ITD Cementation Research Report By Emkay

CY16 a year of consolidation after a turnaround in CY15

ITCE delivered a stable performance in CY16 with flat YoY revenue primarily driven by the marine segment which contributed 56% of revenue while EBITDA grew by 10% YoY as EBITDA margin expanded by 60bps YoY to 6.8%. Adjusted for cost overruns in legacy projects (mainly Delhi Metro), ITCE’s EBITDA margin was 8.6%. ITCE has further reduced net debt in CY16 to Rs2.7bn (net D/E of 0.4x) through prudent working capital management which reduced to 49 days from 67 days in CY15.

Strong order book, focus now shifts to execution

As of Dec-16, ITCE had an order book of Rs66bn (2.1x CY16 revenue) including Rs11.3bn of Mumbai Metro 3 order and excluding L1 of Rs17bn from the Udangudi captive port project in Tamil Nadu. Recent L1 order wins in 4 packages of Bengaluru Metro in Q1CY17 worth Rs23bn should enable ITCE to comfortably achieve its CY17E order inflow target of Rs60bn with many projects such as the Mumbai Trans-Harbour Link (MTHL), Pune Metro also up for bidding in CY17. As ITCE shifts to IND-AS accounting from CY17E, many JV projects such as Mumbai Metro and MTHL will not be consolidated in revenue/EBITDA and will directly flow to consolidated profits.

Upgrade to Buy with revised TP of Rs203

We model for 11% revenue CAGR over CY16-19E driven by annual order wins of Rs60bn over the same period and also expect EBITDA margins to trend in the 8.9-9.4% range as legacy projects are almost complete. We introduce CY19E estimates and upgrade the stock to Buy with a revised TP of Rs203 based on 18x Jun-19 EPS of Rs11.3.