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We maintain BUY on DBL, with a reduced TP of Rs 737/sh (vs. Rs 833/sh earlier). We have cut our target EPC multiple from 13.5x to 12x to factor in the high debt, delay in receiving appointed dates for 32% of order book & limited visibility of monetization of under construction HAM projects.
HIGHLIGHTS OF THE QUARTER
* DBL reported 4QFY19 muted revenue of Rs 25.7bn (flat YoY, 5% miss). Delays in receiving appointed dates (AD) from NHAI resulted in lower execution. About 7 out of 12 HAM projects’ AD is yet to come (expected by 1HFY20E, ~Rs 68bn in EPC value, 32% of order book).
* EBITDA: Rs 4.5bn (3% miss). EBIDTA margins declined 99bps YoY to 17.5%. APAT: Rs 2.2bn was 14% miss, as early completion bonus on Lucknow Sultanpur project (~Rs 378mn) will be accounted during 1QFY20E (while we had expected the same to come in 4QFY19).
* FY19 order book stood at Rs 211.7bn with Rs 4bn new order wins during 4QFY19. DBL has guided for Rs 120- 150bn of new inflows for FY20E and <0.8x net D/E.
* Working capital deteriorated from 140 to 152days YoY. DBL has invested Rs 2.5bn in mobilizing under construction HAMs, where appointed dates are yet to come. About Rs 12.3bn of mobilization advances for HAM projects are expected to be received during 1HFY20E; this shall alleviate NWC stress.
* Net debt is stable at Rs 34bn QoQ. DBL intends to reduce net D/E from 1.06x in FY19 to 0.8x by FY20E. This shall be achieved from a mix of HAM/EPC projects’ advance receipt and FY20E zero capex guidance.
Over the last 3yrs DBL has (1) Established itself as an astute execution machine; (2) Diversified segmentally & geographically; and (3) Undertook complex projects. While strong growth and diversification led to high capex intensity, large order booking followed high equity outgo on road HAM projects. Balance sheet is now choked and DBL needs to recapitalize the same. This can be achieved by equity fund raise/stake monetization in under construction HAMs. Capex cuts is short view, over long term will impede growth. Multiple re-rating is contingent on significant deleveraging over the next 2yrs. We maintain BUY with a cautious approach on debt built up.
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