 125

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FY13

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FY16

FY17

FY18E

Avg NWC (days) ‐ EPC

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5.0

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FY12

FY13

FY14

FY15

FY16

FY17

FY18E

Net D/E(x) ‐ EPC Interest Coverage(x) ‐ RHS (EPC)


Page | 21

EBIDTA Margins All Time High ‐ Reflecting Better Bid Discipline Average EBITDA Margins At All Time Highs


The average EBITDA margins of our coverage companies’ core construction business has drastically improved in FY18E to 15.2% as compared to 12‐13% in the previous 7 financial years. There is an element of cost provision reversals in companies like KNR which are one time in nature. Players like Dilip Buildcon have received early completion bonuses and have benefited from cost savings on account of such early completions. KNR continues to display efficient cost control with selective bidding in projects with sustainable margins.

There has been~65‐70bps improvement in EBIDTA margins for Infra companies on account of FY18E revenues now being reported net of GST vs. earlier accounting of gross of taxes.

Increasing share of captive HAM projects in the order book is another reason for EBIDTA margins expansion as these projects are from related entities and typically with 100‐150bps higher EPC margins.

12.3 12.0 11.9

12.7

12.1

12.8

15.2

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15.0

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FY13

FY14

FY15

FY16

FY17

FY18E

%

The average EBITDA margins of our coverage companies’ core construction business has drastically improved in FY18E to 15.2% as compared to 12‐13% in the previous 7 financial years


Page | 22

Peers Group – Financial Matrix: Trend Is Robust EBIDTA Margins On Secular Uptrend – Conservative Bidding & GST Impact

EPC EBITDA margins (%) FY12 FY13 FY14 FY15 FY16 FY17 FY18E Ahluwalia 1.3 (1.7) 4.3 10.8 12.9 12.1 13.8 Ashoka 13.8 11.1 13.6 13.1 14.7 13.2 12.7 Dilip 22.0 22.5 18.2 20.1 18.2 17.8 17.9 IRB 19.4 21.5 21.4 22.3 31.7 30.7 30.0 ITD 9.7 12.6 10.3 5.3 6.2 9.0 13.2 JKIL 16.1 16.7 17.3 18.7 17.6 17.6 16.8 KNR 18.6 19.0 15.7 15.2 16.9 14.9 20.0 NCC 7.6 8.2 6.6 7.8 8.9 8.7 9.5 PNC 12.1 12.3 12.3 13.9 13.2 13.1 14.1 Sadbhav 10.8 8.6 10.6 10.1 10.5 10.7 11.4 PSP 8.6 8.5 8.0 8.0 8.6 16.4 13.0 JMC 7.1 4.7 5.1 6.8 8.9 9.1 10.0 Average 12.3 12.0 11.9 12.7 14.0 14.4 15.2 Source: HDFC sec Inst Research

Over FY12‐18E core EPC ‐EBITDA margins have increased on an average from 12.3% to 15.2% While KNR’s margins have been boosted by one‐time reversals, Dilip Buildcon is enjoying economies of scale and cost savings on account of faster deployment and early execution of projects As per IND‐AS accounting the revenues reported by the companies is net of GST and this has also resulted in ~65‐70% improvement in margins on low base of revenue


Page | 23

Net D/E Has Seen Sustained Down Trend ‐ Aided By Order Advances & Equity Fund Raise Core – EPC Net D/E(x) FY12 FY13 FY14 FY15 FY16 FY17 FY18E Ahluwalia 0.5 0.8 0.8 0.3 0.1 (0.1) (0.1) Ashoka 0.3 0.2 0.2 0.4 0.1 0.1 (0.0) Dilip 1.7 1.4 1.5 2.3 2.3 1.3 1.0 IRB 0.8 0.9 1.6 1.8 1.8 2.0 1.1 ITD 1.6 1.7 1.8 1.3 0.9 0.3 0.6 JKIL 0.1 0.2 0.8 0.5 0.1 0.2 0.3 KNR 0.1 0.1 0.2 0.1 0.1 0.1 0.1 NCC 0.9 0.9 1.0 0.6 0.5 0.4 0.4 PNC 0.5 0.4 0.3 0.5 (0.1) 0.1 0.1 Sadbhav 0.5 0.9 1.0 0.8 0.8 1.1 0.7 PSP (0.8) (1.2) (1.2) (1.1) (0.9) (0.5) (0.5) JMC 0.6 0.8 0.9 1.4 1.1 0.9 0.8 Average 0.6 0.6 0.7 0.7 0.6 0.5 0.4 Source: HDFC sec Inst Research

Operating Cash Flow To Firm Has Been Positive As NWC Days Stable & Better Payment Terms From Clients Core EPC ‐ OCF(Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18E Ahluwalia 945 226 153 1,149 373 1,827 840 Ashoka 2,556 4,271 3,379 (746) (3,496) 4,548 4,741 Dilip 1,660 (528) 563 2,203 4,268 6,537 6,207 IRB 273 (1,852) (6,619) 95 (471) 706 4,599 ITD 338 327 1,869 436 4,651 4,170 668 JKIL 1,180 998 (252) 586 681 (31) 1,468 KNR 830 (770) 1,332 671 2,534 3,165 2,686 NCC 9,763 3,685 3,699 5,139 4,886 1,968 (3,084) PNC (19) 2,004 1,653 632 1,210 (86) 1,771 Sadbhav 1,051 658 4,623 (365) 1,682 (394) 5,984 PSP 264 278 208 305 411 11 151 JMC 528 623 985 (652) 554 2,500 1,135 Aggregate 18,578 9,020 10,399 9,800 16,318 22,409 27,884 Source: HDFC sec Inst Research

Our coverage universe’s average net D/E (Core – EPC business) has declined from 0.6x to 0.4x over FY12‐18E after peaking at 0.7x over FY14‐15 As companies like DBL continue to focus on core EPC business while monetizing their annuity/ toll assets, the balance sheet will continue to remain robust Construction companies – Ahluwalia and PSP are currently net cash companies, whereas KNR’s major debt is out of promoter funded loans One major reason for low D/E ratios is the superior OCFs generated YoY over FY12‐18E Though PNCs WC cycle has considerably worsened in FY18E, we expect it to remain stable in FY19‐20E


Page | 24

Comparative Valuations – Core EPC Business – Reasonable At 1‐Yr Forward Estimates

Core EPC Operation: Mkt cap (Rs bn) CMP

PER(x) EV/EBITDA (x) FY18E FY19E FY20E FY18E FY19E FY20E

Ahluwalia 28 411 486 23.5 19.1 16.7 11.8 10.0 Ashoka (EPC) 49 264 348 13.6 12.7 11.5 8.3 7.6 Dilip 158 1,154 1,449 22.0 17.5 16.1 13.3 10.2 IRB (EPC) 96 273 313 9.4 9.5 7.8 6.4 6.3 ITD 29 167 211 27.3 16.7 14.3 11.9 8.1 JKIL 20 284 420 18.2 12.1 10.2 7.9 5.6 KNR 42 300 364 16.0 18.8 17.5 9.8 9.7 NCC 77 128 155 17.3 19.0 14.6 12.2 10.0 PNC 46 178 248 25.9 16.1 11.7 12.9 8.9 Sadbhav 68 398 445 19.7 15.5 15.1 13.1 10.6 PSP 19 522 639 31.3 18.8 14.7 18.3 10.8 JMC 21 615 842 17.2 14.8 12.4 8.4 7.3 Average (Pure EPC operations) 20.1 15.9 13.5 11.2 8.7 7.2 Source: HDFC sec Inst Research Return Ratios – Core EPC Business Roic Average Of 25% Justifies 18x 1‐Yr Forward Valuation

Core EPC Operation: RoE (%) Core RoIC (%)

FY18E FY19E FY20E FY18E FY19E FY20E Ahluwalia 20.7 20.7 19.4 23.7 25.1 23.9 Ashoka (EPC) 10.5 10.3 10.4 39.4 53.3 49.6 Dilip 31.2 29.1 24.2 24.8 23.8 20.4 IRB (EPC) 19.1 18.9 23.0 17.9 16.6 17.7 ITD 16.2 19.8 16.5 13.4 16.5 17.5 JKIL 8.4 11.7 12.7 12.6 16.1 16.6 KNR 21.1 14.9 13.7 31.9 25.8 28.7 NCC 10.0 8.0 9.5 11.4 10.6 11.8 PNC 7.2 10.3 12.8 12.8 14.1 16.6 Sadbhav 11.5 12.9 11.8 11.7 13.3 12.3 PSP 28.4 28.0 28.4 42.8 56.2 63.2 JMC 13.3 13.6 14.2 19.8 20.1 22.2 Average 16.5 16.5 16.4 21.8 24.3 25.0


Our coverage universe’s core EPC business is currently trading at average 13.5x FY20E EPS and an average EV/EBITDA of 7.3x This is much lower than long term median P/E of 20x and EV/EBIDTA of 12x We expect core EPC operations – KNR, Dilip and Ashoka to deliver high RoIC’s which will beat our coverage universe’s average of 21.9/24.3/25.1% for FY18/19/20E respectively In the building segment we find PSP to exhibit industry beating RoIC’s of 42.8/56.2/63.2 over FY18/19/20E respectively


Page | 25

Key Challenges And Risks HAM ordering has led to high equity requirement: The

HAM model is being preferred for new tenders, as it requires lower government funding as compared to the traditional EPC model. With average equity requirement across our coverage universe ranging from Rs 3‐18bn, we expect there could be growth challenges in case companies fail to achieve timely financial closure.

Equity recycling needed to maintain future growth: Companies may have to rely on fresh fundraising options to fuel the current equity requirement. Companies like DBL await monetization proceeds from its BOT divestment. To maintain the high revenue growth rates in future, pure EPC players would need to ensure timely execution of projects along with monetization of assets at appropriate intervals. Pace of asset monetization and investors’ appetite to buy equity in these assets is key for long term re‐rating.

Slowdown in bank lending: Though our coverage universe have a history of on‐time execution and have relatively robust balance sheets, due to the recent lending problems cropping up in the banks there remains a risk of reduced funding as banks collectively step down funding for infrastructure projects. Typically in HAM projects banks are contributing 40‐50% of the funding. Any potential lending curb can affect the financial closure of these projects.

Government cut in spending: The present NDA government regime has witnessed a focus towards developing infrastructure (especially roads). With general elections approaching in 2019 along with a host of important state elections before that, the government’s focus towards infrastructure might witness a shift and the pace of approvals might slow down in the short term. Political uncertainty about the next government also exists and we will have to wait and watch the outcome.

With order books brimming, the key challenge lies in first financing the HAM projects (10‐15% equity requirements) and subsequent execution With land acquisition not being a major concern currently, we expect the top grade developers to execute within timelines Completing financial closure remains important as banks typically contribute 40‐50% cost. Any curbs for infra exposure will be a key risk for our coverage companies


Page | 26

National Highways Network

Source: Ministry of Road Transport and Highways(MoRTH)

Infrastructure has been a key area of focus for the current NDA government since winning the LS polls in 2014. Along with tremendous activity in the roads and highways construction segments, other sectors‐ MRTS, irrigation, mining (MDO), civil construction also witnessed significant growth.

Total Investment Of Rs 3tn In State Roads Between FY13‐17

Source: CRISIL Research, HDFC Sec Research

The frenzy in awards post 2014 has led to the aggregate order book of our coverage universe growing at a healthy CAGR of 13.7% over FY14‐17 as compared to a CAGR of 6.3% over FY11‐13 under the previous government.

Against the yearly average of 5,002 km of highways built in the last three years of the UPA regime, construction in the first three years of the NDA regime went up to 6,234 km per year, a 24% jump.

When the NDA government took over in May 2014, the construction rate stood at 11.67 km per day. Under the new regime, it grew to 12 km per day in 2014‐15 and 16.6 km in 2015‐16, touching a record 22.5 km in the FY17.

The pace of building highways picked up and touched 21.46 km a day in the April‐January period of 2017‐18 compared with 18.30 km per day in the same period last fiscal. But it still fell short of the 22.3‐km‐a‐day target achieved in 2016‐17 and remained far away from road transport and highways minister Nitin Gadkari’s ambitious target of building highways at a pace of 41 km a day.

21440

23769

28977

33689

76818

79116

92851

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100475

103933

113006

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Page | 27

48,877

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800

10,000

34,800

Other schemes ‐MoRTH/NHAI

Economic corridors

Inter corridor and feeder route

National corridors Efficiency improvement

Border roads and international connectivity

Coastal roads and port connectivity

Greenfield expressways

Balance NHDP works

Road Network

Bharatmala Network

Bharatmala – Subsumes All NH Programs Bharatmala Pariyojana is a new umbrella program for

the highways sector that focuses on optimizing efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps.

This will be achieved through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International

connectivity roads, Coastal and Port connectivity roads and Green‐field expressways.

A total of around 24,800 kms are being considered in Phase I of Bharatmala. In addition, Bharatmala Pariyojana phase ‐I also includes 10,000 kms of balance road works under NHDP, taking the total to 34,800 kms at an estimated cost of Rs. 5.35 trillion. Bharatmala Phase I ‐ is to be implemented over a five years period of i.e. 2017‐18 to 2021‐22.

Expected Network Development (Km):

Source: HDFC sec Inst Research, MoRTH

Highlights Of Bharatmala Pariyojana

Improvement in efficiency of existing corridors through development of Multimodal Logistics Parks and elimination of choke point

Enhance focus on improving connectivity in North East and leveraging synergies with Inland Waterways

Emphasis on use of technology & scientific planning for Project Preparation and Asset Monitoring

Delegation of powers to expedite project delivery ‐ Phase I to complete by 2022

Improving connectivity in the North East


Page | 28

Emergence of HAM

Improving execution rate

Improved awarding momentum

Re‐emergence of EPC contracts

Private investments with TOT and OMT

New Trends In Roads Sector

Execution of national highway projects had witnessed a decline in FY13 and FY14 owing to private developers' weak financials and unwillingness of lenders to provide further credit to infrastructure companies. To clear the logjam, NHAI terminated projects as work on ~5,500 km of length was stalled.

To put execution back on track, the agency has re‐awarded almost 1,000 km of the terminated projects. Moreover, in the past two years, the government announced a host of policy changes to reduce delays in project execution.

Considering the financial distress of companies that had previously participated heavily in BOT projects, the government introduced the hybrid annuity model (“HAM”), which was aimed at addressing the needs of the private sector and increase their participation.

The share of EPC/cash contract projects also widened and NHAI is expected to continue this model especially in low‐traffic‐volume projects under NHDP Phase IV, over the next five years

Apart from NHAI, a few large Indian states have also adopted OMT models, where state road development authorities have invited bids, or awarded state highway stretches to be operated and maintained on OMT basis.

NHAI is experimenting with TOT (Toll – Operate – Transfer), a relatively new PPP model to spur private investments in the road sector and also to get funding for the Bharatmala Pariyojana.

The 1st ever ToT project saw bidding by players like Macquarie, Brookfield, IRB‐Autostrade and Roadis‐NIIF. Macquarie (who has partnered with Ashoka for EPC works) has won the rights to manage 648km of national highways by bidding Rs 96.8bn.


Page | 29

Irrational projections coupled with over aggresive bidding

Inability of developers to bear traffic risk

Land acquisition challenges eroded project visibility

Constrained developer finances due to underperforming projects

Maintenance cost borne by developer

Concession period included the construction period

No termination payments were included in the agreement

HAM – Perfect Recipe For NH Ordering, Structured As Deferred EPC Contract What Went Wrong With BOT (Toll)

Distribution Of Risk Under HAM Risk Party

Financing Risk Shared between Govt. and Contractor

O & M Risk Contractor

Traffic Risk Government Source: HDFC sec Inst Research

Soft interest rates and sharing of the 40% project cost under the hybrid annuity model to provide some comfort to industry players operating with high levels of debt and interest expense ratios.

The hybrid annuity model has provisions for inflation‐adjusted project cost over time.

For private participants, this allows them to focus on execution of the projects wherein they will be hedged against inflation risk associated with increasing cost of raw materials as project cost will be allowed to increase with inflation

In addition, operation and maintenance (O&M) responsibilities are with the concessionaire with separate provisions for O&M payments.

Advantage of HAM is that it gives enough liquidity to the developer and the financial risk is shared by the government. While the private partner continues to bear the construction and maintenance risks as in the case of BOT (toll) model, he is required only to partly bear the financing risk without bearing the traffic risk.

Irrational bidding by developers, over optimistic traffic growth projections and major issues in land acquisition led to burgeoning project debt, low interest coverage and constrained cash flows in the concessionaries’ balance sheets.


Page | 30

Advantages Of HAM: Safe, No Toll Risk, Acceptable To Banks & Low Competitive Intensity


HAM model provides government the bandwidth to increase the pace of highway development as compared to EPC as initial investment is much lower.

On the other hand developers have fixed semi annuity returns in addition to O&M payments.

With Government already bearing 40% of the investment and contractor bringing in Equity of ~10‐15% of total project cost, lenders have additional comfort while funding.

Deemed termination clause provides some guarantee to the lenders if award gets cancelled due to RoW

issues as termination payments are linked to debt due ((50%‐80% depending on milestone achieved).

Under HAM 80% of land (including critical path) to be provided before Appointed Date and this clause cannot be waived of at the option of the contractor and thus reduces construction risk.

Final project cost is adjusted for inflation (70% WPI, 30% CPI).

Unlike BOT, Fixed operational period to start from COD date.

Equity requirement has substantially come down from 20‐30% under BOT (Toll) to 12‐15% under HAM.

Reduced initial equity from 20‐25% to 12‐15%

Easier debt servicing in the initial years

Concept of deemed termination to protect against ROW issues

Additional comfort to lenders during the

initial years

Reduced initial government spending as compared to EPC

Traffic risk not passed on to the private sector

Post construction investment

opportunities for IDFs and InvITs.

Termination payments provide comfort

Timeline for Financial Closure

Concession Period separte from

construction period

Partial comfort for escalation in EPC Cost

HAM model provides government the bandwidth to increase the pace of highway development as compared to EPC initial investment is much lower Equity requirement has substantially come down from 20‐30% under BOT (Toll) to 12‐15% under HAM


Page | 31

Case Study ‐ What Went Wrong In Last Cycle? Ivrcl, Cccl, Supreme Infra And Gammon India

Source:Bloomberg, HDFC sec Inst Research

We track the performance of 4 companies – IVRCL, CCCL, Supreme Infra and Gammon India over the over the FY08‐FY11 cycle of boom and bust.

The aggregate market cap more than halved from Rs 120.3bn at end of FY08 to Rs 49.9bn at the end of FY11. In between it touched lows of Rs 24.6bn before recovering back to Rs 98.0bn. As of Mar’18 the aggregate capitalization is Rs 8.3bn and reflects a nasty fall from grace.

The key triggers for the sharp corrections were high interest commitments along with drastically reducing profitability on account of cost overruns.

This period also witnessed very high competitive intensity in terms of bidding as a large number of players built order book so as to lend visibility to future

growth and keep investors happy at cost of profitability.

Coming off a high growth cycle, the BOT projects were bid at rosy traffic growth estimates. For many of the projects the starting PCU were 20‐25% below estimate as GDP growth slowed. Right of Way issue, delays in land acquisition impacted execution, elongating WC.

The companies’ falling gross margins failed to provide comfort against the rising interest costs. Wrong capital allocation strategies resulted in stressed assets/ projects and disputes with authorities, partners and contractors resulted in significant execution delays which resulted in highly leveraged balance sheets in addition to low cash flow visibility.

The aggregate market cap of IVRCL, CCCL, Supreme Infra & Gammon India, more than halved from Rs 120.3bn at end of FY08 to Rs 49.9bn at the end of FY11 In between it touched lows of Rs 24.6bn before recovering back to Rs 98bn. As of Mar 18 the aggregate capitalization is Rs 8.3bn and reflects a nasty fall from grace The companies’ falling gross margins failed to provide comfort against the rising interest costs. Wrong capital allocation strategies resulted in stressed assets/ projects and disputes with authorities, partners and contractors resulted in significant execution delays which resulted in highly leveraged balance sheets in addition to low cash flow visibility

‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Mar‐08 Mar‐09 Mar‐10 Mar‐11 Mar‐12 Mar‐13 Mar‐14 Mar‐15 Mar‐16 Mar‐17 Mar‐18

Aggregate Market Cap (Rs mn)


Page | 32

IVRCL, CCCL, Supreme Infra And Gammon India (Continued)


Decreasing Margins


Over FY06‐11, while the aggregate revenue rose at a CAGR of 34.7%, the net profits failed to post any meaningful compounded growth. Post FY12, the revenues have been on a downward trend mainly due

to delay in project schedule, cancellation of projects owing to inability to bring in equity by promoters.

Aggregate revenues posted strong YoY growth rates of 38/40/52% in FY07/08/09 respectively and growth rates of 25/21% in FY10/11 respectively.

On the other hand RoW issues cropped up and raw material input prices increased which led to significant cost overruns in the course of implementation. The cycle, FY12 onwards, material cost and subcontractor costs increased, on account of lower sales and delayed payments to vendors resulting in higher cost of inputs. Under recovery of fixed overheads due to idle resources and lower turnover further bloated the cost and affected the margins drastically

The gross margin impact led to declining EBITDA margins over FY06‐11. Avg. EBITDA margins declined from 13.6% in FY06 to 9.9% in FY11 and 2.85% in FY17.

As compared to the aggregate revenue CAGR of 34.7% over FY06‐11, the companies were able to post only a 25.5% CAGR growth in aggregate EBITDA. Average EBITDA margins reduced to ~2% by FY17.

‐30,000

‐25,000

‐20,000

‐15,000

‐10,000

‐5,000

0

5,000

10,000

0

50,000

100,000

150,000

200,000

250,000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Agg. Revenue Agg. Net Profits (RHS)

Rs mn Rs mn

(5.0)

‐

5.0

10.0

15.0

20.0

0

5,000

10,000

15,000

20,000

25,000

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Agg. EBITDA Avg EBITDA (%) (RHS)Rs mn


Page | 33

IVRCL, CCCL, Supreme Infra And Gammon India (Continued) Gross Debt And Capex Growth


Financial Leverage Caused Pain


As order books swelled over FY06‐11 and execution gathered pace, the need for capex also intensified.

The companies were also forced to finance their cost overruns through loans/ advances to SPV.

Though the escalations were eventually claimed from NHAI, actual receipt was marred by arbitrations and

bureaucratic delays which led to worsening of the working capital cycle.

Hence the companies were forced to use external debt financing as a means for meeting the capex requirement. Subsequently margins worsened due to delayed projects, standoffs with contractors and macro/ political instability. These factors also led to invocation of Bank Guarantees thus adversely affecting the credit standing and regular working of the companies. They were forced to opt for special RBI restructuring proposals for their stressed loans. Debt continued to mount as recovery of capital through monetization/divestment of/from stressed assets/projects was delayed.

Balance sheet deteriorated at an alarming pace as average net D/E increased from 0.3x in FY06 to 1.5x in FY11 and (‐19.5)x in FY17 on account of negative net worth.

Interest coverage worsened from 5.0 times in FY06 to only 2.1 times in FY11 and 0.2 times in FY17.

While the intent of the case study was to compare last cycle miscalculation by businesses The current environment is more contractor friendly. Right of Way issue is addressed by declaring Appointed Date of a project only when 80% land is in place HAM project is free of toll risk hence no reason for any aggressive bidding The problem of plenty – huge Government bid pipeline will reduce developer aggression. This is reflected in HAM bids being 15%+ higher vs. NHAI cost Strong balance of EPC players, learning from past cycle and aversion on taking debt makes this cycle divergent

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

‐

50,000

100,000

150,000

200,000

250,000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

IVRCL Gammon CCCL Supreme Agg. Depreciation (RHS)Rs mn Rs mn

(30.0)

(20.0)

(10.0)

‐

10.0

20.0

30.0

(2.0)

‐

2.0

4.0

6.0

8.0

10.0

12.0

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Avg Interest coverage(x) Avg Net D/E(x) (RHS)


Page | 34

Buildings – Immense Opportunities, Key Drivers Railway Station Redevelopment – Upcoming Plan

The government is estimated to invest close to Rs 1tn for the redevelopment of the stations. The Ministry of Railways is aiming to redevelop 10 railway stations on a pilot basis similar to an airport having amenities for a total cost of Rs 50bn.

Delhi Sarai Rohilla, Lucknow, Gomti Nagar, Kota, Tirupati, Nellore, Ernakulam, Puducherry, Madgaon and Thane have been selected in the pilot project. These projects will be self‐funded with the monetisation of the land parcel. NBCC will manage these projects and start awarding soon. The expected construction deadline is 2020. For these projects a MOU has been signed by Ministry of Railways with Ministry of Urban Development for integrated planning for station redevelopment projects in cities identified as SMART cities in association with Smart City authorities.

Proposals for ~400 ‘A1’ and ‘A’ category stations have been approved by the Union cabinet and these stations are part of the overall Rs 1tn massive redevelopment plan.

Additionally following the launch of station redevelopment program 23 stations have been taken up in the 1st bidding phase.

The policy is designed to appeal to real estate majors, as a developer can now use 20% of the redeveloped area on the station for residential purposes. The remaining 80% would be used for commercial purposes.

With an overall size of Rs 1tn, the program is touted to be one of the largest PPP program undertaken in the country. It will provide approximately 2,200 acres of prime land to the private developers across top 100 cities of the country.

Monetization of railway land parcels to open up opportunities in commercial construction


Page | 35

Emerging Trends In Commercial Space Approximately 192 mn sq ft of office space under

construction and announced till 2022. 60% of this upcoming supply is lease only in nature, with over 83% of this quality stock geared towards IT and SEZ development.

Substantial opportunities also exist in captive campuses and built to suit complexes owned by corporate houses for investments

Vacancy rates in major commercial corridors across prime office city markets are currently in single digits. Ongoing space requirements point towards healthy demand in the future. Hence, development of commercial projects to remain attractive.

Distribution Of Office Stock In Top Tier Cities (2QFY18)

Source: KPMG, HDFC Sec Inst Research

PE Investments In Office Space Demand Analysis Top 8 Cities

Source: JLL, HDFC sec Inst Research Source: IBEF, JLL, HDFC sec Inst Research

Ongoing space requirement points towards healthy demand in the future. Hence, development of commercial projects remains attractive Substantial opportunities also exist in captive campuses and built to suit complexes owned by corporates for investments

Bengaluru23%

MMR22%

NCR21%

Pune10%

Chennai10%

Hyderabad9%

Kolkatta5%

22 23

28 28 27

0

5

10

15

20

25

30

2013 2014 2015 2016 2017

Mn. sqft

3

27

108

41

413

3020 15

56 60

139 142

0

20

40

60

80

100

120

140

160

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Rs bn


Page | 36

Housing: Driven By Affordable Segment With special focus on affordable housing projects and

regulatory impetus, there is an estimated need for construction of 110 mn houses (46mn in Urban areas) to meet the affordable housing segment, thus offering opportunities for foreign and domestic developers to enter the affordable housing segment.

The affordable housing finance sector is likely to attract Rs 130tn of investments over by FY22E.

PMAY would provide opportunities for foreign and domestic investors to expand their presence in India’s real estate sector.

PMAY Status Analysis

Houses to be built under PMAY(Urban) till 2022 20,000,000 Houses built till 31 July 2017 157,106 Remaining houses to be built by 2022 19,842,894 Months remaining 65 Houses to be built per month for PMAY (Urban) 305,275

Source: KPMG, Company, HDFC sec Inst Research

In the Union Budget 2017‐18, the Government announced its plans to build 10mn houses for the urban poor by 2019E; it has allocated USD 3.5bn (Rs 0.23 tn) for PMAY to fulfill its agenda of ‘Housing for All by 2022’.

As on 31 July 2017, about 157,100 units have been built under the PMAY (Urban) mission of which over 50% are located in Gujarat, Karnataka and Tamil Nadu.

While majority of the ASEAN and BRICS countries witnessed an increase in their property price‐to‐income ratio (June 14‐17), India’s real estate witnessed a decline of over 5%, thus indicating a trend of moving towards affordability.

New Launches In Affordable Housing Segment

Source: Cushman & Wakefield, HDFC sec Inst Research

(200)(100)‐100 200 300 400 500 600 700 800 900

0

2,000

4,000

6,000

8,000

10,000

12,000

Ahmedabad

Bengaluru

Chennai

Delhi N

CR

Hyderabad

Kolkata

Mum

bai

Pune

2017 2016 %YoY (RHS)

The affordable housing finance sector is likely to attract Rs 130tn of investments over by FY22E Although the overall level of housing prices in India appears affordable, there are few markets (Mumbai, NCR, and Thane) which are amongst the unaffordable cities globally, suggesting that property price appreciation in India has not been broad‐based


Page | 37

Retail Sector By 2018, the Indian retail sector is likely to grow at a

CAGR of 13 per cent to reach USD 950 billion. Increased focus on emerging retail destinations.

India’s overall vacancy in organized retail sector is recorded at 15.0% (3QCY17). Good quality malls across cities have been performing well whereas less superior malls are being withdrawn or converted.

A total of 8.9 million sq. ft. of mall space has been withdrawn across cities (Delhi‐NCR, Mumbai, Pune and Chennai) from 2015 to 3QCY17.

(Tier II& III) are gaining preference over metros due to better growth prospects. (Tier II&III) cities have witnessed a much higher investment (USD 6.2bn)

compared to Tier I metro cities (USD 1.3bn) from 2006‐2017.

Based on less availability of existing high quality retail mall assets across cities, investors have adopted a multi‐fold approach where they have started investing in portfolio of assets through Greenfield and Brownfield projects.

Growth in the retail real estate segment is expected to be driven by increasing population, urbanisation, rise in disposable incomes, better purchasing power of the growing middle class and their consumerist aspirations, in addition to policy decisions, such as allowing FDI in retail.

Malls: Trends

Source: JLL, HDFC sec Inst Research

By 2018, Indian retail sector to reach USD 950 bn Growth in demand across Tier II and emerging retail destinations Despite significant additions, vacancy rate will remain stable on account of increasing withdrawals of non performing malls

‐

5

10

15

20

25

‐2

0

2

4

6

8

10

12

14

16

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F

Mall Com

pletion/ absorption

(mn. sq

ft)

New Completion Net Absorption Vacancy Rate (%)(RHS)


Page | 38

Hospitality Market Expansion Hotel buyers in the market today are strategic

investors who firmly believe that the boom in the hotel economic cycle is resuming, making it ideal to acquire operating hotels.

New hotel supply in the country is anticipated to grow 3‐4% (y‐o‐y) over the next 2‐3 years and the opportunity to invest in the sector is ripe.

The ongoing pressure on the banking industry to recast its distressed debt is also contributing to the growth in transaction activity.

Among the major hotel markets, Ahmedabad recorded the highest YoY increase in occupancy (12%) in FY17. Micro markets such as Sanand and GIFT City will continue to attract investments and generate room nights for hotels in the city.

International hotel chains are increasing their presence in the country, as it will account for around 47 per cent share in the Tourism & Hospitality sector of India by 2020 & 50 per cent by 2022, increasing from 44 per cent in 2016.

Berggruen Hotels is planning to add around 20 properties under its midmarket segment 'Keys Hotels' brand across India, by 2018.

Hilton plans to add 18 hotels pan India by 2021, along with 15 operational hotels under its brands namely Hampton, Hilton Garden Inn, Conrad, Hilton Hotels & Resorts & DoubleTree.

In 2017, Marriott International planned to open 30 new luxury hotels. As of November 2017, the company operated 93 hotels in India.

Proposed Branded Hotel Rooms

Source: IBEF, HVS, HDFC sec Inst Research

International hotel chains are increasing their presence in the country Ahmedabad recorded the highest YoY increase in occupancy (12%) in FY17. Micro markets such as Sanand and GIFT City will continue to attract investments Growth is expected to be driven in Tier II cities

0

10,000

20,000

30,000

40,000

50,000

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Agra

Ahmedabad

Bengaluru

Chennai

New

Delhi

Gurugram

Noida Goa

Hyderabad

Jaipur

Kolkatta

Mum

bai

Pune

Others

2016/17 2021/22


Page | 39

Institutional Construction Construction Output

Source: Company, HDFC sec Inst Research

Investment in India's educational services space is expected to grow rapidly by 2019‐20, catalysed by growing demand for better education, the entry of private players and a favourable regulatory climate. Rs 5.8tn is expected to be ploughed into the sector over 2015‐16 to 2019‐20. A little more than 80% of this investment is expected to happen in the K‐12 segment, owing to widespread inclination towards private education, easy scalability, consistently high demand, and the government’s target of 100% K‐12 GER.

An estimated investment of ~USD 200bn is required to achieve the government’s target of 30% GER (gross enrollment ratio) for the education sector by 2020.

With a bed density of around thirteen beds per 10,000 population (as per World Health Statistics 2014 from WHO), India lags the global median of 27 beds per 10,000 population by a long shot.

India is expected to add another 115,000 to 125,000 hospital beds underlining a fairly good opportunity for construction in the healthcare space. Around 66 million sqft of hospital supply is planned across India in the medium term, with the 7 major cities accounting for 20‐22% of the total supply. NCR alone contributes one fourth of the upcoming hospital space in seven major cities.

Institutional Construction to grow to Rs 0.9tn and Rs 0.4tn in Educational/ Healthcare sectors by 2020E Opportunity for building construction companies is estimated at Rs 5.8tn over FY16‐20E India is expected to add another 115,000 to 125,000 hospital beds underlining a fairly good opportunity for construction in the healthcare space

0.00.10.20.30.40.50.60.70.80.91.0

2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E

Educational HealthcareRs trn


Page | 40

Relative Valuation (Core EPC Operations) – Through Charts


Ahluwalia

Ashoka

Dilip Buildcon

IRB

ITD

JKIL

KNR

NCC

PNC

Sadbhav

PSP

JMC

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

5.0 10.0 15.0 20.0 25.0 30.0 35.0 P/BV

(x) ‐FY19E

ROE (%) ‐ FY19E

ITD Looks Cheaper Vs Peers

PNC

NCCKNRAhluwalia

Ashoka

Dilip Buildcon

IRB

ITD

JKIL

Sadbhav

PSP

JMC

5

7

9

11

13

15

17

19

‐7 3 13 23 33 43 53

P/E (x) ‐FY20E

PAT CAGR % ‐FY18‐20E

JMC Looks Inexpensive Vs NCC


Page | 41


PNC

NCC

KNR Ahluwalia

Ashoka

Dilip Buildcon

IRB

ITD

JKIL

Sadbhav

PSP

JMC

4

5

6

7

8

9

10

4 9 14 19 24 29 34 39 44 49

EV/EBIDT

A (x) ‐1yr fwd

EBIDTA CAGR % ‐FY18‐20E

PNC Infra Looks Inexpensive Vs Ashoka

PNC

NCC

KNR

Ahluwalia

Ashoka

Dilip Buildcon

IRB

ITDJKIL

Sadbhav

PSPJMC

‐

50

100

150

200

250

300

350

10 30 50 70 90 110 130 150 170 190

Order book (Rs b

n) ‐FY18E

EV (Rs bn) ‐ FY18E

JMC Looks Inexpensive As Compared To Ahluwalia

COMPANY UPDATE 12 APR 2018

Dilip Buildcon BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Execution maestro DBL is execution driven company with robust credentials in highways. Over FY15‐18, DBL has increased its market share in NHAI orders from 8.6% to 18.4%. The next highest market share is now with IRB at 8.1%.

Management bandwidth, in‐house execution and almost 1‐yr ahead of schedule project completions have resulted in DBL earning ~Rs1bn/annum as early completion bonus over years.

The raw materials which are typically sourced from unorganized sector by developers (viz, aggregate, sand etc) are backward integrated and entire supply chain is controlled by DBL. For organized materials viz. Cement, Bitumen, Diesel etc it’s largely sourced from large corporates.

After muted 9MFY18 order inflows, DBL has won Rs 151bn of new orders (only EPC value) in 4QFY18. Order backlog is Rs 275bn (gross of 4QFY18 execution, 3.7x FY18E revenue).

With stake sale in the BOT portfolio, DBL has been able to churn its equity investments. The funds’ inflow of Rs 8.5bn from the stake sale will largely go towards debt reduction/meeting HAM equity requirement for new projects of Rs 18bn. On strong order wins, we increase DBL FY18/19E EPS by 25.5/28%. Upgrade DBL to BUY from NEU, with an increased SOTP‐based TP of Rs 1,449/sh (10x FY20E EV/EBITDA and BOT at 1x equity invested) vs. Rs 966/sh earlier.

Investment Arguments Strong emphasis on execution: DBL’s emphasis on

execution has been the key driver of value creation. Despite strong growth of 48% YoY in FY18E the debt has grown by 16%. DBL’s capex intensity has been high and this is one of the key reasons for elevated debt levels.

Balance sheet deleveraging to trigger further re‐rating: Gross/net debt stands at Rs 31.6/29.6bn and net D/E is 1.2x. Net debt may remain at current levels as DBL will have to step up capex and meet new HAM projects equity requirement. NWC days as of 3QFY18 is 136days vs. 156days YoY. DBL has taken Rs 1.3bn provisioning on private debtors with Rs 3.2bn private debtors still outstanding.

New HAMs equity requirement of Rs 18bn: DBL has won new HAM projects with total bid cost of Rs 149bn. At 12% equity requirement this translates to Rs 18bn to be invested in next 2.5yrs. This could be partly met from the receipt of BOT stake sale (Rs 6.5bn yet to be received). With high capex intensity to meet the growth DBL may have to resort to equity dilution. This shall be a near term overhang.

Financial Summary (Standalone) Year Ending March FY17 FY18E FY19E FY20E Net Sales 49,916 74,063 97,124 122,942 EBITDA 8,863 13,257 17,288 21,761 APAT 3,612 6,850 8,636 9,385 Diluted EPS (Rs) 26.4 50.1 63.1 68.6 P/E (x) 45.4 23.9 19.0 17.5 EV / EBITDA (x) 21.3 14.3 11.0 8.8 RoE (%) 24.8 31.2 29.1 24.2 Source: Company, HDFC sec Inst Research

INDUSTRY INFRASTRUCTURE

CMP (as on 12 Apr 18) Rs 1,154

Target Price Rs 1,449 Nifty 10,459

Sensex 34,101

KEY STOCK DATA

Bloomberg DBL IN

No. of Shares (mn) 137

MCap (Rs bn) / ($ mn) 158/2,414

5m avg traded value (Rs mn) 458

STOCK PERFORMANCE (%)

52 Week high / low Rs 1,218/359

3M 6M 12M

Absolute (%) 19.0 59.7 211.6

Relative (%) 20.5 53.7 196.6

SHAREHOLDING PATTERN (%)

Promoters 75.63

FIs & Local MFs 6.63

FPIs 10.00

Public & Others 7.74 Source : BSE



DILIP BUILDCON : COMPANY UPDATE

Page | 43

Roads contribute ~80% to the 3QFY18 order backlog. Mining contribution is 17% With order wins of ~Rs 151bn in the roads segment post 3QFY18 it is expected to remain the key growth driver in the next 2‐3 years Recently DBL has successfully won awards in areas like Karnataka, AP, MP, UP, Odisha, Maharashtra and Jharkhand At the end of 3QFY18 ‐ 13.8% of the order book is from MP (DBL’s home state) 33.0% of the backlog is concentrated in Maharashtra Government projects contribute ~99% to the order backlog

Order Book By Sector: 3QFY18 Order Book By Clientele: 3QFY18

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Share Of Orders Outside MP Changing Composition Of Order Book

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Roads, Highways & Bridges80%

Irrigation1%

Urban Development

3%

Mining 16%

Central Govt.97%

State Govt.2%

Private 1%

0%

20%

40%

60%

80%

100%

FY12 FY14 FY16 3QFY18

Outside MP (%) MP (%)

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 FY15 FY16 FY17 3QFY18

Government Orders (%) Private Orders (%)


Page | 44

BOT Portfolio: Strategic Divesture To Turn DBL Into A Pure‐Play EPC DBL owns a portfolio of 24 BOT projects: 14

completed and 10 under construction. DBL has so far invested Rs 6.8bn in its BOT portfolio.

Under‐construction projects’ total pending equity requirement is Rs 8.4bn to be met over the next 3 yrs. DBL has signed a term sheet with Chhatwal Group Trust on 24‐8‐2017 in respect of divestment of its entire stake in the 24 BOT projects, against which the company is expecting to receive a total of Rs 16bn. This will partly be invested to meet the pending equity requirements of the BOT/HAM projects.

On a net basis, DBL shall receive about Rs 7.6bn for its BOT stake sale, valuing the transaction at 1.11x (Rs 6.8bn invested equity). A majority of DBL’s BOT assets are annuity based, which reduces traffic risks and ensures fixed annuity payments.

HAM portfolio: Of the 10 under‐construction BOT projects, six are HAM which are at different stages of construction & pre construction.

Project Under Development

Type Length (km) Awarding authority Equity (Rs mn) Total project cost (Rs mn) Jalpa Devi Tollways Ltd Toll 93.5 NHAI 2200 9,010 Mundargi‐Hadagali‐Harpanahalli Hybrid 51.21 KRDCL 293 1,790 Hassan‐Ramanathpura‐Periyapatna Hybrid 73.69 KRDCL 362 2,456 Hirekerur‐Ranibennur Hybrid 55.69 KRDCL 321 1,984 Lucknow ‐ Sultanpur HAM 127.4 NHAI 2846 20,160 Kalmath‐Zarap HAM 43.9 MORTH 805 7,808 Tuliapur Ausa HAM 67 NHAI 842 7,853 Mahagaon Yavatmal HAM 65 NHAI 1,163 9,638 Yavatmal Wardha HAM 59 NHAI 1,027 8,590 Wardha Butibori HAM 48 NHAI 1,123 9,063 Total 819 10,982 78,352 Source: Company, HDFC sec Inst Research

Total equity invested in 24 operational BOT projects is Rs 6.8bn DBL has signed a term sheet with the Chhatwal Group Trust on 24‐8‐2017, in respect of divestment of its entire stake in the 24 BOT projects against which the company is expecting to receive a total of Rs 16bn, which shall partly be invested to meet the pending equity requirements of BOT/HAM projects On a net basis DBL shall receive about Rs 7.6bn for its BOT stake sale, valuing the transaction at 1.11x (Rs 6.8bn equity invested) The sale deed will be effected in two parts. ~ Rs 7.5bn will be received for ready to complete project and will be completed once NOC from government is received. DBL has already received ~Rs 2bn from the Chhatwal group


Page | 45

Key Assumptions & Estimates Key Assumptions FY18E FY19E FY20E Comments Closing order book 254,214 291,374 309,430 We expect 10.3% FY18‐20E order book CAGR Order book growth (%) 44.7 14.6 6.2

New order booking 152,596 134,284 140,999 We expect an average annual order inflow run‐rate of Rs 130‐150bn over FY18‐20E

Book to bill ratio 3.4 3.0 2.5 Book‐to‐bill ratio to remain comfortable Total Revenue 74,063 97,124 122,942 Expect 28.8% CAGR over FY18‐20E Growth (%) 48.4 31.1 26.6EBIDTA 13,257 17,288 21,761 FY18‐20E EBIDTA CAGR of 28.1% EBIDTA margin (%) 17.9 17.8 17.7 Expect margins to remain stable Depreciation 2,849 3,292 3,774

Financial Charges 4,456 4,953 5,148 Expect finance cost to be stable as debt increase will be limited

Other Income (Including EO Items) 1,037 1,117 1,168 This includes early completion bonus PBT 6,990 10,160 14,007 FY18‐20EPBT CAGR of 41.6% PBT margin (%) 9.4 10.5 11.4 PBT margins to expand by ~196bps Tax 140 1,524 4,622

Tax rate (%) 2.0 15.0 33.0Tax rate assumed at ~2% for FY18E, 15% for FY19E and 33% for FY20E as company loses benefit of MAT credit

APAT 6,850 8,636 9,385 FY18‐20E PAT CAGR of 17.0%

Net margin (%) 9.2 8.9 7.6 APAT margins to decline on account of higher tax rate

Gross Block Turnover 2.6 2.9 3.3

NWC Days 133.4 132.9 128.7NWC cycle to improve as debtor collection improves and strict control exercised on inventory

Cash flow from operations 6,207 7,453 9,173 Higher profitability coupled with ease in NWC to drive robust cash flow generation

Capex (4,200) (4,500) (4,500) Capex to be limited to roads segment only Free cash flows 2,007 2,953 4,673 Expect FCFF CAGR of ~52.6% over FY18‐20E

Cash flow from investments (3,063) (2,883) (4,232) BOT investment of Rs 3‐4bn per annum over FY18‐19E

Debt issuance 4,000 (1,000) (1,000) Debt to reduce over FY19‐20E Cash flow from financing (456) (5,953) (6,148)Total change in cash ‐ a+b+c 2,688 (1,383) (1,207)Source: HDFC sec Inst Research

We expect 10.3% FY18‐20E order book CAGR FY18‐20E EBIDTA CAGR of 28.1% Expect margins to remain stable around 17.8% Tax rate assumed at ~2% for FY18E, 15% for FY19E and 33% for FY20E as company loses benefit of MAT credit FY18‐20E PAT CAGR of 17.0%


Page | 46

Outlook And Valuation Upgrade To BUY With An Increased Target Price Of Rs 1,449/Sh

Valuation methodology: We have valued DBL on EV/EBITDA basis in line with peers viz. KNR at 10x. Our investment premise is based on (1) Robust inflows of Rs 151bn post 3QFY18 (2) Significant ramp up in execution with 28.8% revenue CAGR over FY18‐20E (3) Above‐average EBIDTA margins ~17.8%, (4) Regular early completion bonuses expected (>Rs 1.0bn annually) and (5) BOT asset monetisation, which makes DBL a pure‐play EPC company.

Further expansion in multiples is premised on robust execution and debt stabilization from the current level of Rs 31.7bn to 29.6bn by Mar‐18E.

Investments in the Roads, Mining, Irrigation and Urban infra sectors would continue to drive the stock’s performance. DBL, with strong credentials, is likely to benefit from the pick‐ up in ordering activity.

We value standalone EPC business at Rs 1,397/share (10x Mar‐20E EV/EBITDA), and BOT assets at Rs 52/share (At 1x P/BV(x) of expected invested equity as at FY20E). We arrive at a SOTP‐based target price of Rs 1,449/share (vs. Rs 966/sh earlier). We upgrade to BUY from NEU.

SOTP Valuation

Particulars Segments Value (Rs mn)

Value per share(Rs) Rationale

Standalone Core construction business 191,116 1,397 At 10x Mar‐20E EV/EBITDA in line

with peers like KNR.

BOT Assets Roads toll 7,108 52 At 1x P/BV(x) of expected invested equity as at FY20E

Total 198,224 1,449Source: HDFC sec Inst Research

Change in Estimates (Standalone)

Rs mn FY18ENew

FY18E Old

% Change

FY19ENew

FY19E Old

% Change

FY20ENew

FY20E Old

% Change

Revenues 74,063 68,462 8.2 97,124 77,563 25.2 122,942 89,097 38.0 EBIDTA 13,257 12,529 5.8 17,288 14,117 22.5 21,761 16,216 34.2 EBIDTA Margins (%) 17.9 18.3 (2.2) 17.8 18.2 (2.2) 17.7 18.2 (2.7) APAT 6,850 5,750 19.1 8,636 6,881 25.5 9,385 7,325 28.1 EPS (INR) 50.1 42.0 19.3 63.1 50.3 25.5 68.6 53.6 28.0 Source: Company, HDFC sec Inst Research

We value standalone EPC business at Rs 1,397/share (10x one‐year forward Mar‐20E EV/EBITDA) Robust order intake, strong private debtors’ recovery, stable balance sheet and stellar execution are key factors contributing to our 10x multiple attribution. The valuation multiple is in line with peers like KNR BOT assets at Rs 52/share (At 1x P/BV(x) of expected invested equity as at FY20E) We arrive at SOTP based TP of Rs 1,449/sh


Page | 47

Income Statement (Standalone) Y/E‐Mar (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 40,176 49,916 74,063 97,124 122,942Growth (%) 56.0 24.2 48.4 31.1 26.6Material Expenses 30,005 37,930 56,584 73,911 93,805Employee Expenses 873 1,025 1,407 2,331 2,828Other Expenses 1,983 2,099 2,814 3,594 4,549EBIDTA 7,316 8,863 13,257 17,288 21,761EBIDTA (%) 18.2 17.8 17.9 17.8 17.7EBIDTA Growth (%) 41.4 21.1 49.6 30.4 25.9Depreciation 1,835 2,274 2,849 3,292 3,774EBIT 5,481 6,589 10,409 13,996 17,987Other Income (Incl EO Items+bonus) 834 1,175 1,037 1,117 1,168

Interest 3,814 4,162 4,456 4,953 5,148PBT 2,501 3,601 6,990 10,160 14,007Tax 293 (9) 140 1,524 4,622RPAT 2,208 3,610 6,850 8,636 9,385EO (Loss) / Profit (Net Of Tax) (3) 2 ‐ ‐ ‐APAT 2,205 3,612 6,850 8,636 9,385APAT Growth (%) 54.3 63.8 89.7 26.1 8.7Adj. EPS 16.1 26.4 50.1 63.1 68.6Adj. EPS Growth (%) 54.3 63.8 89.7 26.1 8.7Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) Y/E‐Mar (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 1,171 1,368 1,368 1,368 1,368 Reserves 9,450 17,161 24,011 32,648 42,032 Total Shareholders’ Funds 10,621 18,529 25,379 34,015 43,400 Long Term Debt 10,204 9,903 9,903 9,903 9,903 Short Term Debt 14,910 15,731 19,731 18,731 17,731 Total Debt 25,114 25,634 29,634 28,634 27,634 Deferred Taxes 775 759 759 759 759 TOTAL SOURCES OF FUNDS 36,510 44,922 55,772 63,408 71,793 APPLICATION OF FUNDS Net Block 14,204 16,825 18,176 19,384 20,111 Investments 3,785 6,808 6,708 6,208 7,108 Total Non‐current Assets 17,989 23,633 24,884 25,592 27,219 Inventories 15,803 16,639 20,291 26,609 33,683 Debtors 9,119 10,165 14,204 18,893 24,252 Cash & Equivalents 1,059 1,137 3,732 2,350 1,143 Loans & Advances 789 2,479 2,663 3,492 3,705 Other Current Assets 8,079 12,441 14,893 18,094 21,894 Total Current Assets 34,849 42,860 55,783 69,438 84,676 Creditors 10,232 8,886 10,545 15,360 21,701 Other Current Liabilities 5,893 12,381 14,124 16,020 18,142 Short Term Provisions 202 304 319 335 352 Total Current Liabilities & Provns 16,327 21,571 24,989 31,716 40,195 Net Current Assets 18,522 21,289 30,795 37,723 44,481 Misc Expenses & Others 0 0 93 93 93 TOTAL APPLICATION OF FUNDS 36,510 44,922 55,772 63,408 71,793 Source: Company, HDFC sec Inst Research


Page | 48

Cash Flow (Standalone) Y/E‐Mar (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT 2,501 3,601 6,990 10,160 14,007Non‐operating & EO items 205 302 (1,037) (1,117) (1,168)Interest expenses 3,814 4,162 4,456 4,953 5,148Depreciation 1,835 2,274 2,849 3,292 3,774Working Capital Change (3,498) (2,966) (6,910) (8,310) (7,965)Taxes (589) (835) (140) (1,524) (4,622)OPERATING CASH FLOW ( a ) 4,268 6,537 6,207 7,453 9,173Capex (4,156) (4,884) (4,200) (4,500) (4,500)Free cash flow (FCF) 112 1,653 2,007 2,953 4,673Investments (109) (1,797) 100 500 (900)Interest received on FDR 44 90 1,037 1,117 1,168INVESTING CASH FLOW ( b ) (4,221) (6,592) (3,063) (2,883) (4,232)Share capital Issuance ‐ 4,300 ‐ ‐ ‐Debt Issuance 2,488 (5) 4,000 (1,000) (1,000)Interest expenses (3,814) (4,162) (4,456) (4,953) (5,148)FCFE (1,214) (2,515) 1,552 (3,000) (1,475)Dividend (4) (0) ‐ ‐ ‐FINANCING CASH FLOW ( c ) (1,329) 132 (456) (5,953) (6,148)NET CASH FLOW (a+b+c) (1,283) 78 2,688 (1,383) (1,207)Non‐operating and EO items ‐ (93)Closing Cash & Equivalents 1,059 1,137 3,732 2,350 1,143Source: Company, HDFC sec Inst Research

Key Ratios (Standalone) FY16 FY17 FY18E FY19E FY20E

PROFITABILITY (%) GPM 25.3 24.0 23.6 23.9 23.7 EBITDA Margin 18.2 17.8 17.9 17.8 17.7 EBIT Margin 13.6 13.2 14.1 14.4 14.6 APAT Margin 5.5 7.2 9.2 8.9 7.6 RoE 23.2 24.8 31.2 29.1 24.2 Core RoCE 17.3 19.2 24.8 23.8 20.4 RoCE 16.6 19.1 22.3 21.6 19.0 EFFICIENCY Tax Rate (%) 12 (0) 2 15 33 Asset Turnover (x) 2.1 2.1 2.6 2.9 3.3 Inventory (days) 144 122 100 100 100 Debtors (days) 83 74 70 71 72 Loans & Advances (days) 7.2 18 13 13 11 Other Current Assets (days) 73.4 91 73 68 65 Payables (days) 93.0 65 52 58 64 Other Current Liabilities & Provns (days) 55.4 93 71 61 55

Cash Conversion Cycle (days) 158.6 147 133 133 129 Debt/EBITDA (x) 3.4 2.9 2.2 1.7 1.3 Net D/E 2.3 1.3 1.0 0.8 0.6 Interest Coverage 1.4 1.6 2.3 2.8 3.5 PER SHARE DATA EPS (Rs/sh) 16.1 26.4 50.1 63.1 68.6 CEPS (Rs/sh) 29.5 43.0 70.9 87.2 96.2 DPS (Rs/sh) 0.0 1.0 1.0 1.0 1.0 BV (Rs/sh) 77.7 135.5 185.6 248.7 317.3 VALUATION P/E 74.4 45.4 23.9 19.0 17.5 P/BV 15.4 8.9 6.5 4.8 3.8 EV/EBITDA 25.7 21.3 14.3 11.0 8.8 EV/Net Revenues 4.7 3.8 2.6 2.0 1.5 OCF/EV (%) 2.3 3.5 3.3 3.9 4.8 FCF/EV (%) 0.1 0.9 1.1 1.6 2.5 FCFE/Market Cap (%) (0.7) (1.5) 0.9 (1.8) (0.9) Dividend Yield (%) 0.0 0.1 0.1 0.1 0.1 Source: Company, HDFC sec Inst Research


IRB Infrastructure Developers BUY


HAM saviour IRB is one of the largest BOT toll operators in India with 7,677km of lane km under tolling. The annual toll revenue is ~Rs 17bn. In the current scenario with limited toll projects under bidding, IRB has diversified its EPC order book risk by venturing into HAM segment and winning new HAM projects worth Rs 55bn during 4QFY18.

Total order booking including new HAM and Hapur Bypass BOT project adds up to Rs 71bn. Order backlog gross of 4QFY18E execution is Rs 145bn (3.8x FY18E EPC revenue).

Going forward HAM projects will be a key driver of the EPC order book. IRB has won HAM projects with aggregate cost higher by 27.3% vs. NHAI cost. This implies a conservative bid. The aggregate difference between L1/L2 is 14.5%.

Mumbai‐Pune posted robust growth of 10% QoQ. Tolling commenced during 3QFY18 at Chittorgarh – Gulabpura (11th Nov 17). Toll collections in Kaithal‐Rajasthan (Sep 17 toll start) have been muted on account of (1) current levy is 88% of full tariff and (2) adjoining corridors are still under completion vs. this project’s early completion by 5months.

Consolidated net debt in 3QFY18 has increased QoQ from Rs 93.9bn to 108.6bn. Consolidated Net D/E at 1.9x is comfortable. With strong inflows IRB may surprise positively on EPC segment growth. Maintain BUY with increased SOTP of Rs 313/sh.

Investment Arguments IRB has gained strong market share in NHAI

project thanks to HAM wins: IRB stock got de‐rated on account of limited projects coming up for bidding in toll BOT segment. This would have resulted in de‐growth in EPC segment profitability and valuation. Realizing this IRB started bidding for HAM projects and won three projects in 4QFY18 with total bid cost of Rs 55bn. The total market share in FY18 NHAI awards for IRB stood at 8.1% (FY16‐2.4%, FY17‐5.7%, 2nd highest).

Legal cases nearing closure, sentimentally positive: IRB has got reprieve (Mar‐18) from the CBI in the civil case related to illegal land grab case along Mumbai Pune Expressway. Positive outcome in criminal case can lead to massive re‐rating.

Balance sheet healthy: IRB has Rs 30bn of standalone debt and Rs 10bn of net debt. Consolidated net D/E increased from 1.74x to 1.94x. Total pending equity requirement is Rs 14bn (FY19E –Rs 8bn, FY20E‐Rs 6bn) excluding 4QFY18 new projects win (Rs 13.4bn may get added).

Financial Summary (Consolidated) (Rs mn) FY17 FY18E FY19E FY20E Net Sales 58,459 55,907 61,123 62,561 EBITDA 30,483 25,762 29,665 29,703 APAT 7,004 8,718 9,438 8,432 Diluted EPS (Rs) 19.9 24.8 26.9 24.0 P/E (x) 14.1 11.3 10.5 11.7 EV / EBITDA (x) 7.4 8.9 8.3 8.7 RoE (%) 13.9 15.6 15.0 12.1 Source: Company, HDFC sec Inst Research


CMP (as on 12 Apr 2018) Rs 273

Target Price Rs 313 Nifty 10,459

Sensex 34,101

KEY STOCK DATA

Bloomberg IRB IN


MCap (Rs bn) / ($ mn) 96/1,466



52 Week high / low Rs 283/194

3M 6M 12M

Absolute (%) 9.2 31.2 16.0

Relative (%) 10.6 25.3 1.0


Promoters 57.37


FPIs 23.55




IRB INFRASTRUCTURE DEVELOPERS : COMPANY UPDATE

Page | 50

Project Wise BOT Revenue Trend Particulars (Rs mn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Mumbai ‐ Pune 1,621 1,649 1,880 1,735 1,372 1,832 2,278 2,134 2,332 Surat ‐ Dahisar BOT Project 1,563 1,619 1,609 1,484 1,114 1,475 ‐ ‐ ‐ Tumkur Chitradurga 512 514 529 497 399 543 ‐ ‐ ‐ Bharuch Surat Project 492 502 494 470 372 500 ‐ ‐ ‐ TBB ‐ 4 (Mumbra) 201 209 202 188 152 202 ‐ ‐ ‐ Thane ‐ Ghodbunder 77 79 90 83 52 82 84 78 99 Pune ‐ Nashik 67 69 70 77 59 76 79 80 84 Pune ‐ Solapur 59 60 63 55 45 61 64 58 65 Namakkal ‐ Ommalur 166 213 204 192 149 193 ‐ ‐ ‐ Ahmedabad ‐ Vadodara 527 856 875 826 690 917 916 865 1,007 Talegoan Amravati 120 129 127 117 102 148 ‐ ‐ ‐ Jaipur Deoli 295 319 321 267 224 312 ‐ ‐ ‐ Amritsar Pathankot 272 272 294 279 238 271 320 278 Udaipur ‐ Gujarat ‐ ‐ ‐ ‐ ‐ ‐ ‐ 115 388 Kaithal Rajasthan ‐ ‐ ‐ ‐ ‐ ‐ ‐ 42 167 Agra Etawah ‐ ‐ ‐ 167 208 261 247 243 286 Chittorgarh – Gulabpura ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 343 Total (Rs mn) 5972.1 6490.0 6756.9 6437.8 5176.4 6873.0 3,988.0 3,893.0 4,771.0 Source: Company, HDFC sec Inst Research, Amritsar Pathankot has been transferred IRB InvIT from 28th Sep 2017

3QFY18 BOT YoY revenue de‐grew 23.3% as the six BOT assets moved to InvIT from 9th May 2017 and Amritsar project in 28th Sep 2017 IRB has reported toll collection for all projects excluding InvIT. Mumbai Pune posted growth of 70% YoY on account of demonit base in 3QFY17. Adjusted growth is 26.6% YoY (includes 18% toll hike impact in 2QFY18)

Tolling commenced during the quarter at Chittorgarh – Gulabpura (Nov 11, 2017)


Page | 51

Outlook And Valuation Increase Target Price To Rs 313/Sh

We have valued BOT projects on DCF basis with 12.5‐14% WACC. We arrive at Rs 117/sh valuation for IRB’s BOT portfolio.

We have valued EPC standalone at 5x Mar‐20E EV/EBIDTA. This is 50% discount to peers as IRB largely executes captive BOT orders and in an

event of slowdown in BOT project awards, IRB may get negatively impacted.

We maintain BUY with increased TP of Rs 313/share. We peg (1) BOT projects at Rs 117/share, (2) EPC business at Rs 161/share (5x Mar‐20E EV/EBIDTA), (3) InvIT stake at Rs 25/sh and (4) Real estate at Rs 10/sh.

SOTP Valuation

SPV Asset Operated Holding ValuationMeasure Disc rate Value

(Rs mn)Value /Share

BOT Mhaiskar Infrastructure Mumbai Pune Expressway 100% FCFE 12.5% 18,032 51.3 IRB Infrastructure Kharpada‐Patalganga Bridge 100% FCFE 13.0% 263 0.7 Ahmedabad Vadodara Ahmedabad Vadodara 100% FCFE 14.0% (8,069) (23.0) ATR Infrastructure Pune Nashik 100% FCFE 13.0% 315 0.9 Aryan Toll Road Pune Sholapur 100% FCFE 13.0% 1,297 3.7 Agra Etawah Agra Etawah 100% FCFE 13.5% (481) (1.4) Kaithal Rajasthan Kaithal Rajasthan 100% FCFE 13.5% 5,642 16.1 Goa ‐ Kundapur Goa ‐ Kundapur 100% FCFE 13.5% 7,522 21.4 Thane Ghodbunder Toll Road Thane Ghodbunder 100% FCFE 13.0% 689 2.0 Yadeshi Aurangabad Yadeshi Aurangabad 100% FCFE 13.5% 9,209 26.2 Solapur yadeshi Solapur yadeshi 100% FCFE 13.5% 3,988 11.3 NKT Road & Toll Ahmednagar Tembhurni Road 100% FCFE 13.0% (24) (0.1) IRB Kolhapur IRDC Kolhapur City Roads 100% FCFE 12.5% 2,580 7.3 BOT FCFE Gross value of BOT ‐ (I) 40,963 117 EPC Modern Road Makers EPC Business 100% EV/EBIDTA(x) 5 59,751 170 PV of O&M Contracts PV of O&M Contracts 100% NPV 13.0% 3,264 9.3 Net debt –as of FY19E Standalone (6,500) (18.5) Value of EPC segment (II) 44,565 161 Add : INVIT investment value Gross value of Units at BV ‐ (III) Unit Value 15% stake 8,890 25 Add : Real Estate Gross value of Real Estate ‐ (IV) 3,500 10 Total Total Value ‐ (I)+(II)+(III)+(IV) 97,918 313 Source: HDFC sec Inst Research

We value IRB’s BOT portfolio at Rs 117/share We value standalone EPC business at 5x Mar‐20E EV/EBIDTA and reduce net debt as of FY19E to arrive at EPC value of Rs 161/share We value the 15% stake in InvIT at BV value of units held at Rs 25/sh Real Estate land holding at Rs 10/share Maintain BUY with an increased SOTP‐based target price of Rs 313/share vs. earlier TP of Rs 274/sh. We have increased the EPC valuation from 4x EV/EBIDTA to 5x EV/EBIDTA on back of strong order inflows


Page | 52

Income Statement (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 51,279 58,459 55,907 61,123 62,561Growth (%) 33.3 14.0 (4.4) 9.3 2.4Material Expenses 20,538 22,867 25,184 25,978 26,883Employee Expenses 2,465 2,726 2,469 2,713 2,993Other Operating Expenses 1,673 2,384 2,493 2,767 2,982EBIDTA 26,603 30,483 25,762 29,665 29,703EBIDTA Margin (%) 51.9 52.1 46.1 48.5 47.5EBIDTA Growth (%) 20.3 14.6 (15.5) 15.2 0.1Depreciation 8,533 8,548 5,231 5,754 6,330EBIT 18,069 21,935 20,531 23,911 23,374Other Income (Incl EO items) 1,272 1,232 2,587 2,897 3,245Interest 10,639 13,327 11,595 13,334 14,534PBT 8,702 9,839 11,522 13,474 12,084Tax 2,306 2,685 2,881 4,042 3,625RPAT 6,395 7,154 8,642 9,432 8,459Minority Interest/Share of associates 4 (1) (77) (6) 27

EO Items 155 150 0 0 0APAT 6,236 7,004 8,718 9,438 8,432APAT Growth (%) 14.9 12.3 24.5 8.2 (10.7)Adjusted EPS (Rs/sh) 17.7 19.9 24.8 26.9 24.0EPS Growth (%) 14.9 12.3 24.5 8.2 (10.7)Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated) Year ending March (Rs mn) FY16 FY17E FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 3,515 3,515 3,515 3,515 3,515 Reserves 44,848 49,201 55,897 63,145 69,621 Total Shareholders’ Funds 48,363 52,716 59,412 66,660 73,136 Minority Interest 355 ‐ (77) (82) (56) Long Term Debt 132,840 120,897 151,787 156,790 169,435 Short Term Debt 23,421 18,734 ‐ 7,643 7,643 Total Debt 156,261 139,631 151,787 164,432 177,078 Net Deferred Taxes (3,480) (3,901) (3,901) (3,901) (3,901) Other Non Current Liabilities & Provisions 207,393 159,597 188,522 188,412 187,913

TOTAL SOURCES OF FUNDS 408,892 348,043 395,744 415,521 434,170 APPLICATION OF FUNDS Net Block (Inc CWIP) 391,687 311,942 379,706 403,977 424,760 Investments 362 1,459 1,459 1,459 1,459 Other Non Current Assets 1,177 1,244 ‐ ‐ ‐ Total Non‐current Assets 393,226 314,644 381,165 405,436 426,219 Inventories 3,088 3,527 2,521 2,738 3,046 Debtors 87 705 713 724 741 Cash & Equivalents 15,008 13,077 20,775 17,264 16,329 Other Current Assets 6,430 28,005 3,228 3,228 3,228 Total Current Assets 24,613 45,313 27,236 23,954 23,344 Current liabilities 8,855 11,828 12,228 13,440 14,963 Provisions 92 87 429 429 429 Total Current Liabilities 8,947 11,914 12,657 13,869 15,392 Net Current Assets 15,666 33,399 14,579 10,085 7,952 Misc Expenses & Others ‐ ‐ ‐ ‐ ‐ TOTAL APPLICATION OF FUNDS 408,892 348,043 395,744 415,521 434,170

Source: Company, HDFC sec Inst Research


Page | 53

Cash Flow (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT 8,702 9,839 11,522 13,474 12,084Non‐operating & EO items (869) (548) (2,510) (2,897) (3,272)Interest expenses 10,639 13,327 11,595 13,334 14,534Depreciation 8,533 8,548 5,231 5,754 6,330Working Capital Change (482) 4,032 56,610 873 727Tax Paid (3,125) (3,106) (2,881) (4,042) (3,625)OPERATING CASH FLOW ( a ) 23,398 32,093 79,568 26,496 26,778Capex (31,591) (27,790) (72,995) (30,026) (27,113)Free cash flow (FCF) (8,193) 4,303 6,573 (3,530) (335)Investments 151 (2,192) 2,587 2,897 3,245INVESTING CASH FLOW ( b ) (31,440) (29,982) (70,409) (27,129) (23,868)Share capital Issuance ‐ ‐ ‐ ‐ ‐Debt Issuance 23,601 16,339 12,156 12,645 12,645Interest expenses (14,355) (17,509) (11,595) (13,334) (14,534)Dividend (2,538) (846) (2,023) (2,190) (1,956)FINANCING CASH FLOW ( c ) 6,709 (2,016) (1,461) (2,878) (3,845)NET CASH FLOW (a+b+c) (1,333) 94 7,698 (3,511) (935)EO Items, Others 12,244 10,218 ‐ ‐ ‐Closing Cash & Equivalents 15,008 13,077 20,775 17,264 16,329Source: Company, HDFC sec Inst Research

Key Ratios (Consolidated) FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) GPM 59.9 60.9 55.0 57.5 57.0 EBITDA Margin 51.9 52.1 46.1 48.5 47.5 EBIT Margin 35.2 37.5 36.7 39.1 37.4 APAT Margin 12.2 12.0 15.6 15.4 13.5 RoE 13.6 13.9 15.6 15.0 12.1 RoIC 3.5 4.4 4.4 4.3 4.0 RoCE 3.5 4.4 4.7 4.6 4.4 EFFICIENCY Tax Rate (%) 26.5 27.3 25.0 30.0 30.0 Fixed Asset Turnover (x) 0.1 0.2 0.1 0.2 0.1 Inventory (days) 22.0 22.0 16.5 16.4 17.8 Debtors (days) 0.6 4.4 4.7 4.3 4.3 Other Current Assets (days) 45.8 174.7 21.1 19.3 18.8 Current Liab (days) 63.0 73.8 79.8 80.3 87.3 Provision (days) 0.7 0.5 2.8 2.6 2.5 Cash Conversion Cycle (days) 4.7 126.7 (40.5) (42.9) (48.9) Debt/EBITDA (x) 5.9 4.6 5.9 5.5 6.0 Net D/E 2.9 2.4 2.2 2.2 2.2 Interest Coverage 1.7 1.6 1.8 1.8 1.6 PER SHARE DATA EPS (Rs/sh) 17.7 19.9 24.8 26.9 24.0 CEPS (Rs/sh) 42.0 44.3 39.7 43.2 42.0 DPS (Rs/sh) 4.0 4.1 5.0 5.4 4.8 BV (Rs/sh) 137.6 150.0 169.0 189.7 208.1 VALUATION P/E 15.8 14.1 11.3 10.5 11.7 P/BV 2.0 1.9 1.7 1.5 1.4 EV/EBITDA 9.0 7.4 8.9 8.3 8.7 EV/Revenues 4.7 3.9 4.1 4.0 4.1 OCF/EV (%) 0.1 0.1 0.3 0.1 0.1 FCF/EV (%) (3.4) 1.9 2.9 (1.4) (0.1) FCFE/Market Cap (%) 1.1 3.2 7.2 (4.3) (2.3) Dividend Yield (%) 1.4 1.4 1.8 1.9 1.7 Source: Company, HDFC sec Inst Research


NCC BUY


Execution led re‐rating NCC Ltd. (NCC) is a well diversified construction behemoth with projects spanning Water, Railways, Irrigation, Mining, Buildings, Power, Roads etc. In the past NCC had incurred heavy losses in the International operations (cumulative Rs 1.9bn in FY17). As a corrective measure, International operations have been largely curtailed with NCC staying away from new bids and focusing on completion of existing commitments. International losses may continue in FY18E, albeit at lower pace. Asset monetization in Infra/Power has largely being achieved and the focus now is to churn the real estate assets where the company has Rs 12bn of exposure. This shall help deleverage the balance sheet further. Most of the real estate is stuck in Government litigation owing to delay in clearances. Domestic order booking in FY18E has been strong with NCC bagging orders of Rs 204bn and L1 in orders worth Rs 30bn. This has resulted in a robust order backlog of Rs 315bn (4.1x FY18E rev). NCC through a Rs 5.5bn QIP in Jan‐18 circumvented the liquidity issue arising out of recent BG encashment of Rs 2.9bn by a client. Post this balance sheet is healthy with net D/E at 0.43x. NWC is 153days though debtors are ~105days. Owing to strong order inflow we have revised our Rev/EBIDTA estimate by 7‐20% and upgrade the SOTP based target price to Rs 155/sh vs. Rs 136/sh earlier. With recent price correction and increase in TP we upgrade NCC to BUY vs. NEU earlier.

Investment Arguments International operations shutdown will curtail

losses: NCC will gain from shutting international operations and re‐energizing its efforts in domestic market. Going forward the key would be to monetize real estate and deleverage balance sheet. The cross segment expertise insulates NCC from slowdown in any segmental ordering.

Strong FY18E order inflows lend visibility to growth: NCC has positively surprised with order inflow beating the guidance by more than 60%. With Rs 250bn of new inflows expected in FY18E and Rs 204bn already achieved, the revenue growth guidance will top 25% for FY19E. The challenge will be working capital management and funding support from Government.

Balance sheet strong with net d/e 0.43x: Aided by a timely QIP fund‐raise NCC improved it balance sheet. New orders have advances to support execution and NCC expects debt to reduce or stabilize at current levels. We expect no major deterioration.

Financial Summary (Standalone) (Rs mn) FY17 FY18E FY19E FY20E Net Sales 78,921 76,807 96,428 119,825 EBITDA 6,852 7,265 9,054 11,146 APAT 2,255 3,803 3,462 4,496 Diluted EPS (Rs) 4.1 6.8 6.2 8.1 P/E (x) 31.6 18.7 20.6 15.8 EV / EBITDA (x) 12.5 12.2 10.0 8.3 RoE (%) 6.7 10.0 8.0 9.5 Source: Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg NJCC IN


MCap (Rs bn) / ($ mn) 77/1,175




3M 6M 12M

Absolute (%) (6.5) 42.8 44.4

Relative (%) (5.1) 36.9 29.3


Promoters 18.11


FPIs 17.65




NCC : COMPANY UPDATE

Page | 55

We expect NCC’s order book to multiply 2.2x over the FY17‐20E period to Rs 391.6bn Building, roads and water segments will be the key drivers of the order book With increasing share of Buildings & Roads segment, EBIDTA margins would continue to be in excess of 9.3% over FY18‐FY20E Over FY18‐20E, annual order inflows would be in the range of Rs 130‐240bn

Order book To Multiply 2.2x Over FY17‐20E EBIDTA Margins To Expand To 9.3% By FY20E

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Order Inflow Range: Rs 130‐240bn FY18‐20E 9MFY18 ‐ Order Book Mix – Dominated By

Buildings, Road & Water


1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

10 60 110 160 210 260 310 360 410 460

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Order Book (Rs mn) Revenues (Rs mn)

Order book/sales (x)

Rs bn x

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

20 30 40 50 60 70 80 90 100 110 120

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Revenues (Rs mn) EBIDTA Margins (%)

Rs bn %

‐

50

100

150

200

250

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Rs bn

Buildings and

Housing, Roads, O&G

64%

Water, Env & Railways

15%

Electrical division 5%

Irrigation 8%

Power 0%

Metals 0%

Mining 5%

Intl.2%

Others1%


Page | 56

After record inflows in excess of Rs 230.3bn in FY18E, expect annual order inflows to be in the range of Rs 120‐150bn over FY19‐20E We estimate 24.9% FY18‐20E revenue CAGR on the back of near term execution visibility over 2‐3 years. With QIP funds providing liquidity for execution expansion, interest costs will increase at a CAGR of 7.3% Other income will reduce materially as NCC has divested stakes in Bangalore Elevated Toll, Western UP Toll and NCC power project. This will result in reduction of loans to subsidiaries. PAT will increase to Rs 4.5bn in FY20E

Key Assumptions & Estimates Key Assumptions (Rs mn) FY18E FY19E FY20E

Growth % Comments

FY18E FY19E FY20EClosing order book 337,838 369,981 391,584 86.8 9.5 5.8 We expect 7.7% FY18‐20E order book CAGR New order booking 233,765 128,571 141,428 153.4 (45.0) 10.0 After record inflows in FY18E, expect FY19‐20E annual

order inflows would be in the range of Rs 120‐150bn Book to bill ratio 4.4 3.8 3.3 Book‐to‐bill ratio to reduce to 3.3 by FY20E Total Revenue 76,807 96,428 119,825 (2.7) 25.5 24.3 We estimate 24.9% FY18‐20E revenue CAGR on the

back of execution visibility over 2‐3 years EBIDTA 7,265 9,054 11,146 6.0 24.6 23.1 FY18‐20E EBIDTA CAGR of 23.9% is slightly lower than

revenue CAGR owing to order margin mix EBIDTA margin (%) 9.5 9.4 9.3 77.7 (7.0) (8.7) Margins to remain > 9.0% on the back of recent wins. Depreciation 1,174 1,324 1,412 4.8 12.8 6.6Financial Charges 3,672 3,805 4,230 (7.2) 3.6 11.2 Interest costs will increase at a CAGR of 7.3% Other income 1,125 1,021 919 (19.7) (9.2) (10.0) OI reduction as loans and advances to subsidiary will

come down owing to monetization. PBT 3,544 4,946 6,423 11.6 39.5 29.9 FY18‐20E PBT CAGR of 34.6% Tax 508 1,484 1,927 21.9 192.3 29.9Tax rate (%) 14.3 30.0 30.0 Exceptional items (766.0) ‐ ‐ Losses due to fair valuation of investments APAT 3,803 3,462 4,496 68.6 (9.0) 29.9 PAT will increase to Rs 4.5bn in FY20E Gross Block Turnover

4.7 5.3 5.9

Debtor days 105 100 95 To improve on the back of increasing Building segment CFO ‐ a (3,084) 3,235 3,139 Cash flow improvements in line with Working capital

improvement, EBIDTA growth and EBIDTA margins expansion

CFI ‐ b (1,336) (979) (1,081) We are building cumulative Rs1,500mn capex over FY18‐20E

FCF ‐ a+b (4,420) 2,256 2,058 Strong free cash flow generation as growth moderates CFF ‐ c 4,045 (1,788) (2,214) Interest cost outflow in FY19‐20E Total change in cash ‐ a+b+c

(375) 468 (155) Net cash position doesn’t change debt materially



Page | 57

Outlook And Valuation Upgrade To BUY With An Increased Target Price Of Rs 155/Sh Valuation Methodology

We value NCC’s standalone business at 9x Mar‐20E EV/EBIDTA (vs. 10x Dec‐19E earlier) at Rs 145/sh and real estate at 0.5x equity invested Rs 10/sh. We have not valued Roads, Power and International business as these have been largely monetized or securitized.

Our justification behind the multiple reduction is (1) There could be impairments pertaining to its subsidiaries ranging between Rs 200‐500mn over the next 2‐3 quarters and international operations may surprise negatively in FY18E, (2) Historically margins of NCC have remained volatile due to its segregated order book, (3) NCC has never delivered >9% EBITDA margins in the last 5 years.

NCC has total group exposure of Rs 16.1bn to the subsidiaries of which real estate is Rs 12.5bn and Rs 3.8bn is to roads/hydel power project. Total investment in subsidiaries is Rs 10bn and Loan is Rs 6bn. Further, re‐rating is contingent on real estate monetization with NCC expecting Rs 1.4bn inflow from land sales during FY18E end.

Whilst most of the positives on Infra asset monetization and consequent debt reduction is already in price. Further, re‐rating is contingent on velocity of real estate monetization. We adopt SOTP methodology and value NCC at Rs 155/share (Standalone at 10x Dec‐20E EV/EBIDTA – Rs 145/sh, Real Estate – Rs 10/sh). We upgrade our stance on the company to BUY.

Valuation Particulars Segments Value (Rs mn) Value per share(Rs) Rationale NCC Standalone Construction business 80,938 145 At 9x Mar‐20 EV/EBIDTA Real Estate Real Estate 5,500 10 At P/B multiple of 0.5x Total 65,935 155

Change In Estimates

FY18E FY19E FY20E

New Old % New Old % New Old %

Revenues (Rs mn) 76,807 75,634 1.6 96,428 89,938 7.2 119,825 102,256 17.2 With FY18E inflows of Rs 233.7bn,

we upgrade FY19/20E revenue

EBITDA (Rs mn) 7,265 6,920 5.0 9,054 8,104 11.7 11,146 9,265 20.3

Due to better margin in new order wins, we expect NCC to deliver margins >9.0% in FY18‐20E

APAT (Rs mn) 3,803 2,273 67.3 3,462 2,477 39.8 4,496 2,728 64.8

With overall debt expected to remain stable as well as liquidity improving post the recent QIP, we expect NCC to deliver strong profits

EPS (Rs) 6.8 4.1 67.3 6.2 4.5 39.8 8.1 4.9 64.8


We have valued NCC’s standalone business at 9x Mar‐20 EV/EBIDTA vs. 10x Dec‐19E earlier. Real estate at 0.5x equity invested ‐ Rs 10/sh We have excluded roads, power and international business from our valuation estimates. These have either been terminated or have no basis to be a ‘going concern’ We arrive at a SOTP‐based target price of Rs 155/sh. Upgrade to BUY from NEU We have upgraded our estimates to factor in the impact of record order inflows in FY18E With debt expected to remain stable post the recently concluded QIP, we expect NCC to deliver strong APAT over FY18‐20E


Page | 58

Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 83,252 78,921 76,807 96,428 119,825Growth (%) 0.3 (5.2) (2.7) 25.5 24.3Material Expenses 70,756 66,871 64,196 81,106 100,530Employee Expenses 3,008 3,315 3,502 3,954 4,434Other Operating Expenses 2,111 1,883 1,843 2,314 3,715EBIDTA 7,376 6,852 7,265 9,054 11,146EBIDTA (%) 8.9 8.7 9.5 9.4 9.3EBIDTA Growth (%) 13.6 (7.1) 6.0 24.6 23.1Depreciation 1,100 1,121 1,174 1,324 1,412EBIT 6,277 5,731 6,091 7,730 9,734Other income (including EO) 2,240 1,401 1,125 1,021 919Interest 5,089 3,957 3,672 3,805 4,230PBT 3,428 3,175 3,544 4,946 6,423Tax 823 417 508 1,484 1,927RPAT 2,605 2,758 3,037 3,462 4,496EO Items 203 503 (766) ‐ ‐APAT 2,402 2,255 3,803 3,462 4,496APAT Growth (%) 114.8 (6.1) 68.6 (9.0) 29.9EPS 4.3 4.1 6.8 6.2 8.1EPS Growth (%) 114.8 (6.1) 0.7 52.5 29.9Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 1,112 1,112 1,201 1,201 1,201 Reserves 31,496 33,311 40,709 43,887 48,100 Total Shareholders’ Funds 32,608 34,423 41,910 45,089 49,301 Long Term Debt 1,020 91 91 91 91 Short Term Debt 17,816 15,676 18,176 20,476 22,776 Total Debt 18,836 15,767 18,267 20,567 22,867 Net Deferred Taxes (814) (1,354) (1,354) (1,354) (1,354) Other Long‐term Liabilities (Retention Money) 497 754 754 754 754

TOTAL SOURCES OF FUNDS 51,127 49,590 59,577 65,056 71,568 APPLICATION OF FUNDS Net Block 6,183 6,403 7,690 8,366 8,954 CWIP 76 13 13 13 13 Investments, LT Loans & Advances 11,729 12,952 12,952 12,952 12,952 Total Non‐current Assets 17,988 19,368 20,654 21,330 21,918 Inventories 16,568 15,258 17,588 19,999 23,411 Debtors 19,648 23,501 22,095 26,419 31,187 Cash & Equivalents 2,158 1,095 719 1,187 1,031 Other Current Assets 35,365 28,713 34,984 40,420 44,319 Total Current Assets 73,739 68,566 75,387 88,025 99,949 Creditors 27,711 28,681 27,356 33,023 37,753 Other Current Liabilities 13,199 9,871 9,108 11,276 12,545 Total Current Liabilities 40,909 38,551 36,464 44,299 50,298 Net Current Assets 32,830 30,015 38,923 43,726 49,650 Misc Exp 309 207 ‐ ‐ ‐ TOTAL APPLICATION OF FUNDS 51,127 49,590 59,577 65,056 71,568 Source: Company, HDFC sec Inst Research


Page | 59

Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT 3,225 2,672 2,778 4,946 6,423Non‐operating & EO items (1,399) (599) (1,125) (1,021) (919)Interest expenses 5,089 3,957 3,672 3,805 4,230Depreciation 1,100 1,121 1,174 1,324 1,412Working Capital Change (2,201) (4,746) (9,076) (4,335) (6,080)Taxes Paid (926) (436) (508) (1,484) (1,927)OPERATING CASH FLOW ( a ) 4,886 1,968 (3,084) 3,235 3,139Capex (910) (1,286) (2,461) (2,000) (2,000)Free cash flow (FCF) 3,976 682 (5,545) 1,235 1,139Investments and Income on investments and deposits 4,562 5,838 1,125 1,021 919

INVESTING CASH FLOW ( b ) 3,652 4,552 (1,336) (979) (1,081)Debt Issuance (Net of repayments) (1,116) (3,068) 2,500 2,300 2,300Interest expenses (5,746) (4,083) (3,672) (3,805) (4,230)FCFE (2,886) (6,469) (6,717) (270) (791)Share capital Issuance ‐ ‐ 5,500 ‐ ‐Dividend (268) (402) (284) (284) (284)FINANCING CASH FLOW ( c ) (7,130) (7,552) 4,045 (1,788) (2,214)NET CASH FLOW (a+b+c) 1,408 (1,032) (375) 468 (155)Non‐operating and EO items (377) (32) ‐ ‐ ‐Closing Cash & Equivalents 2,158 1,095 719 1,187 1,031Source: Company, HDFC sec Inst Research

Key Ratios (Standalone) FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) GPM 15.0 15.3 16.4 15.9 16.1 EBITDA Margin 8.9 8.7 9.5 9.4 9.3 EBIT Margin 7.5 7.3 7.9 8.0 8.1 APAT Margin 2.9 2.9 5.0 3.6 3.8 RoE 7.4 6.7 10.0 8.0 9.5 Core RoCE 12.8 14.0 11.4 10.6 11.8 RoCE 12.7 12.5 10.4 9.4 10.4 EFFICIENCY Tax Rate (%) 24.0 13.1 14.3 30.0 30.0 Asset Turnover (x) 6.6 5.8 4.7 5.3 5.9 Inventory (days) 72.6 70.6 83.6 75.7 71.3 Debtors (days) 86.1 108.7 105.0 100.0 95.0 Other Current assets (days) 155.1 132.8 166.3 153.0 135.0 Payables (days) 121.5 132.6 130.0 125.0 115.0 Other Current liab & provns (days) 57.9 45.7 43.3 42.7 38.2

Cash Conversion Cycle (days) 134.5 133.8 181.5 161.0 148.1 Debt/EBITDA (x) 2.6 2.3 2.5 2.3 2.1 Net D/E 0.5 0.4 0.4 0.4 0.4 Interest Coverage 1.2 1.4 1.7 2.0 2.3 PER SHARE DATA EPS (Rs/sh) 4.3 4.1 6.8 6.2 8.1 CEPS (Rs/sh) 6.7 7.0 7.6 8.6 10.6 DPS (Rs/sh) 0.4 0.6 0.6 0.6 0.6 BV (Rs/sh) 58.7 61.9 75.4 81.1 88.7 VALUATION P/E 29.6 31.6 18.7 20.6 15.8 P/BV 2.2 2.1 1.7 1.6 1.4 EV/EBITDA 11.9 12.5 12.2 10.0 8.3 EV/Revenues 1.1 1.1 1.2 0.9 0.8 OCF/EV (%) 5.6 2.3 (3.5) 3.6 3.4 FCF/EV (%) 4.5 0.8 (6.3) 1.4 1.2 FCFE/Market Cap (%) 5.6 1.0 (7.8) 1.7 1.6 Dividend Yield (%) 0.3 0.5 0.5 0.5 0.5 Source: Company, HDFC sec Inst Research


Sadbhav Engineering BUY


On a strong footing Over last few decades SEL has built strong credentials in Transportation, Mining and Irrigation verticals and has recently added qualification in Elevated metro segment with successful completion of DMRC‐CC57 job. Going forward the execution will be driven by transportation & mining.

Last two month NHAI ordering has resulted in SEL bagging new projects worth Rs 43bn (only EPC cost, includes SIPL HAM projects’ EPC costs). Total inflow in FY18E stands at Rs 87bn. This has resulted in order backlog of Rs 139bn (gross of 4QFY18E revenue, 3.7x FY18E revenues). The order inflow of Rs 87bn is higher than SEL guidance of Rs 70bn for FY18E.

SEL’s net debt is stable at Rs 14.5bn (down by Rs 3.3bn from Mar‐17 levels). Debtors continue to remain at Rs 14.9bn, and are expected to decrease as the HAM project’s execution picks up. The balance sheet remains stable, with net D/E at Rs 0.76x vs. 0.8x during 2QFY18. SEL expects to reduce standalone debt by another Rs 1.5‐2bn in 4FY18E.

SEL’s execution of projects is on track, order inflows robust and balance sheet is strong. Order wins may pick up further, as NHAI is targeting to award 4,000km of NH in 1QFY19E. There is a high likelihood of SEL delivering 25% YoY revenue growth for FY20E. We have upgraded FY18‐20E EPS estimate by 4‐22% on back of higher than expected order inflows. We roll forward our valuation to Mar‐20E EPS and upgrade SEL rating to BUY from NEU with revised SOTP based TP of Rs 445/sh (vs. Rs 407/sh earlier).

Investment Arguments High margins HAM projects to be key driver of

performance: SEL’s 4QFY18 HAM project wins has taken the total share of captive roads order book to 62% vs. 42% end FY17. The captive order book has higher margins (about 100bps higher vs. direct NHAI EPC projects) and augurs well for profitability. Working capital control is also better and will help ease pressure on standalone balance sheet.

Net D/E to reduce to 0.6x by Mar‐18E: SEL’s net debt is expected to reduce by Rs 2bn to Rs 12.5bn by Mar‐18E. SEL has progress‐based billing in HAM projects vs. milestone‐based billing in EPC. This, along with Rs 3.9bn of balance mobilisation advance from Roads’ projects, will result in WC improvement. SEL expects receipt of Rs 2.5bn of change in scope payment, and Rs 2bn from SIPL during 4QFY18E to aid debt reduction.

Achieving financial closure key for further re‐rating: Strong track record would help SEL to achieve financial closure for the new HAM projects despite a challenging environment on the banking side.

Financial Summary (Standalone) Year Ending March FY17 FY18E FY19E FY20E Net Sales 33,203 37,156 44,337 54,028 EBITDA 3,556 4,218 5,054 6,148 APAT 2,166 2,133 2,711 2,778 Diluted EPS (Rs) 12.6 12.4 15.8 16.2 P/E (x) 31.4 31.9 25.1 24.5 EV / EBITDA (x) 24.1 19.3 15.7 12.7 RoE (%) 13.0 11.5 12.9 11.8 Source: Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg SADE IN


MCap (Rs bn) / ($ mn) 68/1,045




3M 6M 12M

Absolute (%) (4.5) 43.5 20.4

Relative (%) (3.0) 37.5 5.4


Promoters 46.47


FPIs 15.38




SADBHAV ENGINEERING : COMPANY UPDATE

Page | 61

Post 3QFY18, SEL has won new roads projects with total EPC cost of Rs 43bn. We have only given charts till 3QFY18 as final EPC cost by SEL will be disclosed with 4QFY18 results presentation With a pick up in the Roads segment, share of Road orders have been growing Within the Roads vertical, captive BOT projects have been increasing on the back of new HAM projects Share of Roads in revenue has been increasing; Mining segment is stable and Irrigation has been highly volatile Within Roads, captive BOT projects had been the main contributors to revenue till FY16. With limited awards in BOT, revenue share had reduced to 11% in 2QFY18. Revenue share increased to 27% in 3QFY18 on the back of execution of ~ Rs1.9bn from 6 HAM projects

Road’s Share In Order Book Has Been Growing Road Orders: Captive BOT (HAM) Increasing

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Road’s Share Of Revenue Increasing Captive BOT (HAM) Road Revenue Share To Go Up


0

20

40

60

80

100

120

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

Transportation Irrigation MiningRs bn

‐

10

20

30

40

50

60

70

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

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2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

BOT EPCRs bn

‐

3

5

8

10

4QFY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

Transportation Irrigation MiningRs bn

‐1 2 3 4 5 6 7 8 9

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

BOT EPC Rs bn


Page | 62

We expect SEL’s order book to multiply 1.1x over FY18‐20E Roads, Mining and Irrigation segments shall be the key drivers of the order book After the Delhi metro experience, SEL is looking to bid for Elevated Metro projects. This could add incrementally to the order book and revenue growth FY18‐20E order inflow CAGR of ‐19.3% Road’s vertical contributes about 68% to the order book, followed by Mining and Irrigation at 23% and 9%, respectively

Order Book To Multiply 1.1x Over FY18‐20E EBIDTA Margin To Improve To ~11.4% In FY18‐20E

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Order Inflow CAGR Of ‐19.3% Over FY18‐20E Order Book Mix: 3QFY18 (%)


Roads ‐ BOT55%

Roads ‐ EPC13%

Irrigation9%

Mining 23%

24 32

45

22 23

47 47

76

65

50

‐10 20 30 40 50 60 70 80 90

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Order Inflow (Rs bn)

1.0

2.0

3.0

4.0

5.0

6.0

‐

30

60

90

120

150

180

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Order Book (Rs mn) Revenues (Rs mn)Order book/sales (x) ‐ RHS

‐

2

4

6

8

10

12

‐

10

20

30

40

50

60

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Revenues (Rs bn) EBIDTA Margins (%) ‐ RHS


Page | 63

Key Assumptions And Estimates

Key Assumptions Rs mn FY18E FY19E FY20E

Growth% Comments

FY18E FY19E FY20E

Closing order book 131,662 152,720 148,349 42.2 16.0 (2.9) We expect 6.1% FY18‐20E order book CAGR on the back of strong bid pipeline

Order book growth (%) 42.2 16.0 (2.9)

New order booking 76,234 65,394 49,657 62.1 (14.2) (24.1)

SEL’s strong credential in Roads, Mining And Irrigation segment will drive orders. SEL is also looking at Metro projects now, and this segment can add incrementally to the order backlog

Book to bill ratio 3.5 3.4 2.7 Book‐to‐bill ratio to remain stable

Total Revenue 37,156 44,337 54,028 11.9 19.3 21.9 With a pickup in order booking, we estimate 20.6% FY18‐20E revenue CAGR.

Growth (%) 11.9 19.3 21.9

EBIDTA 4,218 5,054 6,148 18.6 19.8 21.6FY18‐20E EBIDTA CAGR of 20.7% is similar to revenue CAGR, owing to margin remaining stable

EBIDTA margin (%) 11.4 11.4 11.4 64.3 4.7 (2.0)Depreciation 1,037 1,148 1,333 3.7 10.7 16.1

Financial Charges 1,104 1,030 954 (28.0) (6.7) (7.4)

We expect borrowing cost to reduce on account of a cut in interest rates and recovery of loans given to SIPL and higher mobilisation advance for HAM projects.

PBT 2,269 3,081 4,086 19.6 35.8 32.6 FY18‐20E PBT CAGR of 34.2%

PBT margin (%) 6.1 6.9 7.6 39.4 84.2 61.4 PBT margin expansion in line with EBIDTA expansion and reduction in interest expense

Tax 136 370 1,307 642.5 171.6 253.7

Tax rate (%) 6.0 12.0 32.0 Tax rate to move higher, and MAT benefit will be over by FY18E

APAT 2,133 2,711 2,778 (1.5) 27.1 2.5 FY18‐20E PAT CAGR of 17.7%. This is on account of tax ramp up

Net margin (%) 5.7 6.1 5.1 (78.3) 37.4 (97.2) Margin to remain stable

We expect SEL to deliver 20.6% FY18‐20E revenue CAGR SEL guided for Rs 60‐70bn of new orders for FY18E and has achieved close to Rs 87bn inflows excluding Rs 10bn from KSHIP project which is currently L1 EBIDTA margins to remain around 11.4%, as new HAM orders have 100bps higher margins vs. EPC orders We expect SEL to bring down standalone debt to Rs 10.7bn by FY20E. New HAM orders have time‐based billing vs. milestone‐based billing in EPC orders. This will help reduce WC demand. We have estimated 17.7% adjusted EPS CAGR for FY18‐20E. Tax rate will ramp up as MAT credit will get over by FY18E


Page | 64

Key Assumptions Rs mn FY18E FY19E FY20E

Growth% Comments

FY18E FY19E FY20E

Gross Block Turnover 5.1 5.4 5.5 4.2 4.9 3.1 Improvement on account of new orders’ inflow

Debtor days 152 128 123 3.6 (15.9) (2.8)

CFO ‐ a 5,984 4,261 4,222 Cash flow improvements in line with EBIDTA growth and EBIDTA margins expansion

CFI ‐ b (508) (1,001) (1,442) We are building cumulative Rs 1,200mn capex over FY18‐19E

FCF ‐ a+b 5,484 3,261 2,722 Strong free cash flow generation as growth picks up

CFF ‐ c (5,345) (3,071) (2,695) Surplus cash flows utilised to repay debt Total change in cash ‐a+b+c 131 189 85


Change In Estimates (Standalone)

Rs mn FY18ENew

FY18E Old

% Change

FY19ENew

FY19E Old

% Change

FY20ENew

FY20E Old

% Change

Revenues 37,156 39,318 (5.5) 44,337 45,543 (2.6) 54,028 51,788 4.3 EBIDTA 4,218 4,236 (0.4) 5,054 4,919 2.8 6,148 5,583 10.1 EBIDTA Margins (%) 11.4 10.8 5.4 11.4 10.8 5.5 11.4 10.8 5.6 APAT 2,133 1,922 11.0 2,711 2,226 21.8 2,778 2,663 4.3 EPS (INR) 12.4 11.2 11.0 15.8 13.0 21.8 16.2 15.5 4.3 Source: Company, HDFC sec Inst Research

SEL will generate surplus‐free cash flow over FY18‐20E. This shall be utilised to reduce debt We have revised our estimates to factor in the superior EBITDA margins in the recently won HAM projects vs. the old EPC projects. We have assumed lower tax rate as well to factor in MAT credits


Page | 65

Outlook And Valuation Upgrade To BUY With An Increased Target Price Of Rs 445 Valuation methodology

We have valued SEL at 18x one‐year forward Mar‐20E EPS. Our investment premise is based on (1) Robust order book at 3.7x FY18E revenue, (2) Improving balance sheet (FY20E net D/E will improve to 0.4x from 0.76x end 3QFY18), (3) EBIDTA margins expansion, and (4) New order accretion from the Metro segment. With SIPL turning cash positive, it may be in a position to return SEL loans, and may not require further equity support for Hybrid BOT/Toll projects. This will help SEL to retire its own debt.

Government‐led spends in the Infrastructure sector will continue to drive stock performance

and SEL, with its strong credentials, will likely benefit from the pick‐up in ordering activity. The company, over the past many years, has built strong pre‐qualification in potentially large ordering segments such as Roads, Mining and Irrigation.

We upgrade SEL to BUY from NEU with an increased SOTP‐based target price of Rs 445/share (vs. Rs 407/share earlier). We value the (1) Standalone EPC business at Rs 292/share (18x one‐year forward Mar‐20 EPS), and (2) SEL stake in SIPL at 20% holding company discount to current market capitalization at Rs 136/sh.

SOTP Valuation



Sadbhav Standalone Core construction business 50,007 292 At 18x Mar‐20E EPS

SIPL stake Subsidiary 26,304 153We have valued the 68.64% stake of SEL in SIPL by giving a 20% holding company discount to current market capitalization

Total 76,312 445 Source: HDFC sec Inst Research

We value the standalone EPC business at Rs 292/share (18x one‐year forward Mar‐20E EPS) We value SEL stake in SIPL at 20% holding company discount to current market capitalization of SIPL at Rs 136/sh We maintain a BUY rating for SEL, with an increased SOTP‐based target price of Rs 445/share (vs. Rs 407/share earlier), largely driven by SIPL valuation re‐rating higher at CMP and roll forward of earnings to Mar‐20E


Page | 66

Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 31,863 33,203 37,156 44,337 54,028Growth (%) 7.3 4.2 11.9 19.3 21.9Material Expenses 25,805 26,552 30,218 36,268 44,260Employee Expenses 1,228 1,366 1,375 1,552 1,945Other Expenses 1,482 1,729 1,345 1,463 1,675EBIDTA 3,348 3,556 4,218 5,054 6,148EBIDTA (%) 10.5 10.7 11.4 11.4 11.4EBIDTA Growth (%) 11.5 6.2 18.6 19.8 21.6Depreciation 971 1,000 1,037 1,148 1,333EBIT 2,377 2,556 3,181 3,906 4,815Other Income (Incl EO Items) 776 875 192 204 224Interest 1,507 1,534 1,104 1,030 954PBT 1,646 1,897 2,269 3,081 4,086Tax 325 18 136 370 1,307RPAT 1,320 1,878 2,133 2,711 2,778OCI/EO (Loss) / Profit (Net Of Tax) 73 287 ‐ ‐ ‐APAT 1,393 2,166 2,133 2,711 2,778APAT Growth (%) 36.9 55.5 (1.5) 27.1 2.5EPS 8.1 12.6 12.4 15.8 16.2EPS Growth (%) 36.8 55.5 (1.5) 27.1 2.5Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 172 172 172 172 172 Reserves 14,721 16,437 18,329 20,799 23,337 Total Shareholders’ Funds 14,892 16,609 18,501 20,971 23,508 Long Term Debt 4,932 3,062 3,062 2,262 762 Short Term Debt 7,275 14,709 10,709 9,709 9,709 Total Debt 12,207 17,771 13,771 11,971 10,471 Deferred Taxes (90) (477) (477) (477) (477) Other Long Term Liabilities & LT Provs 32 98 98 98 98

TOTAL SOURCES OF FUNDS 27,041 34,002 31,893 32,563 33,601 APPLICATION OF FUNDS Net Block 5,931 5,229 4,692 4,543 4,710 Investments 5,629 5,694 5,994 6,194 6,344 Long Term Loans & Advances 285 316 216 221 237 Other Non‐current Assets 692 630 630 630 630 Total Non‐current Assets 12,537 11,870 11,532 11,589 11,922 Inventories 1,406 1,234 1,656 1,987 2,425 Debtors 9,994 16,651 14,252 16,763 19,539 Cash & Equivalents 166 230 361 550 636 ST Loans & Advances 5,547 5,065 5,090 5,345 5,033 Other Current Assets 5,211 4,678 5,133 5,466 5,181 Total Current Assets 22,324 27,857 26,491 30,111 32,813 Creditors 3,703 4,910 5,090 7,896 9,621 Other Current Liabilities 4,083 795 1,018 1,215 1,480 Short Term Provisions 33 20 22 27 32 Total Current Liabilities & Provns 7,819 5,725 6,130 9,137 11,134 Net Current Assets 14,505 22,132 20,361 20,974 21,679 TOTAL APPLICATION OF FUNDS 27,041 34,002 31,893 32,563 33,601 Source: Company, HDFC sec Inst Research


Page | 67

Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT 1,646 1,897 2,269 3,081 4,086Non‐operating & EO items (522) (759) (192) (204) (224)Interest expenses 1,507 1,534 1,104 1,030 954Depreciation 971 1,000 1,037 1,148 1,333Working Capital Change (1,261) (4,302) 1,902 (424) (619)Taxes (659) 235 (136) (370) (1,307)OPERATING CASH FLOW ( a ) 1,682 (394) 5,984 4,261 4,222Capex (983) (322) (500) (1,000) (1,500)Free cash flow (FCF) 699 (716) 5,484 3,261 2,722Investments (37) 1,133 (8) (1) 58INVESTING CASH FLOW ( b ) (1,020) 811 (508) (1,001) (1,442)Share capital Issuance 2 2 ‐ ‐ ‐Debt Issuance 1,059 3,747 (4,000) (1,800) (1,500)Interest expenses (1,507) (3,957) (1,104) (1,030) (954)FCFE 250 (926) 380 431 268Dividend (145) (145) (241) (241) (241)FINANCING CASH FLOW ( c ) (591) (353) (5,345) (3,071) (2,695)NET CASH FLOW (a+b+c) 70 64 131 189 85Closing Cash & Equivalents 166 230 361 550 636Source: Company, HDFC sec Inst Research


PROFITABILITY (%) GPM 19.0 20.0 18.7 18.2 18.1 EBITDA Margin 10.5 10.7 11.4 11.4 11.4 EBIT Margin 7.5 7.7 8.6 8.8 8.9 APAT Margin 4.1 5.7 5.7 6.1 5.1 RoE 9.4 13.0 11.5 12.9 11.8 Core RoCE 9.0 9.0 11.7 13.3 12.3 RoCE 12.2 13.1 12.4 14.0 12.6 EFFICIENCY Tax Rate (%) 19.8 1.0 6.0 12.0 32 Asset Turnover (x) 4.7 4.9 5.1 5.4 2 Inventory (days) 16 14 16 16 16 Debtors (days) 109 146 152 128 123 Other Current Assets (days) 134 118 109 96 69 Payables (days) 42 54 50 65 75 Other Current Liab (days) 48 10 11 11 11 Cash Conversion Cycle (days) 170 214 216 164 122 Debt/EBITDA (x) 3.6 5.0 3.3 2.4 1.7 Net D/E 0.81 1.06 0.72 0.54 0.42 Interest Coverage 1.6 1.7 2.9 3.8 5.0 PER SHARE DATA EPS (Rs/sh) 8.1 12.6 12.4 15.8 16.2 CEPS (Rs/sh) 16.6 21.0 21.0 25.6 27.2 DPS (Rs/sh) 0.9 1.1 1.2 1.2 1.2 BV (Rs/sh) 86.8 96.8 107.9 122.3 137.0 VALUATION P/E 48.9 31.4 31.9 25.1 24.5 P/BV 4.6 4.1 3.7 3.2 2.9 EV/EBITDA 23.9 24.1 19.3 15.7 12.7 OCF/EV (%) 2.1 (0.5) 7.3 5.4 5.4 FCF/EV (%) 0.9 (0.8) 6.7 4.1 3.5 FCFE/Market Cap (%) 0.4 (1.4) 0.6 0.6 0.4 Dividend Yield (%) 0.2 0.3 0.3 0.3 0.3 Source: Company, HDFC sec Inst Research


Ashoka Buildcon BUY


Multiple triggers ABL had a robust 4QFY18 with 5 new HAM projects win in Feb/Mar‐18 totaling Rs 55.4bn. The bid project cost was 22.5% higher than NHAI cost and aggregate L1/L2 difference is mere 3%. The financial bids look attractive and achieving financial closure will be a mere formality now.

Total inflows including the TOT refurbishment EPC cost (Macquarie won the TOT) of Rs 10bn and considering the EPC value of HAM projects will be Rs 59bn during FY18E. This is all time high in ABL history and higher than our estimate of Rs 44bn. The total order backlog gross of 4QFY18E revenue would be Rs 114bn (4.5x FY18E revenue).

Investors concern surrounding real estate foray has also been addressed with ABL terminating the MIAL airport development due to non‐clarity on development rights. This will insulate BS from cyclical issues around real estate and lead to capital allocation to familiar and core roads asset business.

With strong traffic recovery in projects SBI‐Macquarie’s exit in ACL may happen in FY19E. EPC bid pipeline remains strong with ABL qualified to bid for Mumbai‐Nagpur and Purvanchal expressways totaling Rs 350bn. HAM pipeline remains robust with projects worth Rs 500bn to be awarded in 1QFY19E. Owing to high inflows we have upgraded ABL standalone EPS by 11‐23% over FY18‐20E. We maintain BUY, roll forward valuation to Mar‐20E and increase TP to Rs 348/sh vs. Rs 276/sh earlier.

Investment Arguments

3QFY18 Toll collection grew 18% YoY: ACL portfolio grew 19.6% on back of strong growth pick up in Sambalpur (28.8% YoY growth) & Belgaum project (23% YoY growth) as mining activity picked up. Dhankuni toll collection grew 22.8% YoY as Haldia Port activity recovered. Jaora grew 17.2% YoY.

Pending equity requirement of Rs 8.7bn: ABL has pending equity requirement of Rs 8.7bn to be invested over 2‐3 years (Roads – Rs 1.8bn, City gas – Rs 0.3bn. New HAM ‐ Rs 6.6bn). The earlier plan of investing Rs 2.4bn equity in MIAL real estate project has now been shelved. The same will be re‐routed to new HAMs.

BS strong with gross standalone D/E at 0.1x: With standalone gross debt of Rs 2.5bn end 3QFY18, gross d/e is 0.1x. ABL can meet the portfolio equity requirement from internal cash flows and strength of strong standalone balance sheet.

Financial Summary (Consolidated) (Rs mn) FY17 FY18E FY19E FY20E Net Sales 29,753 34,277 39,274 46,721 EBITDA 8,946 9,908 11,028 12,918 APAT (100) 412 1,427 1,611 Diluted EPS (Rs) (0.5) 2.2 7.6 8.6 P/E (x) (507) 122.7 35.4 31.4 EV / EBITDA (x) 10.8 10.1 9.4 7.9 RoE (%) (0.6) 2.5 8.3 8.8 Source: Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg ASBL IN


MCap (Rs bn) / ($ mn) 49/756




3M 6M 12M

Absolute (%) 9.4 40.8 24.1

Relative (%) 10.8 34.8 9.0


Promoters 54.81


FPIs 5.82




ASHOKA BUILDCON : COMPANY UPDATE

Page | 69

ABL’s FY18 order book stands at Rs 114bn with Rs 54.5bn worth of new order wins during. Post Ashoka has already won 5 HAM projects with EPC value of Rs 44bn in Karnataka, Gujarat and Jharkhand. Additionally it has added EPC works of Rs 10.3bn as part of the TOT bundles won with partner MAIF 2 Investments We have assumed Rs 56.9/62.6bn of new order inflow during FY18/19E Roads segment’s (EBIDTA margins of 12‐12.5%) order book has declined sequentially vs. the T&D order book which has remained constant (EBIDTA margins of 9‐10%) As HAM model gains popularity, its share in order book is gradually increasing. ABL claims to have 100bps higher margins in captive BOT margins and with increasing share of HAM, EBIDTA margins may remain in 12‐13% band

Order Book Assumptions (EPC) Rs mn FY16 FY17 FY18E FY19E FY20E Opening Order Book 32,126 41,106 70,047 101,636 134,326 Add: New Order Wins 28,219 39,255 56,920 62,612 53,220 Less: Orders Executed 19,239 21,087 25,330 29,922 36,280 Closing Order Book 41,106 70,047 101,636 134,326 151,266 Order Book/Sales (x) 2.1 3.3 4.0 4.5 4.2 Source: Company, HDFC sec Inst Research Order Book Skewed Towards Roads – EPC and HAM

Within Roads ‐ HAM Captive Increasing


0%

20%

40%

60%

80%

100%

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

Roads ‐ BOT Roads ‐ EPC Roads ‐ HAM Power T&D

0%

20%

40%

60%

80%

100%

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

Roads ‐ BOT Roads ‐ EPC Roads ‐ HAM


Page | 70

We expect ABL order book to multiply 1.5x over FY18‐20E % BOT EBIDTA to grow to 79.8% By FY20E Order book growth to mirror ordering in roads and T&D segments BOT revenue may de‐grow during FY18‐19E as ABL’s toll projects are expiring in FY18E. This may result in toll revenue contraction largely contributed by Indore, Wainganga and Aurangabad projects Strong FCF to result in stable gross consolidated debt. Incremental borrowing only for BOT projects funding Consolidated Net D/E to reduce to ~2.8x by FY20E

EPC‐Order Book To Multiply 1.5x Over FY18‐20E % BOT EBIDTA To grow to 79.8% By FY20E

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Consolidated Net D/E Ratio To Remain around 2.8x

ABL To generate FCF Of ~Rs 7.6bn In FY20E


1.0

2.0

3.0

4.0

5.0

6.0

‐15 30 45 60 75 90 105 120 135 150 165

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Order Book (Rs bn) EPC Revenues (Rs bn)Order book/sales (x) ‐ RHS

‐10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

‐

2.0

4.0

6.0

8.0

10.0

12.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

BOT Revenues (Rs bn) EBITDA margins (%) ‐ RHS

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

‐

10

20

30

40

50

60

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Net Debt (Rs bn) Net D/E Ratio (x) ‐ RHS

(6.0)(4.0)(2.0)‐2.0 4.0 6.0 8.0 10.0

‐

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY15

FY16

FY17

FY18E

FY19E

FY20E

Cons.EBITDA (Rs bn)Cons. Cash flow from operations (Rs bn)Cons. FCF (Rs bn) ‐ RHS


Page | 71

Toll Revenue Growth Picking Pace – Value BOTs At Rs 76/Sh

ABL’s 3QFY18 total BOT toll collections (adjusted for toll collection stoppage in 3QFY17) grew ~18.1% YoY to Rs 2,534.5mn. Whilst ACL projects grew ~19.6% YoY, ABL projects (ex Indore project) toll grew ~11.8% YoY.

There were no toll hikes in 3QFY18. Adjusted for toll stoppages taken in 3QFY17, toll grew 23.0%, 22.8%, 13.2%, 9.9%, 17.2% and 28.8% YoY in Belgaum, Dhankuni, Bhandara, Durg, JN and Sambalpur respectively.

Sambalpur project: The toll collection post full COD has improved to Rs 1.8mn/day on back of mining recovery and plugging of leakages. Despite this, Rs 1.8mn/day toll would be 25% lower vs. est.

PNG: has terminated the project and handed over toll collection to NHAI on 13th Apr 2016. ABL has written off Rs 1.4bn on account of equity investment. The consortium has claimed compensation from NHAI amounting to Rs 17.5bn including debt (equity portion will be Rs 5.5bn, ABL share Rs 1.4bn). Final NHAI award is awaited.

Balance Equity Requirement: Rs 8.7bn requirement over next 2‐3 years. New HAMs – Rs.6.6bn, Roads – Rs 1.8bn and Rs 0.3bn for its Ratnagiri city gas project.

MIAL real estate project – ABL has exited the project in mutual agreement with MIAL with no financial or otherwise implications. This is a win‐win for shareholders as capital allocation may now move to core road assets business.

BOT Project – Valuation Stake (%) WACC (%) ProjectValue (Rs mn)

Value for ABL (Rs mn)

Per share value (Rs/sh)

NH‐4‐Belgaum Dharwad 100 14 2,075 2,075 6.8 NH‐6‐Sambalpur Baragarh 100 14 (987) (987) (3.2) NH‐6‐Dhankuni Kharagpur 100 14 4,176 4,176 13.6 NH‐6‐Durg (Chattisgarh ‐ Maharashtra) 51 14 1,313 670 2.2 NH‐6‐Bhandara (Maharashtra –Chattisgarh) 51 14 592 302 1.0

SH‐31‐Jaora Nayagaon 38 14 13,985 5,278 17.2 Chennai ORR 50 14 1,810 905 2.9 Total – Ashoka Concessions @ 61% stake 14 22,964 12,418 40.5 ABL‐Ahmednagar‐Aurangabad 100 14 242 242 1.3 ABL‐Nashirabad 100 14 120 120 0.6 VHPL‐Indore – Edalabad 100 14 851 851 4.5 JAIPL‐Wainganga 50 14 707 353 1.9 SH‐31‐Jaora Nayagaon 36 14 13,985 5,063 27.1 Total – ABL Projects 15,906 6,630 35.4 TOTAL BOT Value 38,870 14,205 75.9 Source: Company, HDFC sec Inst Research

Adjusted for toll hikes JN‐ 7.1%, Dhankuni, Belgaum and Sambalpur‐ 4%, traffic in these projects grew 10.4%, 11.9%, 12.5% and 11.0%respectively Other ACL projects Bhandara, Durg are still reporting muted growth Total pending equity requirement is Rs 8.7bn to be invested over 2‐3 years. Roads – Rs 1.8bn, City gas Rs 0.30bn & New HAM Rs 6.6bn We have valued ABL’s 61% stake in ACL projects at Rs 40.5/sh and the direct BOTs at Rs 35.4/sh. The total asset portfolio is valued at Rs 75.9/sh Mudhol – Nipani received completion certificate (COD – 11 Dec16) and entitled to receive annuity payment


Page | 72

Key Assumptions And Estimates ‐ Standalone

(Rs mn) FY18E FY19E FY20E Growth%

Comments FY18E FY19E FY20E

Order Book (Rs mn)

Opening Order Book 70,047 101,636 134,326

Add: New Order Wins 56,920 62,612 53,220 45.0 10.0 (15.0)

Less: Orders Executed 25,330 29,922 36,280

Closing Order Book 101,636 134,326 151,266 45.1 32.2 12.6 19.7% FY18‐20E CAGR

Trailing Order Book/Sales (x) 4.0 4.5 4.2

Revenue 25,330 29,922 36,280 20.1 18.1 21.3 13% FY18‐20E EPC revenue CAGR

EBIDTA EPC 3,220 3,770 4,589 (13.6) (14.6) (17.9) 13.9% FY18‐20E EPC EBIDTA CAGR

EBIDTA margins EPC 12.7 12.6 12.7 (47.7) (11.1) 5.0 EBIDTA margins to remain in 12‐12.5% range

Depreciation 536 649 766 25.0 21.0 18.1

Financial Charges 508 598 653 (23.2) 17.6 9.217.3% finance cost CAGR as WC demand picks up with execution ramp up in roads projects

Other income 456 365 391 (37.0) (20.0) 7.2

PBT 2,631 2,888 3,561 9.0 9.8 23.3 10.5% FY18‐20E PBT CAGR on account of higher interest cost

PBT margin (%) 10.4 9.7 9.8 (9.3) (7.1) 1.7

Tax 579 693 1,140

Tax rate (%) 22.0 24.0 32.0 (223.4) 200.0 800.0 From FY19‐20E MAT benefit expires

PAT 2,052 2,195 2,422 12.2 6.9 10.3 6.6% FY18‐20E Profit CAGR

PAT margin (%) 8.1 7.3 6.7 (57.1) (76.7) (66.1)Source: HDFC sec Inst Research

We expect ABL order book to multiply 1.5x over FY18‐20E FY18‐20E order inflow CAGR of 7.5% will largely be driven by Hybrid Annuity & third‐party NHAI road EPC projects FY18‐20E EPC revenue CAGR of 13% EPC EBIDTA margins to remain in 12‐12.5% band Financial charges will jump over FY18‐20E as ABL working capital demands increases with execution ramp up 6% FY18‐20E APAT CAGR as ABL moves to full tax rate and high interest costs impact profitability


Page | 73

Key Assumptions and Estimates ‐ Consolidated

Key Assumptions (Rs mn) FY18E FY19E FY20EGrowth%

Comments FY18E FY19E FY20E

Toll revenue 8,947 9,352 10,441 3.2 4.5 11.6 8.0% FY18‐20E Toll revenue CAGR EPC revenue 25,330 29,922 36,280 20.1 18.1 21.3 13.0% FY18‐20E EPC revenue CAGR Total Revenue 34,277 39,274 46,721 15.2 14.6 19.0 11.7% FY18‐20E revenue CAGR

EBIDTA Toll 6,688 7,258 8,329 8.5 8.5 14.810.8% FY18‐20E EBIDTA CAGR as all toll projects start contributing to revenue and EBIDTA margin expands

EBIDTA EPC 3,220 3,770 4,589 15.8 17.1 21.7 13.9% FY18‐20E EPC EBIDTA CAGR Total EBIDTA 9,908 11,028 12,918 10.7 11.3 17.1 11.8% FY18‐20E EBIDTA CAGR

EBIDTA margins toll 74.8 77.6 79.8 360.8 285.2 216.6 Margins expansion in line with growth in high margin toll revenue

EBIDTA margins EPC 12.7 12.6 12.7 (47.7) (11.1) 5.0 EBIDTA Margins 28.9 28.1 27.6 (116.4) (82.5) (43.0) Depreciation 2,845 3,044 3,785 4.0 7.0 24.3

Financial Charges 7,504 7,338 7,546 (5.0) (2.2) 2.8

Borrowing cost includes about Rs 2.7bn of non cash item on account of intangible now being treated at NPV value vs. absolute amount earlier. This has resulted in Rs 55bn reduction in NHAI premium deferral. Interest provisioning will accrue to NPV through P&L and is non cash. Earlier it was capitalized and reflected in amortization

Other income 1,236 1,254 1,270 1.0 1.5 1.3 Will include annuity projects profitability PBT 795 1,900 2,858 (271.3) 139.1 50.4PBT margin (%) 2.3 4.8 6.1 387.8 252.0 127.9Tax 858 929 1,442 8.6 8.3 55.3

Tax rate (%) 107.9 48.9 50.5 27,812.9 (5,906.3) 159.4Tax rate to remain high as MAT is incurred on profitable BOT projects, while losses offset standalone profits

We expect ABL to deliver 11.7% FY18‐20E revenue CAGR. This will largely be driven by EPC revenue CAGR of 13% Jaora Nayagaon project is now being consolidated from FY17. ABL holds 36.26%, ACL holds 37.74% and Macquarie hold 26%. ABL economic interest in the project 59.3% BOT margins to expand as toll growth picks up High tax rate as ABL pays tax on profit‐making BOTs at MAT and full tax on EPC


Page | 74

Key Assumptions (Rs mn) FY18E FY19E FY20E

Growth% Comments

FY18E FY19E FY20EPAT (63) 972 1,416

Loss/(Profit) Minority (421) (455) (196) Minority losses on account of initial years losses in BOT projects

Share of Profit/loss Asso. 54 ‐ ‐

Profits from Wainganga. Loss making PNG project has been terminated and hence profits from associate has improved

Net Profit 412 1,427 1,611 (513.5) 246.4 12.9Gross Block Turnover 0.4 0.5 0.6 16.1 14.5 19.6Debtor days 65 70 64 8.6 7.4 (8.3)CFO ‐ a 8,148 6,689 10,753CFI ‐ b (3,349) (2,097) (2,081) Includes equity investments in BOT’s

FCF ‐ a+b 4,800 4,592 8,672 Strong free cash flow generation as growth picks up

CFF ‐ c (4,942) (4,776) (8,984) Surplus cash flow utilised to repay debt service interest

Total change in cash ‐a+b+c (142) (184) (312) Net change in cash doesn’t impact debt

position materially Source: HDFC sec Inst Research

Change In Estimates ‐ Consolidated

Rs mn FY18E Old FY18E New % Change FY19E Old FY19E New % Change FY20E Old FY20E

New % Change

Revenues 34,277 34,277 0.0 38,371 39,274 2.4 42,783 46,721 9.2 EBIDTA 9,804 9,908 1.1 10,874 11,028 1.4 12,249 12,918 5.5 EBIDTA Margins (%) 28.6 28.9 30.5 28.3 28.1 (25.9) 28.6 27.6 (98.1)

APAT 427 412 (3.5) 1,331 1,427 7.2 1,306 1,611 23.4 Adj. EPS (INR) 2.3 2.2 (4.3) 7.1 7.6 7.4 7.0 8.6 23.4 Source: Company, HDFC sec Inst Research

Change In Estimates ‐ Standalone

Rs mn FY18E Old FY18E New % Change FY19E Old

FY19E New % Change FY20E Old

FY20E New

% Change

Revenues 25,330 25,330 0.0 28,370 29,922 5.5 32,342 36,280 12.2 EBIDTA 3,116 3,220 3.3 3,518 3,770 7.2 4,043 4,589 13.5 EBIDTA Margins (%) 12.3 12.7 41 12.4 12.6 20 12.5 12.7 15 APAT 1,826 2,052 12.4 1,775 2,195 23.7 2,076 2,422 16.7 Adj. EPS (INR) 9.8 11.0 11.9 9.5 11.7 23.5 11.1 12.9 16.6 Source: Company, HDFC sec Inst Research

Non controlling interest attribution to result in net profit over FY18‐20E Change in cash position doesn’t impact debt position materially We have upgraded our earnings estimates to factor in the recent HAM project awards and the additional scope as preferred EPC partner for the TOT project


Page | 75

Outlook And Valuation Increase Target Price To Rs 348/sh

We have valued ABL standalone on P/E basis at 18x one‐year forward Mar‐20E EPS and in line with peers’ valuation. Our rationale behind this is (1) Strong order book with ~1.5x increase over the FY18‐20E period to Rs 127bn, (2) Stable balance sheet (FY20E standalone net D/E at 2.8x), and (3) Limited equity support requirement from ACL (Rs 8.7bn). Further, with the reduction in share of T&D revenue in the mix, the working capital cycle may improve, leaving scope for further balance sheet improvement.

ABL has guided for higher EPC margins now in the 12.5‐13.5% range in line with peers like KNR/PNC we have captured this partly in higher EPC multiple of 18x (in line with peers). Further, multiple is supported by ABL’s (1) Diversified presence in roads and T&D segments, the biggest beneficiary of government spending (2) Strong execution capability, and (3) Likely support from captive order book in lieu of any contraction in future roads EPC orders. The government‐led spends in

the infrastructure sector will continue to drive stock performance and ABL, with its strong credentials, will likely benefit from the pick‐up in ordering activity. The company, over the past many years, has built strong pre‐qualification in potentially large ordering segments such as roads and T&D

We have valued toll business separately under Ashoka Concessions and ABL’s direct projects. We have used 14% discount rate for arriving at NPV of the projects. Our estimates for Sambalpur/ Dhankuni/Belgaum are lower vs. consensus. We value the BOT business at Rs 76/sh (1.1x of ABL invested equity).

We maintain BUY with an increased TP of Rs 348/share. We peg (1) Standalone EPC business at Rs 233/share (18x mar‐20E EPS) and (2) ABL BOT projects at Rs 76/share (3) Land at 0.5x historical costs at Rs 7/share & (4) Introduce HAM likely equity investment of Rs 32/sh at 1x P/BV to be invested over FY19‐20E.

SOTP Valuation

Segment Project Value (Rs mn)

Value for ABL (Rs mn) @ 61% stake

Per share value (Rs/sh) @ 61% stake Comments

Ashoka Concessions Ltd 22,964 7,575 41 DCF using 14% WACC ABL direct Projects 15,906 6,630 35 DCF using 14% WACC Total BOT Value 38,870 14,205 76

Standalone construction ‐ EPC 43,590 233 Standalone 18x Mar‐20E EPS

Land 1,391 7 0.5x P/BV

New HAM Project 6,000 32 1x P/BV of likely HAM invested equity FY19‐20E

SOTP Value 65,808 348 Source: HDFC sec Inst Research

We value ABL’s BOT portfolio at Rs 76/share (1.1x invested equity) We value standalone EPC business at Rs 233/share (18x one‐year forward Mar‐20E EPS) Real Estate land holding at Rs 7/share (0.5x P/BV) Maintain BUY with SOTP‐based target price of Rs 348/sh vs. Rs 276/sh earlier. Target price increased largely on account of roll forward of estimates to Mar20E along with increased projections for FY19‐20E to factor in the recent HAM inflows. We have also added Rs 32/sh to SOTP to factor in Rs 6bn of likely equity investment in new HAM won in 4QFY18E


Page | 76

Income Statement (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 28,249 29,753 34,277 39,274 46,721Growth (%) 21.8 5.3 15.2 14.6 19.0Material Expenses 17,022 18,563 21,997 25,754 31,127Employee Expenses 959 1,182 1,300 1,398 1,537Other Operating Expenses 1,085 1,061 1,073 1,094 1,138EBIDTA 9,183 8,946 9,908 11,028 12,918EBIDTA Margin (%) 32.5 30.1 28.9 28.1 27.6EBIDTA Growth (%) 94.1 (7.5) (3.9) (2.9) (1.5)Depreciation 2,690 2,735 2,845 3,044 3,785EBIT 6,492 6,211 7,063 7,984 9,134Other Income (Incl EO items) 241 1,224 1,236 1,254 1,270Interest 7,996 7,899 7,504 7,338 7,546PBT (1,263) (464) 795 1,900 2,858Tax 974 790 858 929 1,442Minority Interest/Share of associates (1,383) (1,154) (421) (455) (196)

RPAT (854) (100) 358 1,427 1,611Share Profit/(loss) from associates ‐ ‐ 54 ‐ ‐EO Items 299 ‐ ‐ ‐APAT (554) (100) 412 1,427 1,611APAT Growth (%) (168.0) (82.0) (513.5) 246.4 12.9Adjusted EPS (Rs/sh) (3.0) (0.5) 2.2 7.6 8.6EPS Growth (%) (168.0) (82.0) ‐ 246.4 12.9Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 936 936 936 936 936 Reserves 16,210 15,782 15,756 16,744 17,918 Total Shareholders’ Funds 17,146 16,717 16,691 17,680 18,853 Minority Interest 5,625 4,490 4,069 3,614 3,418 Long Term Debt 42,294 45,488 48,488 51,488 50,488 Short Term Debt 4,625 2,056 2,056 2,056 2,056 Total Debt 46,920 47,544 50,544 53,544 52,544 Net Deferred Taxes (221) (202) (202) (202) (202) Other Non Current Liabilities 27,307 28,485 28,836 29,191 29,551 TOTAL SOURCES OF FUNDS 96,775 97,035 99,938 103,827 104,164 APPLICATION OF FUNDS Net Block 85,148 83,695 83,850 83,805 83,021 CWIP/Intangible assets under development 200 366 2,213 2,922 1,865

Investments 2,276 1,863 1,600 1,800 2,000 Total Non‐current Assets 87,624 85,924 87,663 88,528 86,885 Inventories 10,731 12,036 13,157 13,602 15,314 Debtors 5,161 4,910 6,140 7,557 8,246 Cash & Equivalents 1,709 1,023 880 696 385 Other Current Assets 4,325 7,355 8,034 8,991 10,088 Total Current Assets 21,927 25,323 28,211 30,846 34,032 Creditors 5,400 5,744 7,456 7,053 8,246 Other Current Liabilities & Provns 7,375 8,467 8,480 8,494 8,508 Total Current Liabilities 12,775 14,211 15,936 15,547 16,754 Net Current Assets 9,152 11,112 12,275 15,299 17,278 TOTAL APPLICATION OF FUNDS 96,775 97,035 99,938 103,827 104,164 Source: Company, HDFC sec Inst Research


Page | 77

Cash Flow (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT (1,263) (464) 795 1,900 2,858Non‐operating & EO items (566) (799) (1,182) (1,254) (1,270)Interest expenses 7,996 7,899 7,504 7,338 7,546Depreciation 2,690 2,735 2,845 3,044 3,785Working Capital Change (6,524) (2,608) (956) (3,411) (723)Tax Paid (1,095) (744) (858) (929) (1,442)Minority Interest 1,270 1,025OPERATING CASH FLOW ( a ) 2,508 7,044 8,148 6,689 10,753Capex (1,089) (1,419) (4,848) (3,151) (3,151)Free cash flow (FCF) 1,419 5,625 3,300 3,538 7,602Investments (1,506) 1,124 1,499 1,054 1,070INVESTING CASH FLOW ( b ) (2,595) (295) (3,349) (2,097) (2,081)Share capital Issuance 4,916 (9) ‐ ‐ ‐Debt Issuance 3,826 653 3,000 3,000 (1,000)Interest expenses (7,996) (7,899) (7,504) (7,338) (7,546)Dividend (495) (180) (438) (438) (438)FINANCING CASH FLOW ( c ) 250 (7,435) (4,942) (4,776) (8,984)NET CASH FLOW (a+b+c) 163 (686) (142) (184) (312)Closing Cash & Equivalents 1,709 1,023 880 696 385Source: Company, HDFC sec Inst Research

Key Ratios (Consolidated) FY15 FY16 FY17E FY18E FY19E PROFITABILITY (%)GPM 39.7 37.6 35.8 34.4 33.4 EBITDA Margin 32.5 30.1 28.9 28.1 27.6 EBIT Margin 23.0 20.9 20.6 20.3 19.5 APAT Margin (2.0) (0.3) 1.2 3.6 3.4 RoE (3.6) (0.6) 2.5 8.3 8.8 RoIC 15.6 18.0 (0.6) 4.1 4.5 RoCE 17.7 21.9 (0.2) 5.1 5.1 EFFICIENCY Tax Rate (%) (77.1) (170.2) 107.9 48.9 50.5 Fixed Asset Turnover (x) 0.3 0.3 0.4 0.4 0.5 Inventory (days) 139 148 140 126 120 Debtors (days) 67 60 65 70 64 Other Current Assets (days) 56 90 86 84 79 Payables (days) 70 70 79 66 64 Other Current Liab & Provns (days) 63 74 64 57 48 Cash Conversion Cycle (days) 128 154 147 158 150 Debt/EBITDA (x) 5.1 5.3 5.1 4.9 4.1 Net D/E 2.6 2.8 3.0 3.0 2.8 Interest Coverage 0.8 0.8 0.9 1.1 1.2 PER SHARE DATA EPS (Rs/sh) (3.0) (0.5) 2.2 7.6 8.6 CEPS (Rs/sh) 11.4 14.1 17.4 23.9 28.8 DPS (Rs/sh) 1.8 2.0 2.0 2.0 2.0 BV (Rs/sh) 91.6 89.3 89.2 94.5 100.7 VALUATION P/E (91.2) (507.2) 122.7 35.4 31.4 P/BV 2.9 3.0 3.0 2.9 2.7 EV/EBITDA 10.4 10.8 10.1 9.4 7.9 EV/Revenues 3.4 3.3 2.9 2.6 2.2 OCF/EV (%) 0.0 0.1 0.1 0.1 0.1 FCF/EV (%) 1.5 5.8 3.3 3.4 7.4 FCFE/Market Cap (%) (5.4) (3.2) (2.4) (1.6) (1.9) Dividend Yield (%) 0.6 0.7 0.7 0.7 0.7 Source: Company, HDFC sec Inst Research


PNC Infratech BUY


Raring to grow PNC Infratech (PNCL) is recovering from slow upstart in order execution owing to delays in receiving appointed dates. Land acquisitions issues have been ironed out and entire order backlog of Rs 79bn is being mobilized on ground for execution. The concerns on guidance miss had led to de‐rating and with receipt of ‘Appointed Dates’ the tailwinds shall lead to massive re‐rating in ensuing quarters.

PNC current order backlog including Allahabad Chakeri HAM and Aligarh‐Kanpur HAM is Rs 106bn (5.9x FY18E revenue). The order book needs to be executed over next 3yrs. New order wins for FY18E stood at Rs 27bn. Jhanshi‐Khajuraho Pkg I/Bhojpur Buxar appointed date is expected by Apr‐18. Of the total order book about Rs 27bn is awaiting financial closure (expected by 1QFY19E). PNC’s balance sheet remains healthy with standalone net d/e of 0.1x.

Bid pipeline remains strong and we model for Rs 50bn of inflows in 1HFY19E. Large part of the backlog will be in EPC segment. Owing to strong balance sheet and likely monetization of existing BOT assets (with Rs 5.8bn of equity investments), there is enough headroom for funding HAM equity.

On account of entire order backlog moving into execution we upgrade our FY19/20E revenue by 13/19% & FY19/20E EPS by 28/47%. We roll forward our valuation to Mar‐20E and upgrade PNC to BUY from NEU with increased SOTP of Rs 248/share (previous TP Rs 213/sh).

Investment Arguments Enitre Rs 106bn order backlog to move into

execution from 3QFY19E: We expect FC of Allahabad‐Chakeri and Aligarh‐Kanpur projects by 1HFY19E and appointed date by 3QFY19E. Initial mobilization for these projects has already started and we estimate that PNC may beat its 40‐50% revenue FY19E revenue growth guidance and deliver about 60% growth YoY.

BOT monetization to aid Rs 7.4bn of HAM projects equity requirement: PNC’s HAM equity requirement is Rs 7.4bn which can be met from the monetization of the operational BOT portfolio. Total equity invested in operational assets is Rs 5.8bn and we have valued same at Rs 33.4/sh (implied 1.5x P/BV).

Standalone balance sheet strong, net D/E at 0.1x: PNC balance sheet is strong and in an event of delays in BOT asset monetization, BS can be leveraged to fund growth. NWC days is elevated at 139 due to initial mobilization and with receipt of Rs 4bn of HAM advances the NWC will improve.





Sensex 34,101

KEY STOCK DATA

Bloomberg PNCL IN


MCap (Rs bn) / ($ mn) 46/702




3M 6M 12M

Absolute (%) (9.5) 21.5 29.8

Relative (%) (8.1) 15.5 14.8


Promoters 56.07


FPIs 5.86




PNC INFRATECH : COMPANY UPDATE

Page | 79

We expect PNC’s order book to multiply 1.3x over FY18‐20E Roads EPC and HAM will be key drivers for order‐book growth PNC is targeting Rs 50bn order inflow in FY19E EBITDA and PAT margins to remain at ~14% and 6.8‐7.0% over FY17‐19E Expect PNC to add debt over FY18‐20E to fund capex and WC needs. FY20E‐end net D/E ratio may inch to 0.2x Expect net working capital cycle of 115 days in FY20E as share of NHAI projects increase in the order book

Order Book To Multiply 1.3x Over FY18‐20E EBIDTA Margins To Remains Stable at ~ 14%

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Expect FY20E Net D/E Ratio Of 0.24x Expect FY20E NWC Cycle Of 115 days


0

1

2

3

4

5

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8

5,000

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125,000

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FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Order book (Rs mn) Revenues (Rs mn)Book‐to‐bill ratio (x) ‐ RHS

Rs mn

‐

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

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FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

EBITDA Margins (%) PAT Margins (%) ‐ RHS

Rs mn

‐0.10

‐

0.10

0.20

0.30

0.40

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500

1,000

1,500

2,000

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Net Debt (Rs mn) Net D/E Ratio (x) ‐ RHS

0

50

100

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‐5000

5001,0001,5002,0002,5003,0003,5004,0004,500

FY12

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FY20E

Cash flow from operations ‐ LHS NWC Cycle ‐ RHS

Rs mn Rs mn


Page | 80

Strong BOT Portfolio – Value BOTs At Rs 33.4/sh (1.5x P/BV) Aligarh‐Ghaziabad project has been one of the key

pain points in PNC’s BOT portfolio. The toll collection has improved from Rs 280mn in 3QFY17 to Rs 510mn in 3QFY18. This translates into a Rs 5.6mn/day run rate which has declined to Rs 4.8mn after the overloading ban.

During 3QFY18 toll collection for the remaining projects improved from Rs 1.2bn in 3QFY17 to Rs 1.7bn in 3QFY18.

Raebareli‐Jaunpur annuity project: PNC received COD for the Raebareli‐Jaunpur BOT project on March 8, 2016. The project has achieved COD three months ahead of the June‐16 deadline. The management would receive Rs 370mn as bonus of which Rs 185mn will come to PNCL. Management expects to receive the same in 4QFY18E.

Toll collections have been better than expected in Kanpur Ayodhya, Gwalior Bhind, Kanpur Kabrai and Aligarh Ghaziabad project. We have valued PNC’s BOT portfolio at Rs 33.4/sh (1.5x P/BV).

Project PNC Stake (%) WACC (%)

PNC Equity Invested (INR mn)

ProjectValue (Rs

mn)

NPV (PNCL Share) INR

mn

Per share value

(Rs/sh)

Implied P/B (x)

Bareilly‐Almora‐Bagheshwar 100.0 13.5 750 567 567 2.2 0.8 Kanpur‐Kabrai 100.0 13.5 675 3,038 3,038 11.8 4.5 Gwalior Bhind 100.0 13.5 780 1,728 1,728 6.7 2.2 Aligarh‐Ghaziabad 35.0 13.5 1,860 (1,796) (629) (2.5) (0.3) Raebareli‐Jaunpur 100.0 13.5 1,395 768 768 3.0 0.6 Narela Industrial Estate 100.0 13.5 350 971 971 3.8 2.8 Kanpur‐Ayodhya 100.0 13.5 ‐ 2,131 2,131 8.3 ‐ Total 5,810 7,407 8,574 33.4 1.5 Source: Company, HDFC sec Inst Research

Change In Estimates (Standalone)

Rs mn FY18ENew

FY18E Old

% Change

FY19ENew

FY19E Old

% Change

FY20ENew

FY20E Old

% Change

Revenues 17,820 17,254 3.3 28,369 25,043 13.3 38,333 32,099 19.4 EBIDTA 2,518 2,297 9.6 3,983 3,352 18.8 5,360 4,285 25.1 EBIDTA Margins (%) 14.1 13.3 81.8 14.0 13.4 65.6 14.0 13.3 63.4 APAT 1,207 1,038 16.2 1,944 1,520 27.9 2,676 1,830 46.2 EPS (INR) 4.70 4.00 17.6 7.6 5.9 28.4 10.4 7.1 46.9 Source: Company, HDFC sec Inst Research

The Aligarh‐Ghaziabad BOT has achieved full COD in 3QFY17, resulting in 20% increase in toll. The toll collection has improved from Rs 280mn in 3QFY17 to Rs 510mn in 3QFY18 There is no pending equity to be invested in the completed projects. Total equity invested is Rs 5.8bn (PNC share) including Rs 1.2bn of loss funding to Aligarh‐Ghaziabad project PNC’s total asset portfolio is valued at Rs 33.4/sh On account of strong order backlog we increase our Revenue estimate for FY19/20E by 13‐19%. We upgrade our EPS estimate by 28‐47%. This is on account of lower interest expense & taxes and better revenue growth/EBIDTA margins


Page | 81

Key Assumptions And Estimates (Standalone) Key Assumptions ‐ Standalone FY18E FY19E FY20E Comments

Closing order book 1,16,746 1,38,514 1,54,080 We expect 14.9% FY18‐20E order book CAGR on back of strong NHAI & State EPC roads pipeline

Order book growth (%) 30.0 18.6 11.2New order booking 44,766 50,138 53,898Book to bill ratio 6.6 4.9 4.0 Book to bill to reduce as execution improves

Total Revenue 17,820 28,369 38,333 Strong order book accretion to result in FY18‐20E with revenue CAGR of 46.7%.

Growth (%) 5.5 59.2 35.1

EBIDTA 2,518 3,983 5,360 FY18‐20E EBIDTA CAGR of 45.9% with margin mix remaining stable.

EBIDTA margin (%) 14.1 14.0 14.0 Margins to remain around 14%. Depreciation 765 880 993

Financial Charges 300 517 762 Borrowing cost to grow at 59.3% FY18‐20E CAGR to meet working capital demand as execution improves

Other Income (Including EO Items) 905 231 273PBT 2,357 2,817 3,879 FY18‐20E PBT CAGR of 28.3% PBT margin (%) 13.2 9.9 10.1 PBT margins to decline on back of higher finance cost Tax (311) 507 1,202 Tax savings on account of MAT credit to reduce. Tax rate (%) (13.2) 18.0 31.0 Tax rate as per PNCL guidance RPAT 2,669 2,310 2,676

Removing MAT tax savings (1,462) (366) ‐We have also factored in 31% tax impact so difference in P&L tax provisioning is factored here to arrive at adjusted PAT at 31% tax rate

APAT 1,207 1,944 2,676 FY18‐20E APAT CAGR of 48.9% adjusted for full tax Net margin (%) 6.8 6.9 7.0Gross Block Turnover 2.7 3.7 4.4 Improvement on account of new orders inflow Debtor days 150 115 100 May improve as NHAI share increase in order book

CFO ‐ a 1,771 687 4,185 Higher revenue growth, robust client advance to result in higher positive cash flow from operations

CFI ‐ b (1,750) (3,050) (4,200)FCF ‐ a+b 21 (2,363) (15)CFF ‐ c 1,121 1,231 528Total change in cash ‐ a+b+c 1,143 (1,132) 513 Net cash position doesn’t change debt materially Source: HDFC sec Inst Research

We expect 14.9% FY18‐20E order backlog CAGR FY18‐20E revenue CAGR 46.7%, EBIDTA CAGR 45.9% EBIDTA margins to be maintained around 14% FY18‐20E APAT CAGR of 48.9% adjusted for full tax


Page | 82

Outlook And Valuation Upgrade To BUY With An Increase Target Price Of Rs 248/sh We value PNC on 10x one year forward EV/EBIDTA

in line with the implied 10x multiple for peers. Our rationale for the same is (1) a robust FY18E order book of Rs 106bn (5.9x FY18E revenue), (2) A strong balance sheet (FY18E standalone net D/E at 0. 1x, and (3) high share of NHAI EPC/HAM roads in the order book will result in lower working capital demand, as these projects have provision of advances.

Higher‐than‐estimated order intake may result in further stock re‐rating as PNC has (1) a diversified presence in roads and dedicated freight corridor, and a key beneficiary of upcoming Rs 2tn of roads awards in UP over next 4‐5yrs, (2) strong execution capability, which provides scope for earning early completion bonus (3‐6% of project cost) leading to EBIDTA margin expansion, (3) likely support from

the captive order book in lieu of any contraction in future roads EPC orders and (4) PNC is looking to monetize current BOT portfolio (Rs 5.8bn of invested equity) this may part fund Rs 7.4bn of HAM equity requirement

We have valued PNC’s toll projects using 13.5% discount rate for arriving at NPV of the projects. We value the BOT business at Rs 33/sh (1.5x of PNC invested equity).

We upgrade our rating to BUY from NEU with increased SOTP of Rs 248/share (previous TP Rs 213/sh). We value the (1) Standalone EPC business at Rs 192/share (10x one‐year forward Mar‐20E EBIDTA), (2) BOT projects at Rs 33/share and (3) HAM FY18‐20E cumulative equity investment at Rs 23/sh.

SOTP Valuation

Segment Valuation Methodology

Mar‐20E EBIDTA

Multiple(x)

Valuation (INR mn)

Value per Share (INR) Comment

Standalone construction ‐ EPC Mar‐20E EV/EBIDTA 5,360 10 49,277 192 We have reduced FY19E

standalone net debt BOT Value FCFE Mar‐20E 8,574 33

HAM Equity investment 6,000 23 1x P/BV cumulative equity investment over FY18‐20E

SOTP Value 51,966 248 Source: HDFC sec Inst Research

We value PNC on 10x one year forward EV/EBIDTA in line with the implied 10x multiple for peers We value standalone EPC business at Rs 192/share We value PNC’s BOT portfolio at Rs 33/share (1.5x invested equity) We value HAM projects at 1x P/BV of cumulative equity investment over FY18‐20E period Upgrade to BUY from NEU with increased TP of Rs 248/sh vs. Rs 213/sh earlier


Page | 83

Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 20,142 16,891 17,820 28,369 38,333Growth (%) 29.0 (16.1) 5.5 59.2 35.1Material Expenses 9,140 8,416 6,326 9,939 13,608Employee Expenses 836 1,003 1,224 1,653 2,000Other Operating Expenses 7,506 5,261 7,752 12,795 17,365EBITDA 2,660 2,210 2,518 3,983 5,360EBITDA Margin (%) 13.2 13.1 14.1 14.0 14.0EBITDA Growth (%) 22.8 (16.9) 13.9 58.2 34.6Depreciation 570 533 765 880 993EBIT 2,089 1,677 1,753 3,103 4,368Other Income (Including EO Items) 253 466 905 231 273Interest 399 203 300 517 762PBT 1,943 1,939 2,357 2,817 3,879Tax (Incl Deferred) (402) (158) (311) 507 1,202RPAT 2,345 2,097 2,669 2,310 2,676Removing MAT tax savings (810) (578) (1,462) (366) ‐APAT 1,535 1,518 1,207 1,944 2,676APAT Growth (%) 60.9 (1.1) (20.5) 61.1 37.7Adjusted EPS (Rs) 6.0 5.9 4.7 7.6 10.43EPS Growth (%) 60.9 (1.1) (20.5) 61.1 37.7Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital ‐ Equity 513 513 513 513 513 Reserves 13,271 15,209 17,394 19,221 21,414 Total Shareholders’ Funds 13,784 15,722 17,907 19,734 21,927 Long Term Debt 60 576 794 794 794 Short Term Debt 59 1,115 1,897 3,897 5,397 Total Debt 119 1,691 2,691 4,691 6,191 Net Deferred Taxes (30) (23) (23) (23) (23) Long Term Provisions & Others 1,596 1,675 1,593 1,515 1,441 TOTAL SOURCES OF FUNDS 15,469 19,065 22,169 25,918 29,537 APPLICATION OF FUNDS Net Block 2,125 3,479 3,963 3,833 4,041 CWIP 19 78 78 78 78 Investments 4,644 4,676 5,176 7,476 10,476 Other Non‐current Assets 757 1,687 1,772 1,860 1,953 Total Non‐current Assets 7,545 9,920 10,989 13,247 16,548 Inventories 2,364 1,535 1,709 2,720 3,676 Debtors 3,763 6,309 7,323 8,938 10,502 Other Current Assets 4,228 5,796 5,874 8,575 9,696 Cash & Equivalents 971 355 1,497 365 878 Total Current Assets 11,325 13,995 16,404 20,599 24,752 Creditors 942 2,369 2,929 3,886 6,301 Other Current Liabilities & Provns 2,460 2,480 2,295 4,042 5,461 Total Current Liabilities 3,402 4,849 5,224 7,928 11,762 Net Current Assets 7,924 9,145 11,180 12,671 12,989 TOTAL APPLICATION OF FUNDS 15,469 19,065 22,169 25,918 29,537 Source: Company, HDFC sec Inst Research


Page | 84

Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT 2,004 1,939 2,357 2,817 3,879Non‐operating & EO items (100) 26 ‐ ‐ ‐Interest expenses 249 (150) (605) 286 489Depreciation 525 533 765 880 993Working Capital Change (1,467) (2,599) (1,058) (2,789) 27Tax Paid ‐ 164 311 (507) (1,202)OPERATING CASH FLOW ( a ) 1,210 (86) 1,771 687 4,185Capex (394) (1,895) (1,250) (750) (1,200)Free cash flow (FCF) 817 (1,981) 521 (63) 2,985Investments (325) 268 (500) (2,300) (3,000)INVESTING CASH FLOW ( b ) (719) (1,627) (1,750) (3,050) (4,200)Debt Issuance/(Repaid) (3,411) 1,411 1,000 2,000 1,500Interest Expenses (332) (153) 605 (286) (489)FCFE (2,927) (722) 2,126 1,651 3,996Share Capital Issuance 4,172 ‐ 0 0 0Dividend (161) (161) (483) (483) (483)FINANCING CASH FLOW ( c ) 267 1,097 1,121 1,231 528NET CASH FLOW (a+b+c) 759 (616) 1,143 (1,132) 513Closing Cash & Equivalents 971 355 1,497 365 878Source: Company, HDFC sec Inst Research


PROFITABILITY (%) GPM 54.6 50.2 64.5 65.0 64.5 EBITDA Margin 13.2 13.1 14.1 14.0 14.0 APAT Margin 7.6 9.0 6.8 6.9 7.0 RoE 14.6 10.3 7.2 10.3 12.8 RoIC (or Core RoCE) 25.6 12.9 12.8 14.1 16.6 RoCE 19.7 13.4 14.6 11.4 11.5 EFFICIENCY Tax Rate (%) (20.7) (8.1) (13.2) 18.0 31.0 Fixed Asset Turnover (x) 4.7 2.8 2.4 3.5 4.2 Inventory (days) 43 33 35 35 35 Debtors (days) 68 136 150 115 100 Other Current Assets (days) 77 125 120 110 92 Payables (days) 17 51 60 50 60 Other Current Liab & Provns (days) 45 54 47 52 52 Cash Conversion Cycle (days) 125 189 198 158 115 Debt/EBITDA (x) 0.0 0.8 1.1 1.2 1.2 Net D/E (x) (0.06) 0.09 0.1 0.2 0.2 Interest Coverage (x) 5.2 8.3 5.8 6.0 5.7 PER SHARE DATA (Rs) EPS 6.0 5.9 4.7 7.6 10.4 CEPS 11.4 10.3 13.4 12.4 14.3 Dividend 2.5 0.5 1.5 1.5 1.5 Book Value 53.7 61.3 69.8 76.9 85.5 VALUATION P/E (x) 30.4 30.8 38.7 24.0 17.4 P/BV (x) 3.4 3.0 2.6 2.4 2.1 EV/EBITDA (x) 17.2 21.7 19.0 12.8 9.7 EV/Revenues (x) 2.3 2.8 2.7 1.8 1.4 OCF/EV (%) 2.6 (0.2) 3.7 1.3 8.0 FCF/EV (%) 1.8 (4.1) 1.1 (0.1) 5.7 FCFE/Mkt Cap (%) (6.3) (1.5) 4.6 3.5 8.6 Dividend Yield (%) 1.4 0.3 0.8 0.8 0.8 Source: Company, HDFC sec Inst Research


KNR Constructions BUY


All geared up KNRC is amongst the few midcap bell weather stocks which has multiplied ~12x since the formation of the new Government in 2014. The superior return is backed by a robust FY08‐18E track record with average (1) Net D/E at 0.22x (2) NWC days at 69 (3) Core RoIC of 23.3% and (4) No equity dilution since listing.

KNR has generated positive CFO in 9 out of last 10 years. EBIDTA margin has ranged between 14.6‐20% over FY08‐18E period. Revenue/APAT FY08‐18E CAGR is 14.3/21.3%. Total gross standalone debt is Rs 2.3bn out of which promoter debt is Rs 2.1bn making KNR a net cash company (after considering banking debt of Rs 0.2bn only).

KNRC has been outperforming its growth/margin guidance. After last two months' HAM project wins of Rs 56bn, the total FY18E order inflow stands at Rs 61bn and order backlog at Rs 78bn (including KSHIP and considering the EPC value of HAM only). This is far higher than FY18E inflow guidance of Rs 30‐35bn set by the KNRC.

We have raised our financial estimates 13‐20% based on new order inflows and recalibrated the EBIDTA margins for FY18E to factor in the 9MFY18 performance. We raise our SOTP valuation to Rs 364/sh vs. Rs 293/sh earlier (roll forward our valuation to Mar‐20E vs. Sep‐19E earlier. We upgrade KNRC rating to BUY from NEUTRAL.

Investment Arguments Order book at 4.3x FY18E rev: KNRC’s 4QFY18E

order backlog stands at Rs 78bn (4.3x FY18E revenues). This was achieved after 4QFY18E new wins of Rs 56bn. This is much higher than KNRC own order intake guidance of Rs 30‐35bn of new orders in road segments (HAM/EPC).

Order wins competitive, financial closure achievable: KNRC has won new HAM orders at an aggregate premium of 14.4% to NHAI cost and difference vs. L2 is 6.5% lower. Our channel checks with leading banks suggest that financial closure will be a non‐issue for KNRC as bids are very comfortable.

WC cycle stable, net D/E at 0.22x: Receivable days are stable at 46days end‐3QFY18. KNRC’s gross debt is Rs 2,280mn, of which bank debt is at Rs 160mn and promoter loan is Rs 2,120mn.





Sensex 34,101

KEY STOCK DATA

Bloomberg KNRC IN


MCap (Rs bn) / ($ mn) 42/645




3M 6M 12M

Absolute (%) (5.4) 44.8 54.5

Relative (%) (4.0) 38.8 39.5


Promoters 55.38


FPIs 3.78




KNR CONSTRUCTIONS : COMPANY UPDATE

Page | 86

Key Assumptions And Estimates STANDALONE (Rs mn) FY18E FY19E FY20E Comments

Closing order book 50,620 59,486 61,856 We expect 10.5% FY18‐20E order book CAGR on back of strong NHAI & State EPC and HAM roads pipeline

Order book growth (%) 34.3 17.5 4.0New order booking 31,000 32,000 30,000Book to bill ratio 2.8 2.6 2.2 Book to bill ratio to remain sufficient on the back of new orders wins Total Revenue 18,070 23,134 27,630 FY18‐20E Revenue CAGR of 23.7% Growth (%) 17.3 28.0 19.4EBIDTA 3,622 3,612 4,316 FY18‐20E EBIDTA CAGR of 9.2%

EBIDTA margin (%) 20.0 15.6 15.6 Margins to decline from FY19E as for 9MFY18E KNRC had written back some excess provision in projects nearing completion

Depreciation 1,208 1,288 1,456Financial Charges 227 311 368 Borrowing cost will continue to remain low

PBT 2,462 2,301 2,786 FY18‐20E PBT CAGR of 6.4% largely on CAPEX ramp up and its impact on depreciation

PBT margin (%) 13.6 9.9 10.1Tax 86.2 345.1 557.1

Tax rate (%) 3.5 15.0 20.0 KNRC derives 80I tax benefit in P&L whilst paying marginal tax rate in cash flows. The tax benefit will expire in FY19E

RPAT 2,376 1,956 2,228Net margin (%) 13.1 8.5 8.1

Extraordinary (246.2) (138.1) (278.6) To reflect MAT rate we have taken additional provisioning. KNRC numbers will be reflected in RPAT

Adjusted PAT 2,129 1,818 1,950 FY18‐20E APAT CAGR of ‐4.3% as FY18‐20E higher on account of one time provision reversals.

Gross Block Turnover 2.4 2.5 2.7 Improvement on account of new orders inflow Debtor days 45 45 45

CFO ‐ a 2,686 3,117 3,477 Higher revenue growth, robust client advance to result in higher positive cash flow from operations

CFI ‐ b (2,700) (2,200) (2,400) Investments in Gross block and HAM projects FCF ‐ a+b (14) 917 1,077 KNR to generate strong FCF over FY19‐20E CFF ‐ c 737 (344) (401)Total change in cash ‐ a+b+c 723 573 677Source: HDFC sec Inst Research

We expect 10.5% FY18‐20E order book CAGR FY18‐20E revenue CAGR 23.7%, EBIDTA CAGR 9.2% The tax rates are expected to normalize once 80I benefits expire in FY19E The reported PAT includes impact of MAT credit. We have adjusted this to arrive at normalized PAT KNR to generate strong FCF over FY19‐20E


Page | 87

Change In Estimates

(Rs mn) FY18E FY19E FY20E

New Old % New Old % New Old %

Revenues 18,070 17,627 2.5 23,134 20,354 13.7 27,630 23,331 18.4

We have upgraded our estimates on the back of a strong FY18E performance along with recent NHAI HAM wins in south and KSHIP

EBITDA 3,622 3,183 13.8 3,025 8,104 (62.7) 4,316 3,490 23.7

With the order inflows and revenue visibility, we expect operating leverage to kick in and KNR to report margins in excess of 15% over FY19‐20E

APAT 2,129 1,977 7.7 1,818 1,596 13.9 1,950 1,623 20.1

Though debt will continue to remain at comfortable levels, finance cost will rise at a CAGR of 27.3% to support the execution ramp up.

EPS (Rs) 15.1 14.1 7.7 12.9 11.3 13.9 13.9 11.5 20.1

We have upgraded our estimates on the back of a strong FY18E performance along with recent HAM wins in Tamil Nadu and KSHIP We expect operating leverage to kick in and KNR to report margins in excess of 15% over FY19‐20E


Page | 88

Outlook And Valuation Upgrade To BUY With An Increased Target Price Of Rs 364/sh Valuation methodology We have valued KNRC’s EPC business at 10x one

year forward EV/EBITDA (vs. 18x Dec‐19E EPS earlier). Our rationale behind this is (1) Strong order backlog of ~Rs 78bn (4.3x FY18E revenue), (2) Robust balance sheet net D/E of 0.22x in addition to BOT monetization plans, (3) Superior earnings quality vs. similar‐sized peers makes a case for valuation premium and (4) Tremendous opportunity in HAM projects in the Southern states in the near future.

KNR’s promoter’s share of debt is Rs 2,120mn of the standalone debt of Rs 2,280mn. Adjusted for promoters’ loans standalone is a net cash company. This gives us comfort on gearing. Apart from that, improvement in the working capital

cycle (driven by 10% mobilisation advances on NHAI road EPC orders) will keep debt under check.

Investments in the road sector will continue to drive stock performance. KNRC, with its strong execution skills, is likely to benefit from the pick‐up in order activity. We upgrade KNRC to BUY, with an increased SOTP‐based target price of Rs 364/share.

We value the (1) Standalone EPC business at Rs 306/share (10x Mar‐20 EV/EBITDA), (2) Kerala BOT at Rs 28/share (at 1x P/BV of equity invested), (3) Muzaffarpur Barauni BOT at Rs 5/share (at 1x P/BV of equity invested), (4) Real estate at Rs 5/share (at 1x P/BV of amount invested) and (5) HAM Projects investment at 19/share (at 1x book value of investments).

SOTP Valuation



KNR Standalone Core construction business 43,077 306 At 10x Mar‐20 EV/EBITDA

Kerala BOT Roads toll 3,974 28 At 0.8x P/BV(x) of invested equity

Muzaffarpur Barauni BOT Roads toll 694 5 At 1x P/BV(x) of invested equity Real Estate Land on Book 718 5 At book value in balance sheet

HAM Projects investment Roads BOT 2,700 19Expected investment over next 3yrs at book value in balance sheet.


We value standalone EPC business at Rs 306/share (10x one year forward EV/EBITDA vs. 18x Dec‐19E EPS earlier) Kerala BOT at Rs 28/share (at 1x P/BV of equity invested) Muzaffarpur Barauni BOT at Rs 5/share (at 1x P/BV of equity invested) Real estate at Rs 5/share (at 1x P/BV of amount invested) HAM Projects investment at 19/share (at 1x book value of investments) Our SOTP target price is Rs 364/share Upgrade to BUY from NEU


Page | 89

Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues (post JV partner share) 9,025 15,411 18,070 23,134 27,630Growth (%) 2.1 70.7 17.3 28.0 19.4Material Expenses 6,805 12,281 13,096 17,884 21,496Employee Expenses 431 552 685 877 1,050Other Operating Expenses 260 281 667 762 829EBIDTA 1,529 2,296 3,622 3,612 4,316EBIDTA (%) 16.9 14.9 20.0 15.6 15.6EBIDTA Growth (%) 13.8 50.1 57.8 (0.3) 19.5Depreciation 423 639 1,208 1,288 1,456EBIT 1,106 1,657 2,415 2,324 2,859Other Income (Incl. EO Items) 317 194 274 288 294Interest 132 219 227 311 368PBT 1,291 1,632 2,462 2,301 2,786Tax (319) 60 86 345 557RPAT 1,611 1,573 2,376 1,956 2,228EO items (net of tax) (165) (141) (246) (138) (279)APAT 1,445 1,432 2,129 1,818 1,950APAT Growth (%) 97.9 (0.9) 48.7 (14.6) 7.3EPS 10.3 10.2 15.1 12.9 13.9EPS Growth (%) 97.9 (0.9) 48.7 (14.6) 7.3Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 281 281 281 281 281 Reserves 7,096 8,674 10,980 12,903 15,099 Total Shareholders’ Funds 7,377 8,955 11,261 13,184 15,380 Long Term Debt 1,125 1,303 2,299 2,299 2,299 Short Term Debt ‐ ‐ ‐ ‐ ‐ Total Debt 1,125 1,303 2,299 2,299 2,299 Deferred Taxes (374) (432) (432) (432) (432) Other Non Current Liabilities 325 314 314 314 314 TOTAL SOURCES OF FUNDS 8,453 10,140 13,443 15,366 17,562 APPLICATION OF FUNDS Net Block 1,762 2,607 3,599 3,511 3,254 CWIP 59 15 15 15 15 Investments, LT Loans & Advances 3,363 4,663 5,163 6,163 7,363 Other Non Current Assets 1,663 1,850 1,850 1,850 1,850 Total Non‐current Assets 6,848 9,135 10,627 11,538 12,482 Inventories 353 574 979 1,560 1,890 Debtors 1,294 1,640 2,228 2,852 3,414 Cash & Equivalents 161 246 969 1,542 2,218 ST Loans & Advances, Others 3,555 4,153 4,933 5,892 6,917 Total Current Assets 5,364 6,612 9,109 11,846 14,439 Creditors 1,038 1,344 1,974 2,529 3,028 Other Current Liabilities & Provns 2,721 4,263 4,320 5,490 6,332 Total Current Liabilities 3,759 5,607 6,294 8,019 9,360 Net Current Assets 1,605 1,005 2,815 3,827 5,079 TOTAL APPLICATION OF FUNDS 8,454 10,140 13,443 15,366 17,562 Source: Company, HDFC sec Inst Research


Page | 90

Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EPBT 1,291 1,632 2,462 2,301 2,786Non‐operating & EO items (86) 20 (37) 0 0Interest expenses 132 219 227 311 368Depreciation 423 639 1,208 1,288 1,456Working Capital Change 830 730 (1,088) (439) (576)Tax paid (56) (75) (86) (345) (557)OPERATING CASH FLOW ( a ) 2,534 3,165 2,686 3,117 3,477Capex (595) (1,383) (2,200) (1,200) (1,200)Free cash flow (FCF) 1,939 1,782 486 1,917 2,277Investments (1,944) (1,750) (500) (1,000) (1,200)INVESTING CASH FLOW ( b ) (2,538) (3,133) (2,700) (2,200) (2,400)Share capital Issuance ‐ ‐ ‐ ‐ ‐Debt Issuance 204 273 996 ‐ ‐Interest expenses (128) (220) (227) (311) (368)Dividend (68) ‐ (33) (33) (33)Others ‐ FINANCING CASH FLOW ( c ) 9 53 737 (344) (401)NET CASH FLOW (a+b+c) 4 85 723 573 677Opening cash balance 157 161 246 969 1,542Closing Cash & Equivalents 161 246 969 1,542 2,218Source: Company, HDFC sec Inst Research


PROFITABILITY (%) GPM 24.6 20.3 27.5 22.7 22.2 EBITDA Margin 16.9 14.9 20.0 15.6 15.6 EBIT Margin 12.3 10.8 13.4 10.0 10.3 APAT Margin 16.0 9.3 11.8 7.9 7.1 RoE 22.1 17.5 21.1 14.9 13.7 Core RoCE 28.0 30.5 31.9 25.8 28.7 RoCE 19.0 16.2 17.5 13.6 12.8 EFFICIENCY Tax Rate (%) (24.7) 3.7 3.5 15.0 20.0 Asset Turnover (x) 1.8 2.4 2.1 2.4 2.5 Inventory (days) 14 14 20 25 25 Debtors (days) 52 39 45 45 45 Payables (days) 42 32 40 40 40 Cash Conversion Cycle (days) 25 21 25 30 30 Other Current Assets (days) 144 98 100 93 91 Other Current Liab (days) 110 101 87 87 84 Net Working Capital Cycle (Days) 58 18 37 36 38 Debt/EBITDA (x) 0.7 0.6 0.6 0.6 0.5 Net D/E 0.13 0.12 0.12 0.1 0.0 Interest Coverage 8.4 7.6 10.6 7.5 7.8 PER SHARE DATA EPS (Rs/sh) 10.3 10.2 15.1 12.9 13.9 CEPS (Rs/sh) 13.3 14.7 23.7 22.1 24.2 DPS (Rs/sh) 0.4 0.0 0.2 0.2 0.2 BV (Rs/sh) 52 64 80 94 109 VALUATION P/E 29.7 30.0 20.1 23.6 22.0 P/BV 5.8 4.8 3.8 3.3 2.8 EV/EBITDA 28.7 19.1 12.2 12.1 10.0 OCF/EV (%) 5.8 0.1 0.1 0.1 0.1 FCF/EV (%) 4.4 4.1 1.1 4.4 5.3 FCFE/Market Cap (%) 4.7 4.3 2.9 3.7 4.5 Dividend Yield (%) 0.1 0.0 0.1 0.1 0.1 Source: Company, HDFC sec Inst Research


ITD Cementation BUY


Triggers awaited ITD Cementation (ITD) share price has corrected ~22% over last 3m and ~16% from the Feb‐18 QIP price. We believe that key reason for such underperformance is (1) High competition in big ticket infrastructure projects where L&T, Afcons, Tata Projects, Reliance Infra & other Chinese‐Local Infra companies bid (2) Absence in high order visibility segment viz. roads & (3) Limited visibility in the marine segment ordering (where ITD enjoys high margins but competes with large infra EPC players).

ITD current order backlog is Rs 99bn. Almost Rs 14bn of this amount will be treated as ‘Associate Order book’ under IND‐AS. Hence, net executable order book from a revenue perspective is Rs 85bn. Of this order book high margin marine segment will be ~36%+. This shall continue to deliver 10‐11% EBIDTA margins for the company. The worst of project write off may be behind with 4QCY17 irrigation write off of Rs 1.1bn. Delhi metro losses are already provided.

Balance sheet is healthy post Rs 3.4bn Feb‐18 QIP. The net d/e is ~0.2x. ITD’s limited presence in the high order Roads’ segment may pose a challenge for new wins as the Marine/MRTS segments order outlook remains lumpy and highly competitive. ITD may face headwinds on new order wins going ahead, except for the MRTS. We roll forward our valuation estimate to Mar‐20E and arrive at a TP of Rs 211/sh vs. Rs 199/sh earlier. With recent price correction we upgrade ITD to BUY vs. our NEU stance earlier.

Investment Arguments Cross segment expertise: ITD has robust credentials

in MRTS, Marine, Hydro/Irrigation segment. Though it had suffered setbacks in MRTS/Irrigation projects earlier, Marine has been a sweet spot with JNPT project being key savior during CY16/17. We believe that ITD has right ingredients to deliver returns if order wins improve substantially.

Balance sheet robust with 0.2x net D/E post QIP: Consolidated gross/net debt post the Feb‐18 QIP would be ~Rs 4.8/ 0.4bn on CY17 closing debt. This shall result in net d/e coming down to 0.06x vs. 0.6x. We believe that despite strong growth recovery in 15MFY19E the debt levels should remain sub Rs 3bn and net d/e at 0.1x.

Order inflows to be driven by MRTS and smaller extent to Marine: ITD may gain from upcoming Metro project pipeline both elevated and underground in Bengaluru, Delhi, Mumbai and other cities. Marine key projects have been bid out viz. Bandra Versova & Trans harbor link. We await bids in Mumbai coastal roads, Cochin Shipyard orders, Karwar seabird etc.

Financial Summary (Consolidated) (Rs mn) CY16# CY17E* 15MFY19E* FY20E* Net Sales 29,377 20,605 32,582 38,541 EBITDA 2,643 2,714 3,617 3,978 APAT 512 947 1,722 2,013 Diluted EPS (Rs) 3.0 5.5 10.0 11.7 P/E (x) 51.5 27.8 17.0 14.5 EV / EBITDA (x) 10.7 11.1 8.3 7.4 RoE (%) 9.7 16.2 19.8 16.5 Source: Company, HDFC sec Inst Research, * IND‐AS, #I‐GAAP




Sensex 34,101

KEY STOCK DATA

Bloomberg ITCE IN


MCap (Rs bn) / ($ mn) 29/438




3M 6M 12M

Absolute (%) (21.6) (2.1) (6.1)

Relative (%) (20.2) (8.1) (21.1)


Promoters 46.64

DIIs & Local MFs 28.75

FPIs 3.09




ITD CEMENTATION : COMPANY UPDATE

Page | 92

Order Book Assumptions Rs mn CY15 CY16 CY17 15MFY19E FY20E Opening Order Book 47,630 52,040 65,835 75,132 86,658 Add: New Order Wins 35,119 42,230 40,100 44,108 49,403 Less: Orders Executed 30,709 29,377 20,605 32,582 38,541 Closing Order Book 52,040 65,835 75,132 86,658 97,521 Trailing Book‐to‐bill Ratio (x) 1.7 2.2 3.6 2.7 2.5 Source: Company, HDFC sec Inst Research

Order Book Position: CY17 Consolidated (Rs mn) Rs mn % Hydro / Dams / Tunnels / Irrigation 10,522 14.0 Marine 16,314 22.0 Specialist Works 831 1.0 Highways/Bridges/Flyovers 464 0.6 Industrial Structures 239 0.3 Water & Sewage 747 1.0 Urban Infrastructure / MRTS 45,468 60.0 Buildings 547 0.7 TOTAL 75,132 100 Order book JV/Associate Share 15,132 20.1 Net Order Book (for Revenue Recognition) 60,000 79.9 Source: Company, HDFC sec Inst Research

CY17 order backlog is at Rs 75.1bn, with marine contributing 22.0% to the order book. The MRTS segment is the largest segment now, with 60.0% order book contribution Order wins post CY17 (including L1) stand at Rs 43.9bn. Majorly includes Rs 19bn in Udangudi project and Rs 18.7bn in Bengaluru metro (this project may go for rebidding as its much higher vs. project cost) Excluding the associate order book of Rs 15.1bn, net order book is at ~Rs 60.0bn end CY17 and excluding Rs 24bn new wins in 1QCY18


Page | 93

Key Assumptions And Estimates Consolidated (Rs mn) CY17 15MFY19E FY20E Comments Net order book 60,000 78,911 95,212 Net order book (excluding associates)

Associate order book 15,132 7,747 2,308

Includes Mumbai Metro line 3, Kolkata Metro etc. Associate order book will be accounted under IND‐AS, from CY17. Only profit/loss as single line item will figure in consolidation

Closing order book 75,132 86,658 97,521 Expect 12.3% CY17‐FY20E order book CAGR Order book growth (%) 14.1 15.3 12.5New order booking 40,100 44,110 49,403 Excludes orders post CY17 (including L1) – Rs 43.9bn Book to bill ratio 3.6 2.7 2.5 Book‐to‐bill ratio to remain healthy

Total Revenue 20,605 32,582 38,541 We have modeled for 32.1% revenue CAGR over CY17‐FY20E

Growth (%) (29.9) 58.1 18.3 EBIDTA 2,714 3,617 3,978 18.5% CY17‐FY20E EBIDTA CAGR

EBIDTA margin (%) 13.2 11.1 10.3 EBIDTA margin to contract vs. CY17E. We have also factored in 0.5% of royalty to ITD parent

Depreciation 577 772 645Financial Charges 876 950 1,016PBT 1,396 2,142 2,560 Stable interest costs to drive 31.0% CY17‐FY20E PBT CAGR PBT margin (%) 6.8 6.6 6.6Tax 528.1 685.4 819.3Tax rate (%) 37.8 32.0 32.0Reported PAT 867 1,457 1,741

Extraordinary 218.0 ‐ ‐ E.O items: Andhra project receivables written off (net of other provision reversals)

Share of Profits/(loss) from associates (138) 265 272 CY17‐FY20E 39.8% APAT CAGR Adjusted PAT 947 1,722 2,013Net margin (%) 4.6 5.3 5.2Debtor days 45 45 50CFO ‐ a 668 627 2,362CFI ‐ b (1,536) (34) (605)FCF ‐ a+b (868) 593 1,757CFF ‐ c 373 451 (1,227) Reduction in debt and outflow on interest Total change in cash ‐ a+b+c (495) 1,045 530 Net cash position doesn’t change debt materially Source: HDFC sec Inst Research

Post CY17 ITD will change its financial year to a Apr‐Mar cycle. Therefore FY19E will comprise of 15 months from Jan18‐Mar19 We expect 12.3% CY17‐19E order book CAGR JV orders are being accounted under ‘IND‐AS ‐ Associate accounting’ from CY17. Net order book is the right matrix to evaluate execution We have modeled for 32.1% revenue CAGR over CY17‐FY20E 18.5% CY17‐20E EBIDTA CAGR on the back of EBIDTA margins contraction With JV order book being accounted as a single line item; consolidated interest cost to mirror standalone financials 39.8% APAT CAGR over CY17‐20E Net cash position does not change the debt materially


Page | 94

Outlook And Valuation Upgrade To BUY With An Increased Target Price Of Rs 211/sh Valuation methodology: We have valued ITD in‐

line with peers, namely KNR/J Kumar/Sadbhav, at 18x one‐year forward. We believe that the ITD valuation multiple should be higher, once order inflows pick up.

Other fundamental basis include (1) Improving order book, with ~1.3x likely increase over the CY17‐FY20E period to Rs 97.2bn, (2) Stable balance sheet (4QFY18 net D/E at 0.05x vs. 0.6x during CY17), (3) revenues from all projects to start flowing from May‐18 onwards, and (4) No exposure to the capex‐intensive BOT segment.

ITD stands to benefit from the strong upcoming order pipeline in Roads, Marine and Urban infrastructure projects, where ITD has strong credentials. Revenue from metro projects is

expected to start increasing from 15MFY19E as the Bangalore project is also witnessing full swing execution from Jan 18 onwards.

Government‐led spends in the infrastructure sector will continue to drive stock performance. ITD, with its strong credentials, is likely to benefit from the pick‐up in orders’ activity. The company, over many years, has built a strong pre‐qualification in segments such as marine, MRTS, etc. Next phase of JNPT tenders is expected to be out for bidding in 2019.

With the recent correction over the last 2 months post the QIP we upgrade to BUY with a TP of Rs 211/share (18x one‐year forward Mar‐20E EPS).

Valuation Particulars Segments Value(Rs mn) Value per share(Rs) Rationale

ITD Cementation Core construction business 36,234 211 At 18x Mar‐20E EPS


We value ITD at 18x Mar‐20E EPS in‐line with our construction sector valuation multiple A conservative stance on margins and tight control on working capital will result in back‐ended new order wins, leading to further re‐rating We upgrade our rating to BUY from NEU earlier


Page | 95

Income Statement (Consolidated) Year ending December (Rs mn) CY15# CY16* CY17* 15MFY19E* FY20E*Net Revenues 30,709 29,377 20,605 32,582 38,541Growth (%) 78.7 (4.3) (29.9) 58.1 18.3Material Expenses 21,053 19,548 10,858 18,538 22,654Employee Expenses 2,224 2,219 2,574 3,226 3,584Other Operating Expenses 5,516 4,967 4,459 7,201 8,325EBIDTA 1,916 2,643 2,714 3,617 3,978EBIDTA (%) 6.2 9.0 13.2 11.1 10.3EBIDTA Growth (%) 110.4 38.0 2.7 33.3 10.0Depreciation 367 463 577 772 645EBIT 1,549 2,180 2,137 2,845 3,333Other Income (incl. EO Items) (1,018) 272 135 247 244Interest 1,377 891 876 950 1,016PBT (846) 1,561 1,396 2,142 2,560Tax (253) 479 528 685 819RPAT (before Associates) (593) 1,082 867 1,457 1,741EO items (net of tax) 1,076 ‐ 218 ‐ ‐Profits from Associates (570) (138) 265 272APAT 483 512 947 1,722 2,013APAT Growth (%) L2P 6.0 85.0 81.7 16.9Adj. EPS 3.1 3.3 6.1 10.0 11.7EPS Growth (%) L2P 6.0 85.0 64.2 16.9Source: Company, HDFC sec Inst Research, * IND‐AS, #I‐GAAP

Balance Sheet (Consolidated) Year ending December (Rs mn) CY15# CY16* CY17* 15MFY19E* FY20E* SOURCES OF FUNDS Share Capital 155 155 155 172 172 Reserves 4,927 5,372 6,026 11,039 12,991 Total Shareholders’ Funds 5,082 5,527 6,182 11,211 13,163 Long Term Debt 386 406 246 919 919 Short Term Debt 5,621 3,156 4,640 2,061 1,911 Total Debt 6,007 3,562 4,886 2,980 2,830 Deferred Taxes (442) (20) 12 (276) (276) TOTAL SOURCES OF FUNDS 10,647 9,069 11,079 13,915 15,717 APPLICATION OF FUNDS Net Block 3,490 3,853 4,618 4,446 4,401 CWIP 27 56 385 65 71 Investments 6 6 6 6 Other Non Current Assets (Net) 2 3,260 2,330 2,330 2,330 Total Non‐current Assets 3,519 7,169 7,333 6,841 6,802 Inventories 11,754 1,106 1,574 9,105 10,665 Debtors 3,378 2,146 2,399 4,017 5,280 Cash & Equivalents 1,476 1,653 1,158 2,202 2,732 ST Loans & Advances, Others 3,879 6,617 11,308 4,463 5,280 Total Current Assets 20,487 11,522 16,438 19,788 23,956 Current Liabilities 13,127 9,430 12,458 12,497 14,783 Provisions 232 198 240 223 264 Total Current Liabilities 13,358 9,628 12,698 12,720 15,047 Net Current Assets 7,128 1,894 3,740 7,067 8,909 TOTAL APPLICATION OF FUNDS 10,647 9,069 11,079 13,915 15,717 Source: Company, HDFC sec Inst Research, * IND‐AS, #I‐GAAP


Page | 96

Cash Flow (Consolidated) Year ending Dec (Rs mn) CY15# CY16* CY17* 15MFY19E* FY20E*PBT (846) 1,561 1,396 2,142 2,560Non‐operating & EO items/JV profits 1,258 (842) (273) 18 272

Interest expenses 1,332 891 876 950 1,016Depreciation 367 463 577 772 645Working Capital Change 2,790 2,576 (1,380) (2,570) (1,312)Tax paid (250) (479) (528) (685) (819)OPERATING CASH FLOW ( a ) 4,651 4,170 668 627 2,362Capex (460) (855) (1,671) (281) (600)Others 34 272 135 247 (5)Free cash flow (FCF) 4,225 3,587 (868) 593 1,757Investments (615) ‐ ‐ ‐ ‐INVESTING CASH FLOW ( b ) (1,041) (583) (1,536) (34) (605)Share capital Issuance ‐ ‐ ‐ 3,368 ‐Debt Issuance (1,646) (2,445) 1,324 (1,906) (150)Interest expenses (1,375) (891) (876) (950) (1,016)FCFE 1,204 250 (420) (2,263) 591Dividend (0) (67) (75) (61) (61)FINANCING CASH FLOW ( c ) (3,021) (3,403) 373 451 (1,227)NET CASH FLOW (a+b+c) 589 183 (495) 1,045 530Closing Cash & Equivalents 1,476 1,659 1,158 2,202 2,732Source: Company, HDFC sec Inst Research, * IND‐AS, #I‐GAAP

Key Ratios (Consolidated) CY15# CY16* CY17* 15MFY19E* FY20E* PROFITABILITY (%) GPM 31.4 33.5 47.3 43.1 41.2 EBITDA Margin 6.2 9.0 13.2 11.1 10.3 APAT Margin 1.6 1.7 4.6 5.3 5.2 RoE 9.0 9.7 16.2 19.8 16.5 Core RoCE 11.8 20.4 13.4 16.5 17.5 RoCE 3.5 12.5 13.5 17.0 17.2 EFFICIENCY Tax Rate (%) 29.9 30.7 37.8 32.0 32.0 Asset Turnover (x) 5.1 4.3 2.5 2.8 2.9 Inventory (days) 139.7 105 101 102 101 Debtors (days) 40 36 45 45 50 Other Current Assets (days) 46 52 56 50 50 Payables (days) 156 138 140 140 140 Provisions (days) 3 4 3 3 3 Cash Conversion Cycle (days) 67 51 60 55 59 Debt/EBITDA (x) 3.1 1.3 1.8 0.8 0.7 Net D/E 0.89 0.35 0.6 0.1 0.0 Interest Coverage 1.1 2.4 2.4 3.0 3.3 PER SHARE DATA EPS (Rs/sh) 3.1 3.3 6.1 10.0 11.7 CEPS (Rs/sh) (1.5) 10.0 9.3 13.0 13.9 DPS (Rs/sh) 0.0 0.0 0.3 0.3 0.3 BV (Rs/sh) 32.8 35.6 39.8 65.3 76.6 VALUATION P/E 54.6 51.5 27.8 17.0 14.5 P/BV 5.2 4.8 4.3 2.6 2.2 EV/EBITDA 16.1 10.7 11.1 8.3 7.4 EV/Revenues 1.0 1.0 1.5 0.9 0.8 OCF/EV (%) 15.0 14.7 2.2 2.1 8.1 FCF/EV (%) 13.7 12.7 (2.9) 2.0 6.0 FCFE/Market Cap (%) 4.6 0.9 (1.6) (7.7) 2.0 Dividend Yield (%) 0.0 0.0 0.2 0.2 0.2 Source: Company, HDFC sec Inst Research, * IND‐AS, #I‐GAAP


Ahluwalia Contracts BUY


Stable recovery AHLU’s is amongst the Top 5 building high‐rise/super high rise Indian contractor with dominant presence in North, East and West regions. The Government/Private mix in the order book is 64/36% with exposure to tier 1 developer’s in private segment. Within the regions North/East/West contribute 57/30/13% to the order book.

Buoyed by better than expected order inflows in 9MFY18 (Rs 12.6bn) AHLU has raised order inflow guidance to Rs 14‐15bn. Revenue guidance has been raised from 15%+ to 15‐20% range. After weak 1QFY18 EBIDTA margin of 10.6%, AHLU margins recovered during 2Q/3QFY18 and 9MFY18 margins is 13.8%, at the higher end of 13‐14% guidance. This has been achieved by mix of better cost control and improvement in labour market supply.

9MFY18 order book at Rs 35.7bn (2.1x) is comfortable as typically the execution period will be 24‐30months. New opportunities arising from Government led institutional capex and affordable housing forays by Tier I/II developers will keep adding to order kitty. NBCC has huge outlays under redevelopment of Government buildings with only Rs 40bn worth of projects awarded out of Rs 500bn pipeline over next 3‐4years.

AHLU is focusing on large ticket size order (Rs 5bn+/order) and is gearing up for upcoming NBCC bids in JV with international companies. Balance sheet is robust with net D/E at ‐0.1x. We maintain BUY with increased SOTP of Rs 486/sh (EPC segment

at 10x Mar‐20E EV/EBITDA, Kota BOT – 1x P/BV) vs. Rs 428/sh earlier (18x Dec‐19E EPS). Investment Arguments Geared up for robust ordering: AHLU’s during the

3QFY18 earnings call highlighted that if competitive intensity reduces in the segment they may end up taking Rs 20‐25bn annual orders vs. Rs 13‐14bn annually. There are ample opportunities in ordering even as AHLU is cautiously approaching bids as competitive intensity remains high.

Balance sheet now net cash: AHLU has reduced debt by Rs 20mn QoQ to Rs 610mn and targets to reduce it to Rs 250mn in FY19E. With cash on books AHLU is already net cash. Annual capex shall be max Rs 250mn/annum. The surplus annual OCF will be Rs 1.3bn+ and OCF/EV yield will be very strong at 6‐7%.

Worst of the news flow may be largely behind: AHLU share price was negatively impacted in the past on account of alleged non‐payment of PF dues, Common wealth scam and investment in Delight marketing. These issues are at various stages of legal resolution and may not have any material impact on financials.

Financial Summary (Rs mn) FY17 FY18E FY19E FY20E Net Sales 14,265 16,619 19,029 21,788 EBITDA 1,730 2,286 2,617 2,975 APAT 860 1,171 1,441 1,649 Diluted EPS (Rs) 12.8 17.5 21.5 24.6 P/E (x) 32.4 23.8 19.3 16.9 EV / EBITDA (x) 15.9 12.0 10.1 8.7 RoE (%) 18.5 20.7 20.7 19.4 Source: Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg AHLU IN


MCap (Rs bn) / ($ mn) 28/421




3M 6M 12M

Absolute (%) 7.0 37.7 21.3

Relative (%) 8.5 31.7 6.2


Promoters 57.96


FPIs 20.28




AHLUWALIA CONTRACTS : COMPANY UPDATE

Page | 98

We expect EBIDTA margins in the 13‐14% range over FY18‐20E Well‐diversified order book segmentation Order book will continue to be dominated by government orders with ~80% of bid pipeline comprising NBCC, CPWD, HSCC and State PWD projects Northern region continues to dominate the order book with a 57% share of the backlog. There are no plans to expand to South in the near future

EBIDTA Margins To Remain 13‐14% Over FY18‐20E Well Diversified Order Mix (%) – 3QFY18

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Client Mix (%):Government Dominated Significant Concentration ‐ North (%) ‐3QFY18


(4.0)(2.0)‐2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

0

5,000

10,000

15,000

20,000

25,000

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Revenues (Rs mn) EBIDTA Margins (%) ‐ RHS Residential (Pvt)20

Residential (Gov)11

Commercial8

Hospital19

Hotels‐

Infra9

Institutional29

Govt64

Private36

North57

East30

West13


Page | 99

Key Assumptions And Estimates Key Assumptions FY18E FY19E FY20E Comments

Closing order book 33,911 34,882 33,094 We expect muted order book CAGR, as AHLU is cautiously approaching new bids owing to high competitive intensity

Order book growth (%) (4.6) 2.9 (5.1)New order booking 15,000 20,000 20,000 In line with Rs 15‐20bn/yr order intake guidance Book to bill ratio 2.0 1.8 1.5 Total Revenue 16,619 19,029 21,788 FY18‐20E Revenue CAGR of 14% Growth (%) 16.5 14.5 14.5 EBIDTA 2,286 2,617 2,975 FY18‐20E EBIDTA CAGR of 13.6% EBIDTA margin (%) 13.8 13.8 13.7 Margins to remain in 13‐14% range Depreciation 268 283 319 Financial Charges 260 180 189 To remain stable

PBT 1,801 2,217 2,537 FY18‐20E PBT CAGR of 16.9% on the back of stable interest costs

PBT margin (%) 10.8 11.7 11.6 Tax 630.3 776.1 888.0 Tax rate (%) 35.0 35.0 35.0 RPAT 1,171 1,441 1,649 FY18‐20E APAT CAGR of 16.9% Net margin (%) 7.0 7.6 7.6 Adjusted PAT 1,171 1,441 1,649 Gross Block Turnover 4.2 4.0 4.1 Debtor days 135 135 135 CFO ‐ a 840 1,485 1,328 AHLU to generate strong FCF CFI ‐ b (450) (581) (676)FCF ‐ a+b 391 905 652 CFF ‐ c (248) (76) (81)Total change in cash ‐ a+b+c 142 828 571 Source: HDFC sec Inst Research

We expect muted growth in the order backlog. Management’s cautious commentary on high competitive intensity in new bids is the key reason for slow order intake FY18‐20E revenue CAGR 14%, EBIDTA CAGR 13.6% Interest expense to remain stable FY18‐20E RPAT CAGR of 16.9% AHLU to generate strong FCF


Page | 100

Outlook and valuation Increase Target Price To Rs 486/sh Valuation methodology We have valued AHLU’s EPC business at 10x one‐

year forward Mar‐20E EV/EBITDA. Our rationale behind this is (1) Superior earnings quality vs. peers, (2) Robust order backlog of Rs 35.7bn (2.2x FY18E revenue), (2) Expected to remain a net cash company over FY18‐20E, and (4) Limited BOT capex (Kota BOT equity of Rs 900mn already invested).

Investment in the building segment would remain robust on the back of NBCC, CPWD and private capex in the segment. AHLU, with its strong execution skills, is likely to benefit from the pick‐up in order activity. We maintain BUY with an increased SOTP‐based target price of Rs 486/share vs. Rs 428/sh earlier.

We value the (1) Standalone EPC business at Rs 473/share (10x one‐year forward Mar‐20E EV/EBITDA), (2) Kota BOT at Rs 13/share (DCF valuation, implied 0.96x P/BV of equity invested).

SOTP Valuation



AHLU Standalone Building business 31,672 473 At 10x Mar‐20E EV/EBITDA

Kota BOT Project Lease rental 866 13 DCF Valuation, implied P/BV (x) – 0.96x


Change In Estimates

FY18E New

FY18E Old

% Change

FY19E New

FY19E Old

% Change

FY20E New

FY20E Old

% Change

Net Sales 16,619 16,619 0.0 19,029 19,029 0.0 21,788 21,598 0.9 EBITDA 2,286 2,236 2.2 2,617 2,560 2.2 2,975 2,884 3.2 EBITDA Margin (%) 13.8 13.3 50.5 13.8 13.5 30.2 13.7 13.4 30.2 APAT 1,171 1,164 0.6 1,441 1,404 2.7 1,649 1,590 3.7 EPS 17.5 17.4 0.4 21.5 21.0 2.5 24.6 23.7 3.9 Source: Company, HDFC sec Inst Research

We value the standalone Building business at Rs 473/share (10x one‐year forward Mar‐20E EV/EBITDA) Kota BOT at Rs 13/share (DCF valuation, implied 0.96x P/BV of equity invested) Our SOTP target price is Rs 486/share vs. Rs 428/sh earlier We have recalibrated our earnings estimates by 2.5‐3.9% on account of financial cost and upwards EBIDTA margins adjustment


Page | 101

Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 12,496 14,265 16,619 19,029 21,788Growth (%) 17.9 14.2 16.5 14.5 14.5Material Expenses 6,069 7,262 8,284 9,580 10,991Employee Expenses 1,588 1,536 1,413 1,522 1,743Other Operating Expenses 3,230 3,737 4,637 5,309 6,079EBIDTA 1,608 1,730 2,286 2,617 2,975EBIDTA (%) 12.9 12.1 13.8 13.8 13.7EBIDTA Growth (%) 40.0 7.6 32.1 14.5 13.7Depreciation 201 241 268 283 319EBIT 1,408 1,489 2,018 2,334 2,656Other Income (Incl. EO Items) 136 84 42 63 70Interest 352 267 260 180 189PBT 1,192 1,306 1,801 2,217 2,537Tax 347 446 630 776 888RPAT 844 860 1,171 1,441 1,649APAT 844 860 1,171 1,441 1,649APAT Growth (%) 31.6 1.9 36.1 23.1 14.4EPS 12.6 12.8 17.5 21.5 24.6EPS Growth (%) 31.6 1.9 36.1 23.1 14.4Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 134 134 134 134 134 Reserves 4,087 4,947 6,117 7,559 9,208 Total Shareholders’ Funds 4,221 5,081 6,251 7,693 9,342 Minority Interest ‐ ‐ ‐ ‐ ‐ Long Term Debt 1 ‐ ‐ ‐ ‐ Short Term Debt 1,418 900 860 739 847 Total Debt 1,419 900 860 739 847 Deferred Taxes (148) (134) (134) (134) (134) Long Term Provisions & Others ‐ ‐ ‐ ‐ ‐ TOTAL SOURCES OF FUNDS 5,493 5,847 6,978 8,297 10,054 APPLICATION OF FUNDS Net Block 1,965 1,925 2,108 2,424 2,805 CWIP 2 3 3 3 3 Goodwill ‐ ‐ ‐ ‐ ‐ Investments, LT Loans & Advances 63 63 63 63 63 Total Non‐current Assets 2,030 1,992 2,174 2,490 2,871 Inventories 2,047 2,008 2,504 2,867 3,283 Debtors 4,997 5,141 6,147 7,038 8,059 Cash & Equivalents 882 1,226 1,368 2,196 2,766 ST Loans & Advances, Others 1,464 1,857 1,935 2,017 2,104 Total Current Assets 9,391 10,231 11,954 14,119 16,212 Creditors 2,946 3,522 4,157 4,595 5,268 Other Current Liabilities & Provns 2,983 2,853 2,993 3,716 3,761 Total Current Liabilities 5,928 6,375 7,150 8,312 9,029 Net Current Assets 3,462 3,855 4,804 5,807 7,183 TOTAL APPLICATION OF FUNDS 5,493 5,847 6,978 8,297 10,054 Source: Company, HDFC sec Inst Research


Page | 102

Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EPBT 1,192 1,306 1,801 2,217 2,537Non‐operating & EO items (136) (84) (42) (63) (70)Interest expenses 352 267 260 180 189Depreciation 201 241 268 283 319Working Capital Change (892) 528 (815) (356) (760)Tax paid (343) (432) (630) (776) (888)OPERATING CASH FLOW ( a ) 373 1,827 840 1,485 1,328Capex (219) (203) (450) (600) (700)Free cash flow (FCF) 154 1,624 390 885 627Investments 267 (297) 0 19 24INVESTING CASH FLOW ( b ) 48 (500) (450) (581) (676)Share capital Issuance 0 ‐ ‐ (0) ‐Debt Issuance (311) (520) (40) (121) 108Interest expenses (352) (267) (260) (180) (189)Dividend ‐ ‐ ‐ ‐ ‐Others 360 (196) 51 225 ‐FINANCING CASH FLOW ( c ) (303) (983) (248) (76) (81)NET CASH FLOW (a+b+c) 117 343 142 828 571Opening cash balance 765 882 1,226 1,368 2,196Closing Cash & Equivalents 882 1,226 1,368 2,196 2,766Source: Company, HDFC sec Inst Research


PROFITABILITY (%) GPM 51.4 49.1 50.2 49.7 49.6 EBITDA Margin 12.9 12.1 13.8 13.8 13.7 EBIT Margin 11.3 10.4 12.1 12.3 12.2 APAT Margin 6.8 6.0 7.0 7.6 7.6 RoE 22.2 18.5 20.7 20.7 19.4 Core RoCE 21.9 21.5 23.7 25.1 23.9 RoCE 19.9 17.7 19.2 18.8 17.6 EFFICIENCY Tax Rate (%) 29.2 34.1 35.0 35.0 35.0 Asset Turnover (x) 2.3 2.5 2.4 2.3 2.2 Inventory (days) 60 51 55 55 55 Debtors (days) 146 132 135 135 135 Payables (days) 86 90 91 88 88 Cash Conversion Cycle (days) 120 93 99 102 102 Other Current Assets (days) 43 48 43 39 35 Other Current Liab (days) 87 73 66 71 63 Net Working Capital Cycle (Days) 75 67 75 69 74 Debt/EBITDA (x) 0.9 0.5 0.4 0.3 0.3 Net D/E 0.13 (0.1) (0.1) (0.2) (0.2) Interest Coverage 4.0 5.6 7.8 13.0 14.0 PER SHARE DATA EPS (Rs/sh) 12.6 12.8 17.5 21.5 24.6 CEPS (Rs/sh) 15.6 16.4 21.5 25.7 29.4 DPS (Rs/sh) ‐ ‐ ‐ ‐ ‐ BV (Rs/sh) 63 76 93 115 139 VALUATION P/E 33.0 32.4 23.8 19.3 16.9 P/BV 6.6 5.5 4.5 3.6 3.0 EV/EBITDA 17.7 15.9 12.0 10.1 8.7 OCF/EV (%) 1.3 6.6 3.1 5.6 5.1 FCF/EV (%) 0.5 5.9 1.4 3.4 2.4 FCFE/Market Cap (%) (1.8) 3.0 0.3 2.1 2.0 Dividend Yield (%) ‐ ‐ ‐ ‐ ‐ Source: Company, HDFC sec Inst Research

INITIATING COVERAGE 12 APR 2018

J. Kumar Infraprojects BUY


Noise settling down Over the last 2 years JKIL’s stock price has witnessed huge volatility on account of allegations of (1) Shoddy works in BMC road projects (2) Followed by short trading ban on alleged dealings through Shell Companies and (3) Minor delays in execution owing to mining ban, delay in Metro project utility shifting.

Most of the issues have now got resolved (1) With resumption of quarrying (2) Metro projects moving into advance stages of execution & (3) JKIL re‐starting new order bidding. This has led to strong re‐rating with JKIL outperforming CNX Infra by 2,383bps over last 6M.

JKIL is gearing up for upcoming biddings, after a pause during 9MFY18. The current order backlog (Rs 82.2bn, 4.4x FY18E rev) is robust, despite no major order wins during 9MFY18. We expect Rs 15‐30bn/yr order inflows over FY18‐20E. Land acquisition issues in JNPT road projects have been sorted out.

With the project led execution pickup and negative news flow settling down, JKIL stock price has recovered delivering 28.5% return in last 6M. Further re‐rating is contingent on earnings recovery and new order wins. We have retained our FY18‐20E financial estimates. We roll forward our valuation to FY20E and maintain BUY with a TP of Rs 420/sh (15x Mar‐20E EPS) vs. Rs 385/sh earlier (15x Sep‐19E EPS).

Investment Arguments

Strong order backlog: JKIL is reaching peak billing in JNPT/Metro projects after the initial hiccups relating to (1) Delays in utility shifting, and (2) Ban on quarrying. These issues have now been addressed and will lead to a significant execution pick‐up from 4QFY18E. We build in 20.9% FY18‐20E rev CAGR.

Balance sheet stable, net D/E at 0.36x: JKIL has net debt of ~Rs 4.8bn as of end‐9MFY18. We have modeled for peak debt of Rs 6bn. JKIL has received ~Rs 7bn interest free mobilisation advances on Metro/JNPT projects, and this shall keep WC debt under control.

Near‐term outlook: JKIL’s re‐rating is contingent on execution pick‐up and new order wins from here on. We remain constructive on the stock.

Financial Summary (Standalone) Year Ending March (Rs mn) FY17 FY18E FY19E FY20E Net Sales 14,812 18,547 23,762 27,119 EBITDA 2,601 3,112 4,201 4,669 APAT 1,068 1,182 1,772 2,117 Diluted EPS (Rs) 14.1 15.6 23.4 28.0 P/E (x) 20.0 18.1 12.1 10.1 EV / EBITDA (x) 9.6 8.4 5.9 5.4 RoE (%) 8.0 8.4 11.7 12.7 Source: Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg JKIL IN


MCap (Rs bn) / ($ mn) 21/329




3M 6M 12M

Absolute (%) (18.5) 24.4 12.3

Relative (%) (17.0) 18.5 (2.7)


Promoters 43.94

DIIs & Local MFs 11.76

FPIs 23.64


Parikshit D Kandpal [email protected] +91‐22‐6171‐7317 Kunal Bhandari [email protected] +91‐22‐6639‐3035

J. KUMAR INFRAPROJECTS : COMPANY UPDATE

Page | 104

Key Assumptions & Estimates (Rs mn) FY18E FY19E FY20E Comments

Closing order book 86,844 82,279 82,801 We expect ‐2.4% FY18‐20E order book CAGR on as JKIL is slowing down bidding so as to step up execution of current order book

Order book growth (%) (7.0) (5.3) 0.6

New order booking 15,000 20,000 30,000 JKIL has guided for Rs 20‐30bn new order inflows with increased focus towards the elevated and underground Metro segments. Book to bill ratio 4.7 3.5 3.1

Total Revenue 18,547 23,762 27,119 Expect execution to materially pick up during FY18‐20E. We estimate FY18‐20E revenue CAGR at 20.9%

Growth (%) 25.2 28.1 14.1 EBIDTA 3,112 4,201 4,669 FY18‐20E EBIDTA CAGR of 22.5% EBIDTA margin (%) 16.8 17.7 17.2 Margins to remain stable in 17‐18% range Depreciation 857 1,040 1,135 We est. FY18‐20E depreciation CAGR at 15.1%, owing to new TBM’s capex

Financial Charges 832 882 640 We est. FY18‐20E interest exp. CAGR at ‐12.3%, largely on account of interest free mobilization advances of Rs 8bn for Metro/JNPT projects. These advances will replace interest bearing debt

PBT 1,689 2,531 3,159 FY18‐20E PBT CAGR of 36.8%, PBT margin (%) 9.1 10.7 11.6 Tax 506.7 759.3 1,042.5 Tax rate (%) 30.0 30.0 33.0 PAT 1,182 1,772 2,117 FY18‐20E PAT CAGR of 33.8% Net margin (%) 6.4 7.5 7.8 Gross Block Turnover 2.0 2.2 2.4 Debtor days 108 98 103 Higher revenue growth, to result in WC investment and lower CFO CFO ‐ a 1,468 2,565 1,591 CFI ‐ b (1,334) (257) (745) TBM’s key driver of capex. Three new at Rs 2.1bn and 2 refurbished FCF ‐ a+b 134 2,308 846 FCF to remain muted in FY18E on back of TBM capex of Rs 2.5bn CFF ‐ c (730) (1,481) (582) Total change in cash ‐ a+b+c (596) 827 264 Source: HDFC sec Inst Research

We expect ‐2.4% FY18‐20E order book CAGR. JKIL has guided for Rs 20‐30bn new order inflows, as focus is on execution of the current backlog Excluding metro and JNPT the order book is Rs 17.0bn which will be executed over the next 2.5 years with an annual run rate of Rs 6.0‐7.0bn. Line 2 and Line 7 will generate a combined quarterly run rate of Rs 1.3‐1.5bn. JNPT is expected to contribute Rs 1.7bn in 4QFY18E FY18‐20E EBIDTA CAGR of 22.5% FY18‐20E PAT CAGR of 33.8%


Page | 105

Outlook and valuation Increase Target Price To Rs 420/sh

Valuation methodology: We have valued JKIL on P/E at 15x one‐year forward (vs. 18x for peers). Our justification behind this assumption is (1) Strong order FY18E backlog of Rs 82.2bn (4.4x FY18E revenue), (2) Stable FY18E balance sheet, with net D/E at 0.30x and net debt at Rs 4.8bn, (3) No exposure to capex‐intensive BOT projects, and (4) Well‐diversified presence across different infrastructure sub‐segments viz. Metros, flyovers, road, water transport etc.

P/E discount is to factor in high order book exposure to Mumbai region and in Transportation segment.

Further expansion in multiples is supported by an execution pick‐up from FY19E, on the back of incremental revenues from all 5 TBMs from May 18 onwards. We estimate 33.8% FY18‐20E EPS CAGR for JKIL, with profit multiplying 1.8x over the same period.

Investments in the transportation sector and urban MRTS segment would continue to drive stock performance, and JKIL, with strong credentials, is likely to benefit from the pick‐up in order execution. We roll forward to FY20E valuing the standalone EPC business at Rs 420/share (15x one‐year forward Mar‐20E EPS) vs. Rs 385/sh earlier (15x one‐year forward Sep‐19E EPS). Maintain BUY.

Valuation

Particulars Segments Value (Rs mn) Value per share(Rs) Rationale

EPC Core constructionbusiness 31,748 420 At 15x Mar20E EPS


We value the standalone EPC business at Rs 420/share (15x one‐year forward Mar‐20E EPS)


Page | 106

Income Statement ‐ Standalone Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Sales 14,086 14,812 18,547 23,762 27,119Growth (%) 4.9 5.2 25.2 28.1 14.1Material Expenses 8,859 9,143 11,804 14,886 16,839Employee Expenses 783 1,007 1,259 1,600 1,920Other Operating Expenses 1,960 2,062 2,373 3,076 3,691EBIDTA 2,484 2,601 3,112 4,201 4,669EBIDTA (%) 17.6 17.6 16.8 17.7 17.2EBIDTA Growth (%) (0.9) 4.7 19.6 35.0 11.1Depreciation 512 604 857 1,040 1,135EBIT 1,972 1,997 2,255 3,161 3,533Other Income (Incl. EO Items) 177 244 266 253 265Interest 611 692 832 882 640PBT 1,538 1,549 1,689 2,531 3,159Tax 506 480 507 759 1,042PAT 1,032 1,068 1,182 1,772 2,117EO items (net of tax) (2) ‐ ‐ ‐ ‐APAT 1,030 1,068 1,182 1,772 2,117APAT Growth (%) 10.0 3.7 10.6 49.9 19.5EPS 13.6 14.1 15.6 23.4 28.0EPS Growth (%) 10.0 3.7 10.6 49.9 19.5Source: Company, HDFC sec Inst Research

Balance Sheet – Standalone Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 378 378 378 378 378 Reserves 12,455 13,341 14,125 15,498 17,172 Total Shareholders’ Funds 12,833 13,719 14,503 15,877 17,551 Long Term Debt 3,540 4,370 4,870 4,670 5,170 Short Term Debt ‐ ‐ ‐ ‐ ‐ Total Debt 3,540 4,370 4,870 4,670 5,170 Deferred Taxes 170 170 170 170 170 TOTAL SOURCES OF FUNDS 16,543 18,259 19,543 20,717 22,891 APPLICATION OF FUNDS Net Block 4,299 5,095 6,738 6,198 6,062 CWIP 675 675 675 675 675 Investments, LT Loans & Advances 1,797 1,427 527 537 547 Total Non‐current Assets 6,771 7,197 7,940 7,410 7,285 Inventories 4,862 5,621 6,169 7,535 9,061 Debtors 2,956 5,226 5,484 6,375 7,667 Cash & Equivalents 1,736 874 278 1,105 1,369 ST Loans & Advances, Others 1,040 1,386 1,371 1,739 2,091 Other Current Assets 2,282 5,782 5,282 4,782 5,282 Total Current Assets 12,875 18,888 18,584 21,535 25,470 Creditors 1,140 1,583 1,828 2,608 3,137 Other Current Liabilities & Provns 1,964 6,243 5,153 5,621 6,728 Total Current Liabilities & Provns 3,104 7,827 6,981 8,229 9,865 Net Current Assets 9,771 11,062 11,603 13,306 15,605 TOTAL APPLICATION OF FUNDS 16,543 18,259 19,543 20,717 22,891 Source: Company, HDFC sec Inst Research


Page | 107

Cash Flow – Standalone Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EReported PBT 1,538 1,549 1,689 2,531 3,159Non‐operating & EO items (0) 0 0 0 0Interest expenses (Net) 478 448 566 630 374Depreciation 512 604 857 1,040 1,135Working Capital Change (1,411) (2,152) (1,137) (877) (2,035)Tax Paid (435) (480) (507) (759) (1,042)OPERATING CASH FLOW ( a ) 681 (31) 1,468 2,565 1,591Capex (553) (1,400) (2,500) (500) (1,000)Free cash flow (FCF) 128 (1,431) (1,032) 2,065 591Investments (1,711) 614 1,166 243 255INVESTING CASH FLOW ( b ) (2,264) (786) (1,334) (257) (745)Share capital Issuance 4,093 ‐ ‐ ‐ ‐Debt Issuance (1,615) 830 500 (200) 500Interest expenses (611) (692) (832) (882) (640)Dividend (155) (182) (398) (398) (443)FINANCING CASH FLOW ( c ) 1,713 (44) (730) (1,481) (582)NET CASH FLOW (a+b+c) 130 (862) (596) 827 264Closing Cash & Equivalents 284 874 278 1,105 1,369Source: Company, HDFC sec Inst Research

Key Ratios ‐ Standalone FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) GPM 37.1 38.3 36.4 37.4 37.9 EBITDA Margin 17.6 17.6 16.8 17.7 17.2 EBIT Margin 14.0 13.5 12.2 13.3 13.0 APAT Margin 7.3 7.2 6.4 7.5 7.8 RoE 9.9 8.0 8.4 11.7 12.7 Core RoCE 15.1 13.6 12.6 16.1 16.6 RoCE 14.1 12.6 12.6 16.1 16.6 EFFICIENCY Tax Rate (%) 32.9 31.0 30.0 30.0 33.0 Asset Turnover (x) 1.0 0.9 1.0 1.2 1.2 Inventory (days) 126 139 121 116 122 Debtors (days) 77 129 108 98 103 Payables (days) 30 39 36 40 42 Cash Conversion Cycle (days) 173 228 193 174 183 Loans & Advances (days) 27 34 27 27 28 Other Assets (days) 59 142 104 73 71 Other Liab (days) 51 154 101 86 91 NWC (days) 208 251 223 187 282 Debt/EBITDA (x) 1.4 1.7 1.6 1.1 1.1 Net D/E 0.14 0.21 0.30 0.26 0.2 Interest Coverage 3.2 2.9 2.7 3.6 5.5 PER SHARE DATA EPS (Rs/sh) 13.6 14.1 15.6 23.4 28.0 CEPS (Rs/sh) 20.4 22.1 26.9 37.2 43.0 DPS (Rs/sh) 2.0 2.0 2.0 2.0 2.0 BV (Rs/sh) 169.6 181.3 191.7 209.8 231.9 VALUATION P/E 20.8 20.0 18.1 12.1 10.1 P/BV 1.7 1.6 1.5 1.3 1.2 EV/EBITDA 9.3 9.6 8.4 5.9 5.4 OCF/EV (%) 2.9 (0.1) 5.6 10.3 6.3 FCF/EV (%) 0.6 (5.7) (4.0) 8.3 2.3 FCFE/Market Cap (%) (9.8) (6.0) (6.4) 4.6 2.1 Dividend Yield (%) 0.7 0.7 0.7 0.7 1.9 Source: Company, HDFC sec Inst Research


JMC Projects (India) BUY


Long term value JMC Projects (India) Limited (JMC) order book is significantly concentrated towards Buildings segment (70% including government), with Infra – 17%, international – 7% & Industrial – 6% accounting for the rest. JMC has a large order book exposure towards the Buildings segment. The share of the high ordering potential Infrastructure segment in the order book may increase post balance sheet deleveraging. As private institutional capex continues to improve along with significant uptick in residential buildings and infrastructure spending, we expect JMC to capitalize on the opportunities and deliver core RoCEs in excess of 20%. We Initiate coverage with BUY and a TP of Rs 844/sh.

Investment Arguments FY18E order book of Rs 76.6bn: FY18E book to bill

stands comfortably at 2.7x in line with the peer average group. The buildings and factories segment has been witnessing heightened activity recently given the huge opportunity space.

Debt reduction in sight: Net debt peaked at Rs 7bn in FY16. With operations generating impressive cash flows, net debt is now firmly under control. Management has guided for FY18E debt of Rs 6.6bn with further reduction likely in FY19‐20E.

BOT projects to turn cash breakeven in FY19E: With a 10% YoY traffic growth in FY18E, the BOT projects have been clocking Rs 5.0mn/day. With

JMC trying to opt for the 5/25 scheme for 2 large projects, management is confident of achieving cash breakeven at Rs 5.2mn/day for FY19E.

Monetization of BOT projects may lead to massive stock re‐rating and significant deleveraging: JMC has invested Rs 6.4bn equity in 4 operational road BOT assets (including 1 project in JV with SREI). Against this exposure JMC has standalone debt of ~Rs 7bn. JMC has provided Rs 450mn of loss funding for BOT projects in 9MFY18 and may need to provide further Rs 200mn in FY19E depending on whether 5/25 scheme is accepted. Whilst RBI has disallowed 5/25 scheme, JMC may have to resort for restructuring in case loss funding increases substantially. This remains an overhang.

Near‐term outlook: With (1) Execution growth finally in sight, (2) Well diversified order book, (3) Debt remaining under control and (4) Expected uptick in private institutional capex; we remain constructive on JMC projects.

Financial Summary (Standalone) (Rs mn) FY17 FY18E FY19E FY20E Net Revenues 23,284 27,937 31,860 36,355 EBITDA 2,111 2,780 3,202 3,654 APAT 599 978 1,138 1,361 Diluted EPS (Rs) 18 29 34 41 P/E (x) 33.5 20.5 17.6 14.7 EV/EBIDTA (x) 12.4 9.6 8.3 7.0 RoE (%) 9.0 13.3 13.6 14.3 Source : Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg JMCP IN


MCap (Rs bn) / ($ mn) 21/316




3M 6M 12M

Absolute (%) (6.0) 34.2 112.3

Relative (%) (4.5) 28.2 97.3


Promoters 67.19


FPIs 1.14




JMC PROJECTS : INITIATING COVERAGE

Page | 109

Order Book, Revenues, Book‐to‐bill Ratio EBITDA And PAT Margins (%)

Source : Company, HDFC sec Inst Research


Net Debt And Net D/E Cash Flow From Operations & NWC Cycle

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

Revenues which remained muted over FY12‐17 are poised to grow 20.0/14.0/14.1% YoY in FY18/19/20E on back of order book recovery EBIDTA margins expanded over FY13‐18E significantly, with focus on cost optimization and control We expect EBITDA margins to stabilize around 10.1% Net debt peaked to Rs 7bn in FY16. With operations generating impressive cash flows, net debt is now firmly under control. Management has guided to end FY18E with Rs 6.6bn of net debt with further reduction likely over FY19‐20E Incremental loss funding to BOT assets in FY19E may not significantly increase standalone debt from current levels

71,057 76,620

84,290 89,707

23,284 27,937 31,860 36,355

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

‐

20,000

40,000

60,000

80,000

100,000

FY17 FY18E FY19E FY20E

Order book (mn) Revenue (mn)

Book to bill (x) ‐ RHS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

EBITDA margin PAT margin

‐

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Net Debt (Rs mn) Net D/E (x) ‐ RHS

‐

20

40

60

80

100

120

‐1,000

‐500

0

500

1,000

1,500

2,000

2,500

3,000

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

CFO (Rs mn) NWC Cycle (days) ‐ RHS


Page | 110

3QFY18 Order Book ‐ Rs 76.0bn (% Breakup) 3QFY18 Order Book ‐ Rs 76.0bn (% Breakup)



BOT Projects’ Revenue Trend (JMC’s Share)

With strong traffic growth witnessed in 3QFY18 (+10% YoY across projects), the collection has improved to Rs 5.0mn/day despite the reduction in overloading charges.

With interest rates already declining post renegotiations in 2 projects and JMC trying to opt for the 5/25 scheme for the remaining 2 large projects, management has estimated cash breakeven at Rs 5.2mn/day for FY19E.

This will likely reduce equity infusion for loss funding to Rs 150mn (after considering the 5/25 scheme) as compared to Rs 600mn in FY18E.


JMC’s 3QFY18 order book is Rs 76.0bn in addition to recent wins of ~Rs 4.0bn and L1 status in projects worth 14.0bn (largely infra projects from Africa). Order book driven by the building and factories segment (70% of 3QFY18 order backlog) With strong traffic growth witnessed in 3QFY18 (+10% YoY across projects), the collection has improved to Rs 5.0mn/day despite the reduction in overloading charges.

Buildings & Factories

62

Buildings & Factories ‐Govt.8

Infra17

Intl.7

Industrial6

Public38

Private62

4.5 4.9

4.1 4.5

4.8 4.9 4.4

5.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

Avg daily revenue (BOOT projects) ‐ Rs mn


Page | 111

WC Cycle To Remain Stable Despite Execution Ramp Up Working Capital Cycle (Standalone)

Source : Company, HDFC sec Inst Research We expect the W/C cycle for JMC to remain stable

at 92 days despite scaling up operations. Historically the NWC has deteriorated from 44‐50 days over FY12‐14 to 85‐105 days over FY15‐18E.

We expect receivables to remain stable as a large portion of the order book is from private developers. JMC has been conservative in the past and has dealt with only established developers and corporate entities in the building and factories

segment. This leads to better working capital management and less risk of execution delays.

We expect JMC to continue clocking positive operating cash flows over FY18‐20E with NWC remaining stable and the Company clocking double digit EBITDA margins for the first time in the recent history.

We expect an average annual capex outlay of Rs 750mn over FY18‐20E.

Free Cash Flow (FCF) Generation (Standalone) Particulars (Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E EBITDA 1,476 1,185 1,357 1,634 2,136 2,111 2,780 3,202 3,654 NWC Changes (745) (520) (362) (2,221) (1,098) 533 (1,224) (786) (548) Cash Flow From Operations 528 623 985 (652) 554 2,500 1,135 1,856 2,436 Capex (897) (394) (812) (816) (817) (771) (750) (750) (700) Free Cash Flow (FCFF) (370) 229 173 (1,468) (262) 1,728 385 1,106 1,736 Enterprise Value (EV) 16,931 17,830 18,288 20,775 25,316 24,404 24,907 24,709 23,873 FCF/EV (%) (2.2) 1.3 0.9 (7.1) (1.0) 7.1 1.5 4.5 7.3 Source : Company, HDFC sec Inst Research

Particulars (days) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Inventory (days) 37 30 33 38 24 28 25 23 23 Debtors (days) 53 46 48 63 102 103 90 90 90 Payables (days) 70 69 78 90 103 117 105 100 100 Other Current Assets (days) 47 52 65 99 118 128 113 108 105 Other Current Liab (days) 24 16 19 23 44 38 31 29 26 Net Working Capital Cycle (Days) 44 44 50 86 98 105 92 92 92


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Increasing Order Book Size Provides Great Potential

The buildings and factories (B&F) segment has been witnessing heightened activity recently. This has led to the order book growing significantly over the last 2 years. Even though the share of Infra and government buildings have reduced by 1,000 bps and 600 bps respectively, the spike in private investments in B&F segment have ensured improved revenue visibility.

FY18E book to bill stands comfortably at 2.6x in line with the peer average group. The buildings and factories segment has been witnessing heightened activity recently. The management remains confident of further inflows over the next two years despite not compromising on margins given the huge opportunity space.

Order Book Size Particulars (Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 32,977 25,860 24,427 33,705 36,073 35,530 33,911 34,882 33,094 Capacite Infraprojects* 5,959 19,404 24,464 30,632 43,593 54,097 61,707 65,846 PSP Projects 3,710 2,120 4,458 4,841 3,307 7,292 23,030 21,185 27,831 JMC Projects 56,811 55,830 50,876 58,357 64,067 71,057 76,620 84,290 89,707 Average 18,344 11,313 16,097 21,003 23,337 28,805 37,013 39,258 42,257 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13 Book To Bill (x)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 2.4 1.9 2.5 3.2 2.9 2.5 2.0 2.1 1.7 Capacite Infraprojects*# 11.2 4.8 3.8 3.9 3.7 3.5 3.2 PSP Projects 2.1 0.8 2.1 1.7 0.7 1.8 3.2 2.9 2.2 JMC Projects 2.7 2.2 1.9 2.4 2.7 3.1 2.7 2.6 2.5 Average 2.2 1.3 5.3 3.2 2.5 2.7 3.0 2.9 2.4 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13 #FY13 figures are not comparable as operations commenced from Aug‐12.

JMC projects has one of the largest backlog in the Buildings and factories segment (70% of 3QFY18 backlog) FY18E book to bill stands comfortably at 2.7x in line with the peer average group


Page | 113

Debtor Days Lower Than Industry Average JMC’s debtor cycle has always been below the peer

group average. We expect it will remain comfortable at ~90 days by FY20E as compared to the industry average of 98 days.

The management has been focusing on private/ commercial contracts. They feel the risk of delays in project execution from the developer side is much lower than in government projects. This translates into better working capital management and we expect debtor days to remain stable at around 90 days over FY19‐20E.

Receivables (Days Of Sales) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Ahluwalia Contracts 114 108 154 144 146 132 135 135 135 Capacite Infraprojects* 39 157 104 120 107 109 109 108 PSP 39 17 24 31 8 49 55 52 53 JMC Projects 53 46 48 63 102 103 90 90 90 Average 76 55 112 93 91 96 100 99 98 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

Positive OCF

JMC has consistently delivered positive cash flows from operations. Further scope to improve as GST related hiccups are now a thing of the past and

increase in private order book translates into lower risk of delays from the developer side and hence a comfortable working capital cycle.

Operating Cash Flow (OCFF) Particulars (Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 945 (226) 153 1,149 373 1,827 840 1,485 1,328 Capacite Infraprojects* (24) 114 505 833 1,311 1,548 1,887 2,253 PSP 264 278 208 305 411 11 151 975 1,295 JMC Projects 528 623 985 (652) 554 2,500 1,135 1,856 2,436 Average 605 9 159 653 539 1,050 847 1,449 1,625 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

We expect debtor days to stabilize at ~90 days by FY20E as compared to the industry average of 98 days We expect JMC to consistently deliver strong operating cash flows led by a stable working capital cycle and increasing share of private orders


Page | 114

Asset Turnover Higher Than Industry Averages JMC has historically maintained high turnover

ratios as compared to its peer group. We expect JMC to reach 5.4(x) in FY19E and FY20E vs. peer group average of 4.7(x).

JMC has been consistently investing in capex to improve its execution capacity. Over FY12‐17 it has expended ~Rs 750mn annually on an average on new capex. It has reduced its dependence on 3rd party contractors (as a % of revenue) by 1,500 bps over FY13‐FY17 to 29%. The same is expected to stabilize at 28% over FY18‐20E.

Asset Turnover(x) Higher Vs. Peers FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Ahluwalia Contracts 2.9 3.2 2.1 2.2 2.3 2.5 2.4 2.3 2.2 Capacite Infraprojects* 0.4 2.0 2.9 3.1 3.8 3.9 3.9 4.3 PSP 7.7 9.5 6.8 5.5 6.0 4.8 5.4 7.0 7.6 JMC Projects 4.5 5.1 4.8 7.6 6.1 5.2 5.3 5.3 5.4 Average 5.3 4.4 3.7 3.5 3.8 3.7 3.9 4.4 4.7 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

EBITDA Margins To Remain Around 10% EBITDA margins have continued to expand

significantly over the last 4‐5 years with JMC focusing on cost optimization and control. This led to higher EBITDAs even though the revenues continued to display muted growth.

With increasing share of building and factories segment we expect the margins to continue to grow and stabilize around 10% over FY18‐20E.

EBIDTA Margins (%)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 1.3 (1.7) 4.3 10.8 12.9 12.1 13.5 13.5 13.4 Capacite Infraprojects*# 9.2 12.9 14.4 14.5 15.0 15.1 15.2 PSP 8.6 8.5 8.0 8.0 8.6 16.4 13.0 12.2 11.9 JMC Projects 7.1 4.7 5.1 6.8 8.9 9.1 10.0 10.1 10.1 Average 5.0 3.4 7.2 10.6 11.9 14.3 13.8 13.6 13.5 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13 #Reported negative margins in the 1st year of operations (FY13)

Asset turns higher vs. peers. We expect JMC to reach 5.4x in FY19E and FY20E vs. peer group average of 4.7x EBITDA margins have increased gradually from 4.7% in FY13 to 9.1% in FY17 We expect the margins to remain around 10% over FY18‐20E backed by the huge opportunity size in the buildings and factories segment


Page | 115

Key Assumptions And Estimates (Standalone) Key Assumptions (Rs mn) FY18E FY19E FY20E Comments Closing order book 76,620 84,290 89,707 Order book to grow at a CAGR of 8.1% over FY18‐20E Order book growth (%) 7.8 10.0 6.4New order booking 33,500 39,531 41,772Book to bill ratio 2.7 2.6 2.5

Total Revenue 27,937 31,860 36,355 Revenue to grow at a CAGR of 14.1% over FY18‐20E aided by revival in private institutional capex.

Growth (%) 20.0 14.0 14.1EBIDTA 2,780 3,202 3,654 EBITDA to grow at a CAGR of 14.6% over FY18‐20E EBIDTA margin (%) 10.0 10.1 10.1 EBITDA margins will be stable around 10% range. Depreciation 679 769 852 Capex to increase depreciation charge.

Financial Charges 872 893 921 With gross debt not expected to increase materially over FY18‐20E and finance costs will remain stable.

PBT 1,399 1,699 2,032PBT margin (%) 5.0 5.3 5.6Tax 421.5 560.5 670.5Tax rate (%) 30.1 33.0 33.0 Company is expected to operate at a full tax rate over FY19‐20E RPAT 978 1,138 1,361Net margin (%) 3.5 3.6 3.7Extraordinary ‐ ‐ ‐Adjusted PAT 978 1,138 1,361 APAT will grow by 18% CAGR over FY18‐20E Gross Block Turnover 5.3 5.3 5.4Debtor days 90 90 90

CFO ‐ a 1,135 1,856 2,436 As debtor days stabilize to ~90 days over FY18‐20E, CFO to increase significantly led by double digit EBITDA margins

CFI ‐ b (704) (702) (617)FCF ‐ a+b 431 1,154 1,818CFF ‐ c (174) (1,085) (1,183)Total change in cash ‐ a+b+c 257 69 635Source : HDFC sec Inst Research

Order book to grow at a CAGR of 8.1% over FY18‐20E Revenue to grow at a CAGR of 14.1% over FY18‐20E aided by revival in private institutional capex EBITDA margins will stabilize around 10% APAT will grow by 18% CAGR over FY18‐20E


Page | 116

HDFC Sec Vs. Consensus HDFC Sec Vs Consensus

Consensus HDFC Sec % Divergence

Sales (Rs mn) FY18E 28,129 27,937 (0.7) FY19E 32,300 31,860 (1.4) FY20E 36,730 36,355 (1.0)

EBIDTA (Rs mn) FY18E 2,828 2,780 (1.7) FY19E 3,294 3,202 (2.8) FY20E 3,701 3,654 (1.3)

Net Profit (Rs mn) FY18E 934 978 4.7 FY19E 1,180 1,138 (3.6) FY20E 1,391 1,361 (2.2)

Divergence (bps)

EBITDA Margin (%) FY18E 10.1% 10.0% (10.2) FY19E 10.2% 10.1% (14.7) FY20E 10.1% 10.1% (2.7)

NPM (%) FY18E 3.3% 3.5% 18.1 FY19E 3.7% 3.6% (8.1) FY20E 3.8% 3.7% (4.3)

Source: HDFC sec Inst Research Peer Valuations

Relative Valuation EV/EBITDA (x) P/E (x) P/BV (x)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Ahluwalia Contracts 12.0 10.1 8.7 23.8 19.3 16.9 4.5 3.6 3.0 Capacite Infraprojects 10.7 8.8 7.5 23.4 19.1 15.1 2.9 2.5 2.2

PSP Projects 18.6 11.0 8.2 31.8 19.1 14.9 6.1 4.8 3.8 JMC Projects 9.6 8.3 7.0 20.5 17.6 14.7 2.6 2.3 2.0 Average 13.8 10.0 8.1 26.3 19.2 15.6 4.5 3.7 3.0 Source: HDFC sec Inst Research


Page | 117

Outlook And Valuation Target Price Of Rs 844/Sh Valuation methodology We have valued the core construction business at

18x one‐year forward Mar‐20E EPS at Rs 730/share. This is in line with other established players like Ahluwalia. Our rationale behind this is (1) Order book of ~Rs 76.6bn provides 2.7x revenue visibility, (2) Amongst the top 5 players in the Buildings segment with robust execution credentials, (3) Balance sheet with net d/e of ~0.8x largely pertaining to BOT equity exposure of Rs6.4bn) and (4) Relatively inexpensive standalone valuation at 14.7x FY20E EPS.

Investment in the building segment would remain robust on the back of institutional and industrial demand in addition to NBCC, CPWD and private capex in the segment.

BOT equity monetization remains key for further re‐rating.

We initiate coverage with a BUY rating with a TP of Rs 844. We value the core construction business at Rs 730/share (18x one‐year forward Mar‐20E EPS) and Equity invested in BOT at a 40% discount at Rs 114/share.

SOTP Valuation



Standalone Core construction business 24,505 730 At 18x Mar‐20E EPS in line with peers like Ahluwalia and PSP.

BOT Assets Roads toll 3,834 114 At 0.6x P/BV(x) of equity exposure


We have valued the core construction business at 18x one‐year forward Mar‐20E EPS at Rs 730/share We value BOT equity investments at a 40% discount at Rs 114/share We arrive at a SOTP valuation of Rs 844/share


Page | 118

Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 24,008 23,284 27,937 31,860 36,355Growth (%) 0.0 (3.0) 20.0 14.0 14.1Material Expenses 8,588 8,443 10,267 11,709 13,397Employee Expenses 2,256 2,357 2,933 3,250 3,672Other Operating Expenses 11,028 10,372 11,957 13,700 15,633EBIDTA 2,136 2,111 2,780 3,202 3,654EBIDTA (%) 8.9 9.1 10.0 10.1 10.1EBIDTA Growth (%) 30.7 (1.2) 31.7 15.2 14.1Depreciation 517 574 679 769 852EBIT 1,619 1,538 2,101 2,433 2,801Other Income (Incl. EO Items) 82 137 170 159 152Interest 1,043 832 872 893 921PBT 659 843 1,399 1,699 2,032Tax 217 244 422 561 671RPAT 442 599 978 1,138 1,361EO items (net of tax) ‐ ‐ ‐ ‐ ‐APAT 442 599 978 1,138 1,361APAT Growth (%) 48.0 35.5 63.3 16.4 19.6EPS 13.2 17.8 29.1 33.9 40.5EPS Growth (%) 15.1 35.5 63.3 16.4 19.6Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone)As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 336 336 336 336 336 Reserves 6,042 6,561 7,477 8,553 9,853 Total Shareholders’ Funds 6,378 6,897 7,813 8,889 10,188 Minority Interest 0 0 0 0 0 Long Term Debt 2,819 2,313 3,472 3,372 3,172 Short Term Debt 4,541 4,050 3,650 3,620 3,620 Total Debt 7,360 6,363 7,122 6,992 6,792 Other Non Current Liabilities 3,688 5,242 4,897 5,311 6,027 TOTAL SOURCES OF FUNDS 17,426 18,502 19,833 21,192 23,008 APPLICATION OF FUNDS Net Block 3,496 3,714 3,786 3,766 3,614 Investments 5,692 6,401 6,986 7,195 7,317 Other Non Current Assets 1,476 1,397 1,521 1,632 1,701 Total Non‐current Assets 10,664 11,513 12,293 12,594 12,632 Inventories 1,586 1,795 1,914 2,008 2,291 Debtors 6,688 6,576 6,889 7,856 8,964 Cash & Equivalents 345 260 517 585 1,221 ST Loans & Advances 145 81 75 79 84 Other Assets 7,643 8,110 8,577 9,305 10,405 Total Current Assets 16,407 16,822 17,971 19,833 22,964 Creditors 6,764 7,439 8,037 8,729 9,960 Other Current Liabilities & Provns 2,881 2,394 2,394 2,505 2,628 Total Current Liabilities 9,645 9,833 10,431 11,234 12,588 Net Current Assets 6,762 6,989 7,540 8,599 10,376 TOTAL APPLICATION OF FUNDS 17,426 18,502 19,833 21,192 23,008 Source: Company, HDFC sec Inst Research


Page | 119

Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EPBT 659 843 1,399 1,699 2,032Non‐operating & EO items 157 (124) (130) (98) (62)Interest expenses 832 832 832 832 832Depreciation 517 574 679 769 852Working Capital Change (1,098) 533 (1,224) (786) (548)Tax paid (512) (158) (422) (561) (671)OPERATING CASH FLOW ( a ) 554 2,500 1,135 1,856 2,436Capex (817) (771) (750) (750) (700)Free cash flow (FCF) (262) 1,728 385 1,106 1,736Investments (342) 96 46 48 83INVESTING CASH FLOW ( b ) (1,159) (675) (704) (702) (617)Share capital Issuance 1,487 0 0 0 0Debt Issuance 578 (2,589) 1,123 (528) (876)Interest expenses (1,232) 721 (1,238) (497) (247)Dividend (31) (40) (60) (60) (60)FINANCING CASH FLOW ( c ) 802 (1,909) (174) (1,085) (1,183)NET CASH FLOW (a+b+c) 197 (85) 257 69 635Closing Cash & Equivalents 345 260 517 585 1,221Source: Company, HDFC sec Inst Research

Key Ratios (Standalone)Year ending March FY14 FY15 FY16E FY17E FY18E PROFITABILITY (%) GPM 64.2 63.7 63.3 63.3 63.2 EBITDA Margin 8.9 9.1 10.0 10.1 10.1 EBIT Margin 6.7 6.6 7.5 7.6 7.7 APAT Margin 1.8 2.6 3.5 3.6 3.7 RoE 7.9 9.0 13.3 13.6 14.3 Core RoCE 14.1 16.6 19.8 20.1 22.2 RoCE 8.3 9.0 10.6 10.9 11.7 EFFICIENCY Tax Rate (%) 32.9 29.0 30.1 33.0 33.0 Asset Turnover (x) 6.1 5.2 5.3 5.3 5.4 Inventory (days) 24 28 25 23 23 Debtors (days) 102 103 90 90 90 Payables (days) 103 117 105 100 100 Other Current Assets (days) 118 128 113 108 105 Other Current Liab (days) 44 38 31 29 26 Net Working Capital Cycle (Days) 98 105 92 92 92 Debt/EBITDA (x) 3.4 3.0 2.6 2.2 1.9 Net D/E 1.1 0.9 0.8 0.7 0.5 Interest Coverage 1.6 1.8 2.4 2.7 3.0 PER SHARE DATA EPS (Rs/sh) 13.2 17.8 29.1 33.9 40.5 CEPS (Rs/sh) 28.5 34.9 49.3 56.8 65.9 DPS (Rs/sh) 0.0 0.0 0.1 0.1 0.1 BV (Rs/sh) 190 205 233 265 303 VALUATION P/E 45.4 33.5 20.5 17.6 14.7 P/BV 3.1 2.9 2.6 2.3 2.0 EV/EBITDA 12.7 12.4 9.6 8.3 7.0 OCF/EV (%) 2.0 0.1 0.0 0.1 0.1 FCF/EV (%) (1.0) 6.6 1.4 4.2 6.8 FCFE/Market Cap (%) (4.6) (0.7) 1.3 0.4 3.1 Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 Source: Company, HDFC sec Inst Research


PSP Projects BUY


Adding scale PSP Projects (PSP) current project portfolio is significantly concentrated in Gujarat (89% incl. Diamond Bourse), even as the Company looks to diversify into other geographies. PSP is a secular growth story driven by strong on ground execution, robust working capital management and scalable business model. Revenue overdependence on Surat Diamond Bourse is a risk even as we see it as an opportunity. Successful and timely execution may catapult PSP into a new orbit with high pre‐qualification credentials of up to Rs 25bn. As increase in investments in office space and retail drives institutional construction along with FDI and manufacturing activity aiding industrial construction, we expect PSP’s order book/APAT to grow ~1.2/2.1x over FY18‐20E. Initiate coverage with BUY. Our TP is Rs 639/sh (18x Mar‐20E EPS).

Investment Arguments Strong revenue visibility: Order book of Rs 27.5bn

translates into 3.8x bill to book ratio on FY18E base. Total order inflows for FY18E stood at Rs 24.7bn. Early payment discounts from creditors to aid in 1‐2% margin expansion over normalized EBITDA margins of 10%. Accordingly creditor days are expected to normalize to ~50 days.

Increasing ticket size: PSP’s average project size has increased at a CAGR of ~40% from Rs 85mn in FY13 to Rs 450mn in 1HFY18 (excluding diamond bourse project for 15.8bn). PSP has scaled up its

execution capabilities with significant investment in state of the art plant and machinery. PSP is targeting project with average ticket size of Rs 2‐2.5bn as there is limited ‘Grade A’ EPC players in this segment.

Strong local presence: PSP has strong presence in its home state of Gujarat (91% of 3QFY18 backlog). Apart from getting repeat orders from clients like Zydus, Cadila, Torrent etc due to its reputation and connect, spending on institutional and industrial constructions in Micro markets such as Sanand and GIFT City will continue to aid order bookings.

Selective expansion to diversify geographical concentration: PSP has steadily expanded in Karnataka (5% 3QFY18 backlog) and Rajasthan (4% 3QFY18 backlog). May look at adding Andhra Pradesh as well as state capital is being built.

Near‐term outlook: With (1) Strong Revenue visibility, (2) Ramp‐up in execution capabilities, (3) Healthy balance sheet, (4) High EBIDTA margins and (5) Expected order inflows; the stock should remain buoyant in the near term.

Financial Summary (Standalone) (Rs mn) FY16 FY17 FY18E FY19E FY20E Net Revenues 4,580 4,008 7,261 12,845 17,354 EBITDA 393 659 941 1,570 2,058 APAT 252 415 601 998 1,278 Diluted EPS (Rs) 9 14 17 28 36 P/E (x) 60.6 36.8 31.8 19.1 14.9 EV/EBIDTA (x) 37.3 22.3 18.6 11.0 8.2 RoE (%) 44.7 47.8 28.4 28.0 28.4 Source: Company, HDFC sec Inst Research




Sensex 34,101

KEY STOCK DATA

Bloomberg PSPPL IN


MCap (Rs bn) / ($ mn) 19/288




3M 6M 12M

Absolute (%) (6.8) 26.7 ‐

Relative (%) (5.4) 20.8 ‐


Promoters 71.99


FPIs 1.41




PSP PROJECTS : INITIATING COVERAGE

Page | 121

WC Cycle To Normalize With Execution Ramp Up Debtor days had increased to 55days as of 1HFY18

on account of GST related holding up of payment by clients. The projects have been repriced but we expect debtors to remain in the range of 50‐55 days over FY18‐20E.

Creditor days are expected to reduce to 50 days as PSP aims at 1‐2% margin expansion to avail early payment discounts.

For the Diamond bourse project, PSP has already received Rs 780mn of advance (5% of cost). The company has also received Rs 500mn of payment for the Mar‐18 execution.

PSP is expected to remain a net cash company and net D/E is pegged at (0.5)x over FY18‐20E.

PSP will generate positive operating cash flows post accounting for working capital expansion over FY18E‐20E. Capex requirements to support ramp up in execution will result in lower FCF. We do not see this impacting the balance sheet materially as the accretion to net worth will keep gross D/E (0.2x) in check and debt will continue to remain insignificant.

Working Capital Cycle (Standalone) Particulars (days) FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E Inventory (days) 3 3 3 5 3 3 15 15 15 Debtors (days) 39 17 24 31 8 49 55 52 53 Payables (days) 42 50 69 82 55 63 50 50 50 Other Current Assets (days) 35 29 43 35 40 67 50 45 42 Other Current Liab (days) 65 36 63 56 39 66 53 51 51 Net Working Capital Cycle (Days) (31) (38) (63) (67) (43) (11) 17 10 9 Source: Company, HDFC sec Inst Research Free Cash Flow (FCF) Generation (Standalone) Particulars (Rs mn) FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E EBITDA 154 220 167 224 393 659 941 1,570 2,058 NWC Changes 150 118 94 153 136 (497) (452) (34) (44) Cash Flow From Operations 264 278 208 305 411 11 151 975 1,295 Capex (231) (41) (37) (199) (258) (71) (500) (500) (450) Free Cash Flow (FCFF) 33 237 172 106 153 (60) (349) 475 845 Enterprise Value (EV) 13,302 13,165 13,045 12,960 12,858 12,887 15,290 14,970 14,588 FCF/EV (%) 0.2 1.8 1.3 0.8 1.2 (0.5) (2.3) 3.2 5.8 Source : Company, HDFC sec Inst Research

Debtors to remain in the range of 50‐55 days over FY18‐20E Creditor days are expected to reduce to 50 days as PSP aims at 1‐2% margin expansion to avail early payment discounts


Page | 122

Revenue Visibility To Increase With Key Project Wins Increasing Order Book Size Aided By Marquee Wins Led by the marquee project win of Diamond

Bourse for Rs 15.8bn, we expect PSP’s order book size to increase at a CAGR of 56.3% (FY17‐20E). Order backlog will reach Rs 27.8bn by FY20E aided by expected increase in institutional and industrial activity. There is scope for geographical expansion, though management is not immediately focusing to ramp up its non Gujarat operations.

Strong Revenue Visibility FY18E order book to bill of 3.2x is higher than

industry average of 3.0x. This is because the diamond bourse project is its largest ever win in terms of size outshining its previous projects. This will provide strong revenue visibility for execution over FY19E and FY20E. We expect revenue to post a CAGR of 65.8% over FY17‐20E and execution will touch ~18.3bn by FY20E.

Order Book Size Particulars (Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 32,977 25,860 24,427 33,705 36,073 35,530 33,911 34,882 33,094 Capacite Infraprojects 5,959 19,404 24,464 30,632 43,593 54,097 61,707 65,846 JMC Projects 56,811 55,830 50,876 58,357 64,067 71,057 76,620 84,290 89,707 PSP Projects 3,710 2,120 4,458 4,841 3,307 7,292 23,030 21,185 27,831 Average 31,166 22,442 24,791 30,342 33,520 39,368 47,952 51,972 56,019 Source : Company, HDFC sec Inst Research Book To Bill (x)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 2.4 1.9 2.5 3.2 2.9 2.5 2.0 2.1 1.7 Capacite Infraprojects*# 11.2 4.8 3.8 3.9 3.7 3.5 3.2 JMC Projects 2.7 2.2 1.9 2.4 2.7 3.1 2.7 2.6 2.5 PSP Projects 2.1 0.8 2.1 1.7 0.7 1.8 3.2 2.9 2.2 Average 2.4 1.6 4.4 3.0 2.5 2.8 3.0 2.8 2.4 Source: Company, HDFC sec Inst Research *history is publicly available only from FY13 #FY13 figures are not comparable as operations commenced from Aug‐12.

PSP has won the Surat Diamond Bourse project with a total project cost of Rs 15.7bn. This has resulted in PSP creating an equal size of operation (another PSP) in Surat. Total 2,000 people are working currently and will ramp to 7,500 at peak Total development potential is 6.6mn sqft in 30months. The average rate is Rs 2,800/sqft and PSP will make about 12‐13% EBIDTA margin on the project. This project was won in competition with other 8 players viz. L&T, Shapoorji, Ahluwalia, JMC etc. The project is self funded by diamond merchants who shall be buying office space in the complex. About 90% of the project is sold out and remaining is kept for selling at completion stage. Post completion this project will make PSP pre‐qualified for project size of ~Rs 25bn vs. Rs 5bn currently. Until now payments have been timely and there is no impact of the recent scam in the sector


Page | 123

Debtor Days Lower Than Industry Average PSP’s debtor cycle is well below the peer group

average. We expect it will remain comfortable at ~53 days by FY20E as compared to the industry average of 98 days.

Gross Debt/Equity Lower Than Peer Average PSP’s FY18E gross D/E at 0.2x is slightly lower than

its peer set’s average of 0.4x. We expect this to remain at 0.2x over FY18‐20E primarily on account of ease in net working capital cycle, higher operating cash flows and lower capex requirement.

Receivables (Days of Sales) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Ahluwalia Contracts 114 108 154 144 146 132 135 135 135 Capacite Infraprojects* 39 157 104 120 107 109 109 108 JMC Projects 53 46 48 63 102 103 90 90 90 PSP Projects 39 17 24 31 8 49 55 52 53 Average 69 53 96 85 94 97 97 96 96 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13 Gross Debt/Equity (x)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 0.8 1.2 1.1 0.5 0.3 0.2 0.1 0.1 0.1 Capacite Infraprojects* 1.3 3.6 1.9 1.0 0.4 0.2 0.2 0.2 JMC Projects 0.7 0.9 0.9 1.4 1.2 0.9 0.9 0.8 0.7 PSP Projects 1.6 0.5 0.7 0.7 0.7 0.6 0.2 0.2 0.2 Average 1.0 1.0 1.6 1.1 0.8 0.5 0.4 0.3 0.3 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

Debtors days is below than average of peers at 53


Page | 124

Asset Turnover Higher Than Industry Averages PSP has historically maintained high turnover ratios

as compared to its peer group. Due to significant capex additions in FY17 and FY18E, the ratios are slightly lower. We expect them to breach 7.0(x) in FY19E and FY20E.

PSP owns state of the art machinery and a captive equipment bank for project execution. Additionally they have imported machinery for external plaster, painting and formwork material. PSP has invested over Rs 700mn in plants, machinery and vehicles for timely project delivery.

Asset Turnover(x) Higher Vs. Peers FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Ahluwalia Contracts 2.9 3.2 2.1 2.2 2.3 2.5 2.4 2.3 2.2 Capacite Infraprojects* 0.4 2.0 2.9 3.1 3.8 3.9 3.9 4.3 JMC Projects 4.5 5.1 4.8 7.6 6.1 5.2 5.3 5.3 5.4 PSP Projects 7.7 9.5 6.8 5.5 6.0 4.8 5.4 7.0 7.6 Average 5.1 4.5 3.9 4.5 4.4 4.1 4.3 4.6 4.9 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

EBITDA Margins To Remain Around 12‐13% Excluding the one‐off instance in FY17, historically

EBITDA margins have generally been in excess of 8%. Over FY18‐20E we expect the margins to

improve to 12‐13% led by the 12% margins in the Diamond Bourse project and early payments to suppliers to act as an incentive for discounts.

EBIDTA Margins (%)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 1.3 (1.7) 4.3 10.8 12.9 12.1 13.5 13.5 13.4 Capacite Infraprojects*# 9.2 12.9 14.4 14.5 15.0 15.1 15.2 JMC Projects 7.1 4.7 5.1 6.8 8.9 9.1 10.0 10.1 10.1 PSP Projects 8.6 8.5 8.0 8.0 8.6 16.4 13.0 12.2 11.9 Average 5.7 3.8 6.7 9.6 11.2 13.0 12.8 12.7 12.6 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13 #Reported negative margins in the 1st year of operations (FY13)

Asset turns higher vs. peers. Expect pick‐up on account of increased order visibility and execution capability EBIDTA margins higher than peers owing to self‐owned equipment and captive quarries near its projects


Page | 125

Positive OCF PSP has consistently delivered positive cash flows

from operations from FY12, which explains the low net D/E ratio. Going ahead, we expect the cash

flow from operations to improve as profitability increases and the company exercises a tighter control on its working capital needs.

Operating Cash Flow (OCFF) Particulars (Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 945 (226) 153 1,149 373 1,827 840 1,485 1,328 Capacite Infraprojects* (24) 114 505 833 1,311 1,548 1,887 2,253 JMC Projects 528 623 985 (652) 554 2,500 1,135 1,856 2,436 PSP Projects 264 278 208 305 411 11 151 975 1,295 Average 579 163 365 327 543 1,412 919 1,570 1,829 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

OCF/EBIDTA Conversion Reflects Superior Quality Of Cash Flows Barring FY17 when there were cash crunches

witnessed leading to funds locked in receivables, historically the OCF/EBIDTA ratio for the company has been more than 1x.

As the Company targets significant ramp up in expansion, OCF/EBITDA is expected to remain low in FY18E. This will stabilize to 0.6x in FY19‐20E which is comparable to the peer group.

OCF/EBIDTA(x) Depicts High Cash‐Flow Quality

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Ahluwalia Contracts 5.3 1.0 0.4 1.0 0.2 1.1 0.4 0.6 0.5 Capacite Infraprojects* 1.3 0.7 0.8 0.7 0.8 0.7 0.7 0.7 JMC Projects 0.4 0.5 0.7 (0.4) 0.3 1.2 0.4 0.6 0.7 PSP Projects 1.7 1.3 1.2 1.4 1.0 0.0 0.2 0.6 0.6 Average 2.5 1.0 0.8 0.7 0.6 0.8 0.4 0.6 0.6 Source : Company, HDFC sec Inst Research *history is publicly available only from FY13

PSP has consistently delivered positive cash flows from operations. Further scope to improve as profitability increases and the company exercises a tighter control on its working capital needs Historically the OCF/EBIDTA ratio for the company has been more than 1x. Over FY19‐20E, stabilize to 0.6x in FY19‐20E which is comparable to the peer group


Page | 126

Order Book, Revenues, Book‐to‐bill Ratio EBITDA And PAT Margins (%)



Net Debt And Net D/E Cash Flow From Operations & NWC Cycle


Significant growth in Order book driven by marquee project wins and increase in project ticket sizes which are expected to continue EBITDA margins expected to remain around 12‐13% given the order book composition of high margin projects High interest income from fixed deposits and interest costs to lead to high single digit net margins Funded by strong operating cash flows, we expect PSP to net cash company As debtor days stabilize to ~50‐55 days over FY18‐20E, CFO to increase significantly led by double digit EBITDA margins

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

‐

5,000

10,000

15,000

20,000

25,000

30,000

FY17

FY18E

FY19E

FY20E

Order book (Rs mn) Revenue (Rs mn)Book to bill ‐ RHS

x

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

EBITDA margin PAT margin

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

(1.4)

(1.2)

(1.0)

(0.8)

(0.6)

(0.4)

(0.2)

‐

(2,500)

(2,000)

(1,500)

(1,000)

(500)

‐

Net Debt Net D/E (RHS)

‐80 ‐70 ‐60 ‐50 ‐40 ‐30 ‐20 ‐10 ‐10 20 30

0

200

400

600

800

1,000

1,200

1,400

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

CFO (Rs mn) NWC Cycle (days) ‐ RHS


Page | 127

Order Book – 3QFY18 (%) Order Book – 3QFY18 (%)



Revenue – 9MFY18 (%) Revenue – 9MFY18 (%)


PSP’s 3QFY18 order book is concentrated towards institutional projects with projects ranging from corporate houses, hospitals and educational institutes. PSP is cautiously evaluating expanding share in residential projects with likely focus on Tier I developers Gujarat continues to dominate the backlog with a 90.9% share led by the diamond bourse project. PSP may look at incremental bidding in Southern India. Outside Gujarat focus would be on smaller projects with ~Rs 1bn size vs. ~ Rs 2‐2.5bn single projects in Gujarat. Revenues from the institutional segment accounted for 45.6% of the revenues for 9MFY18. This share will significantly increase in FY19‐20E

Government3.4 Govt

Residential1.0

Industrial8.3

Institutional85.0

Residential2.3

Gujarat90.9

Rajasthan4.2

Karnataka4.9

Government20.7

Govt Residential

1.5

Industrial25.5

Institutional45.6

Residential6.8

Gujarat81.0

Rajasthan4.1

Karnataka10.1

Delhi4.8


Page | 128

Key Assumptions And Estimates (Standalone) Key Assumptions FY18E FY19E FY20E Comments Closing order book 23,030 21,185 27,831 Order book to grow at a CAGR of 9.9% over FY18‐20E Order book growth (%) 216% ‐8% 31%New order booking 23,000 11,000 24,000Book to bill ratio 3.2 1.6 1.6

Total Revenue 7,261 12,845 17,354 Revenue to grow at a CAGR of 54.6% over FY18‐20E aided by the marquee Diamond Bourse project.

Growth (%) 81.2 76.9 35.1EBIDTA 941 1,570 2,058 EBITDA to grow at a CAGR of 47.9% over FY18‐20E EBIDTA margin (%) 13.0 12.2 11.9 EBITDA margins will be stable between 12‐13% range.

Depreciation 120 176 228 Increased Capex to increase execution ramp up will significantly increase depreciation charge.

Financial Charges 110 113 131 Gross debt is expected to increase by 7.1% over FY18‐20E and finance costs will remain low.

PBT 940 1,559 1,997 Significant generation of other non operating income from fixed deposits to result in double digit PBT margins

PBT margin (%) 12.9 12.1 11.5Tax 338.2 561.4 719.0

Tax rate (%) 36.0 36.0 36.0 Company operates at a full tax rate and the same is expected to continue over FY18‐20E

RPAT 601 998 1,278Net margin (%) 8.3 7.8 7.4Extraordinary ‐ ‐ ‐Adjusted PAT 601 998 1,278 APAT will grow by 45.8% CAGR over FY18‐20E Gross Block Turnover 6.7 8.1 8.4Debtor days 55 52 53

CFO ‐ a 151 975 1,295 As debtor days stabilize to ~50‐55 days over FY18‐20E, CFO to increase significantly led by double digit EBITDA margins

CFI ‐ b (551) (361) (551) We expect significant investment in capex to continue as PSP witnesses increased execution demand.

FCF ‐ a+b (349) 475 845CFF ‐ c 1,391 (263) (291)Total change in cash ‐ a+b+c 991 351 452Source : HDFC sec Inst Research

Order book to grow at a CAGR of 9.9% over FY18‐20E Revenue to grow at a CAGR of 54.6% over FY18‐20E aided by the marquee Diamond Bourse project EBITDA margins will stabilize between the 12‐13% range APAT will grow by 45.8% CAGR over FY18‐20E


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HDFC Sec Vs. Consensus HDFC Sec Vs Consensus

Consensus HDFC Sec % Divergence

Sales (Rs mn) FY18E 6,958 7,261 4.4 FY19E 11,626 12,845 10.5 FY20E 14,288 17,354 21.5

EBIDTA (Rs mn) FY18E 867 941 8.6 FY19E 1,487 1,570 5.6 FY20E 1,876 2,058 9.7

Net Profit (Rs mn) FY18E 572 601 5.1 FY19E 951 998 5.0 FY20E 1,196 1,278 6.9

Divergence (bps)

EBITDA Margin FY18E 12.5% 13.0% 50.6 FY19E 12.8% 12.2% (57.3) FY20E 13.1% 11.9% (127.2)

NPM FY18E 8.2% 8.3% 5.0 FY19E 8.2% 7.8% (43.0) FY20E 8.4% 7.4% (100.6)

Source: HDFC sec Inst Research Peer Valuations

Relative Valuation EV/EBITDA (x) P/E (x) P/BV (x)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Ahluwalia Contracts 12.0 10.1 8.7 23.8 19.3 16.9 4.5 3.6 3.0 Capacite Infra 10.7 8.8 7.5 23.4 19.1 15.1 2.9 2.5 2.2 JMC Projects 9.6 8.3 7.0 20.5 17.6 14.7 2.6 2.3 2.0 PSP Projects 18.6 11.0 8.2 31.8 19.1 14.9 6.1 4.8 3.8 Average 12.7 9.5 7.8 24.9 18.8 15.4 4.0 3.3 2.7 Source: HDFC sec Inst Research


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Outlook And Valuation Target Price Of Rs 639/sh Valuation methodology We have valued PSP at 18x one‐year forward Mar‐

20E EPS. This is in line with other players like Ahluwalia. Our rationale behind this is (1) Strong growth potential led by the Diamond bourse project, (2) Robust FY18E order backlog of Rs 23.0bn (3.2x FY18E revenue), (2) Net cash company and gross debt to continue to remain low, and (4) PSP getting repeat orders from dairy and pharma clients demonstrate its execution quality.

Investment in the building segment would remain robust on the back of institutional and industrial demand in addition to NBCC, CPWD and private capex in the segment. PSP will benefit from the strong demand in and around GIFT city and areas like Surat.

We initiate coverage with a BUY rating. We value the PSP at Rs 639/share (18x one‐year forward Mar‐20E EPS).

Key Catalysts

Execution of key Turnkey project: Surat Diamond Bourse project currently accounts for ~58% of the order backlog. This project will add Rs 15.75bn to the top line over the next 30 months. We expect

revenue to grow at a CAGR of ~65.8% over FY17‐20E aided by strong execution and steady order inflows in FY19.

Key Risks To Our BUY Stance

Localised presence in Gujarat: PSP has ~89% of the order book (incl. diamond bourse) exposed to Gujarat. To maintain current pace of revenue growth, PSP will have to diversify to other geographies. Over the years, PSP has been able to develop long term associations with suppliers and contractors in Gujarat for favourable terms and assured quality and supply. PSP may find it difficult to replicate the same as it expands in other geographies. PSP intends to increase non‐Gujarat revenues to 30% of the total business. Currently it is executing 2 projects each in Rajasthan and Karnataka; and one in New Delhi.

Execution history: PSP’s order book/ revenue are expected to grow at a CAGR of 56.5%/ 65.8% over FY17‐20E. As ticket size of project increases, PSP’s execution capabilities will be tested. Any slowdown in execution will adversely affect the earnings and future project credentials.

We rate PSP as BUY with a TP of Rs 639/share (18x one year forward Mar‐20E EPS)


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Income Statement (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20ENet Revenues 4,580 4,008 7,261 12,845 17,354Growth (%) 63.3 ‐12.5 81.2 76.9 35.1Material Expenses 1,902 1,301 2,689 4,692 6,376Labour/Subcontracting/Employee Expenses 2,147 1,887 3,413 6,230 8,399

Other Operating Expenses 137 161 218 353 521EBIDTA 393 659 941 1,570 2,058EBIDTA (%) 8.6 16.4 13.0 12.2 11.9EBIDTA Growth (%) 75.4 67.5 42.9 66.8 31.1Depreciation 71 76 120 176 228EBIT 322 583 821 1,394 1,830Other Income (Incl. EO Items) 103 132 229 279 299Interest 31 75 110 113 131PBT 394 640 940 1,559 1,997Tax 142 224 338 561 719RPAT 252 415 601 998 1,278EO items (net of tax) ‐ ‐ ‐ ‐ ‐APAT 252 415 601 998 1,278APAT Growth (%) 79.6 64.6 44.8 66.0 28.1EPS 8.8 14.4 16.7 27.7 35.5EPS Growth (%) 79.6 64.6 15.8 66.0 28.1Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 32 288 360 360 360 Reserves 629 788 2,793 3,612 4,660 Total Shareholders’ Funds 661 1,076 3,153 3,972 5,020 Minority Interest ‐ ‐ ‐ ‐ ‐ Long Term Debt 10 34 34 34 34 Short Term Debt 433 625 650 680 750 Total Debt 444 658 684 714 784 Deferred Taxes (9) (11) (11) (11) (11) TOTAL SOURCES OF FUNDS 1,096 1,723 3,826 4,674 5,792 APPLICATION OF FUNDS Net Block 522 518 897 1,222 1,443 CWIP ‐ ‐ ‐ ‐ ‐ Investments, LT Loans & Advances 50 76 356 496 896 Total Non‐current Assets 572 593 1,253 1,717 2,339 Inventories 40 30 298 528 713 Debtors 104 533 1,094 1,812 2,496 Cash & Equivalents 1,064 1,250 2,241 2,592 3,044 ST Loans & Advances, Others 242 460 597 1,056 1,284 Other Assets 257 275 398 528 713 Total Current Assets 1,706 2,548 4,629 6,516 8,250 Creditors 694 693 995 1,760 2,377 Other Current Liabilities & Provns 489 724 1,061 1,799 2,420 Total Current Liabilities 1,183 1,418 2,056 3,559 4,797 Net Current Assets 524 1,130 2,573 2,957 3,453 Misc Expenses & Others ‐ ‐ ‐ ‐ ‐ TOTAL APPLICATION OF FUNDS 1,096 1,723 3,826 4,674 5,792 Source: Company, HDFC sec Inst Research


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Cash Flow (Standalone) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20EPBT 394 639 940 1,559 1,997Non‐operating & EO items (72) (69) (229) (279) (299)Interest expenses 1 7 110 113 131Depreciation 71 76 120 176 228Working Capital Change 136 (497) (452) (34) (44)Tax paid (118) (145) (338) (561) (719)OPERATING CASH FLOW ( a ) 411 11 151 975 1,295Capex (258) (71) (500) (500) (450)Free cash flow (FCF) 153 (60) (349) 475 845Investments 38 87 (51) 139 (101)INVESTING CASH FLOW ( b ) (220) 16 (551) (361) (551)Share capital Issuance ‐ ‐ 1,584 ‐ ‐Debt Issuance 114 215 25 30 70Interest expenses (17) (55) (110) (113) (131)Dividend (72) ‐ (108) (180) (230)FINANCING CASH FLOW ( c ) 25 160 1,391 (263) (291)NET CASH FLOW (a+b+c) 216 186 991 351 452Closing Cash & Equivalents 1,064 1,250 2,241 2,592 3,044Source: Company, HDFC sec Inst Research

Key Ratios (Standalone)Year ending March FY14 FY15 FY16E FY17E FY18E PROFITABILITY (%)GPM 58.5 67.5 63.0 63.5 63.3 EBITDA Margin 8.6 16.4 13.0 12.2 11.9 EBIT Margin 7.0 14.5 11.3 10.9 10.5 APAT Margin 5.5 10.4 8.3 7.8 7.4 RoE 44.7 47.8 28.4 28.0 28.4 Core RoCE (1,153.5) 95.2 42.8 56.2 63.2 RoCE 24.8 26.9 17.6 22.9 23.5 EFFICIENCY Tax Rate (%) 36.0 35.1 36.0 36.0 36.0 Asset Turnover (x) 6.0 4.8 5.4 7.0 7.6 Inventory (days) 3 3 15 15 15 Debtors (days) 8 49 55 52 53 Payables (days) 55 63 50 50 50 Other Current Assets (days) 40 67 50 45 42 Other Current Liab (days) 39 66 53 51 51 Net Working Capital Cycle (Days) (43) (11) 17 10 9 Debt/EBITDA (x) 1.1 1.0 0.7 0.5 0.4 Net D/E (0.9) (0.5) (0.5) (0.5) (0.5) Interest Coverage 10.5 7.7 7.5 12.3 14.0 PER SHARE DATA EPS (Rs/sh) 8.8 14.4 16.7 27.7 35.5 CEPS (Rs/sh) 11.2 17.1 20.0 32.6 41.8 DPS (Rs/sh) 0.1 0.0 0.1 0.1 0.2 BV (Rs/sh) 23 37 88 110 139 VALUATION P/E 60.6 36.8 31.8 19.1 14.9 P/BV 23.1 14.2 6.1 4.8 3.8 EV/EBITDA 37.3 22.3 18.6 11.0 8.2 OCF/EV (%) 2.8 0.0 0.0 0.1 0.1 FCF/EV (%) 1.0 (0.4) (2.0) 2.8 5.0 FCFE/Market Cap (%) 1.6 0.7 (2.3) 2.0 4.1 Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 Source: Company, HDFC sec Inst Research


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1yr Price Movement

0200400600800

1,0001,2001,400

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7

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Dilip Buildcon

150170190210230250270290

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7

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IRB Infra

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NCC

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Sadbhav

150170190210230250270290

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Ashoka Buildcon

90110130150170190210230

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7

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KNR

100120140160180200220240

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7

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ITD Cementation

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Ahluwalia


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J Kumar Infraprojects

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JMC Projects

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PSP Projects

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12‐month period NEUTRAL : Where the stock is expected to deliver (‐)10% to 10% returns over the next 12‐month period SELL : Where the stock is expected to deliver less than (‐)10% returns over the next 12‐month period


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Disclosure: We, Parikshit Kandpal, MBA & Kunal Bhandari, ACA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –Yes HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. 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HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building ‐ B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE‐INB/F/E 231109431, BSE‐INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. 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2018 infrastructure · 2018-04-16 · sector update 12 apr 2018 infrastructure hdfc securities...

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