I tracked this company from last 2-3 years. They are good in execution and completing projects before time. They have their own machinery and don’t outsource the work. Considering Covid, their growth has slowed down even though order book is good. Overall Capex intensive business. Earlier I was thinking this as one of good to great company, but realized over time that it could be opportunistic bet and not a structural bet since there are lot of better companies out there. Also company is not performing from last few quarters and I have reduced my allocation. Typically their Q4 is good. So I would wait for next quarter before taking decision to completely exit from the business.
Recently go interested in the company after major fall in share price, Listened to managment q3 highlights
will divide this post into 3 parts
1)debt and balance sheet items
2)recent margin reduction
3) red flags about management
1)debt and balance sheet item
1)management said that company has reduced debt by 109.6 cr last quarter was 7700 cr
2)further plans are to reduce debt by 400 odd crs in fy 23by stake sale in 12 ham projects (there was a certain confusion as management also does not plan sell the stake they get in riet as it involves capital gain taxes and it earns a yield of 10% compared which is lower then there cost of funds)
2)recent margin reduction
1)management said they use to complete project earlier which used to give them approx 3% extra margin,1.5% as early completion bonus and 1.5% as fixed overhead cost saving as they have there own equipment and labour which lies idle due to covid or other reasons.
2)extended rainfall in south in q3 lasting till nov usually gets over in sept which delayed projects.
3)Increase in commodity prices severely effecting margins .Managment quoted that while bidding for contracts they take past 15 year data for inflation and there are some escaltion cause but these clauses have only been only been able to cover 60 % of the increased cost as commodity prices of steel ,cement ,diesel have skyrocketed in the past year(oct 2020 steel price was 38 kg ,right now at 57 to 58 kg such surge have never been seen in such a short period of time).managment has said these are 2018 march contracts out of which 6 are completed and 6 are near completion(75 to 90%).
4)coal projects done by dbl where 45 to 50% cost is diesel has risen sharply effecting margins(future outlook of fuel and natural gases doesn’t look good considering the ukraine -russia war)
3)red flags about managment
- A user raised question with management that management had quoted a margin of 14 to 15% in earlier q2 concall and they must have known about the margin reduction as commodity prices were known and they knew that contracts were made in 2018 will effect margins.(this for me speaks a lot about the management and is a big red flag for me)
2)management doesn’t have firm decision making or sounds confused ,in opening remarks it was quoted stake sale will be used to reduce debt by 400 cr in fy 23 later management said we plan to hold the riet units as they involve capital gain taxes and they earn a lucrative 10% yield. - management tried to evade answers or had no firm answers when asked question about why comodity prices have not effected peers vs us .
4)There was a big tone difference when speaking to retail investors vs when a person from hdfc securities asked question tell how minority shareholders are treated.
In conclusion
I think the biggest red flag is management itself and this i feel like is not a good long teem investment bet as the promoters are in highly leveraged position right now ,as interst coverage ratio right now stands below .5 ,recently more agressive bidding is happening due to increased competion leading to more margin reduction .Management has not given any guidance on future margins only they will be positive(i expect similar subdued margins given there tone) and they expect topline to be 3000 cr ,they have a huge order book and coming few months are peak season according to them till q2 and if no covid wave hits they have promised a average topline of 2800 cr and margins will come to 14 to 15 %.
disc :invested little bit at current levels plan to invest more as a turnaround and not a long term bet .
5 Likes
This can be a good turn around story if macro economics are good and the planned financial engineering by management is executed without any glitches. There is no doubt about project execution capabilities but due covid restrictions last 2 yrs were whitewash and now due to inflation the sentiments are down.
Updates on asset monetization from Feb 2022 report…
DBL has 13 HAM assets earmarked for divestment,
three of which (vs 5, with 2 being mutually excluded from the agreement)
have been committed to Cube for a consideration of INR 4.3bn at a valuation
of 1.4x. The remaining 10 assets (INR 23.5bn monetization estimate – valued
at 1.6x) will be transferred to Shrem InVIT. Shrem shall issue units worth
INR 17.5bn to DBL Infra, a subsidiary, and the balance INR 6bn shall come
in the form of cash in FY23. The requirement in these 10 assets is ~INR 15bn,
of which INR 9bn will be invested by DBL and DBL Infra as equity and
remaining INR 6bn will be in the form of unsecured loans. The total equity
requirement in all 23 HAMs is INR 29bn, of which 18.9bn has been invested
until Dec-21. The remaining equity shall be funded largely via proceeds
from the Shrem and CPPIB deals. DBL has realized INR 2.9bn from Cube
and the balance INR 1.4bn is expected to be received by Q1FY23.
Query: Can anyone explain where does entry of such asset sale/monetization is shown in financial statements? Are such gains realized on accrual basis or cash basis?
Disc: Invested and thinking to add more.
1 Like
Any particular reason/red flags for making such comment…
Managment had made it clear in this concall ,they will transfer i believe the payments in 2 tranches and will be completed by march.
How do you feel about the stock right now i feel the downside risk might be rising interest rates for a company with huge debt on balance sheet and we have seen in the last quarters company cannot even cover interest cost from profits.
On the upside i feel this is way way undervalued sales of 10000 cr plus for Ev at 3200 cr plus margins improving with crude and steel price going down.
2 Likes
Leverage company will always look cheaper in valuation and that is the biggest valuation trap.
2 Likes
And what makes you think so? Adani?
Dilip Buildcon announced Q2FY23 results:
-
Q2FY23 VS Q2FY22:
- Revenue from operations increased by 4.91% to Rs 22,619 million in Q2FY23
- EBITDA excl. other income increased by 14.79% to Rs 2,613 million in Q2FY23
- PAT was Rs 642 million in Q2FY23 as against a loss of Rs 193 million in Q2FY22
-
H1FY23 VS H1FY22:
- Revenue from operations increased by 13.51% to Rs 48,835 million
- EBITDA excl. other income decreased by 8.57% to Rs 4,667 million
- PAT was Rs 840 million as against Rs 77 million recorded in the previous year
-
Key Highlights:
- Won EPC project worth Rs 7,020 million (EPC Cost excl. GST) for construction of Surat Metro Rail, Phase-1 (Pkg-CS-6) from Gujarat Metro Rail Corporation in the state of Gujarat
- Won EPC project worth Rs 14,000 million (EPC Cost excl. GST) for construction of Gandhisagar-2 Multi-Village Water Supply Scheme from Madhya Pradesh Jal Nigam Maryadit in the state of Madhya Pradesh
- Won EPC project worth Rs 7,235 million (EPC Cost excl. GST) for construction of Ahmedabad Metro Rail, Phase-2 (Package C3) from Gujarat Metro Rail Corporation in the state of Gujarat
- Completed Chandikhole-Bhadrak HAM project worth Rs 9,957 million (EPC cost excl. GST) on 24.07.2022, on scheduled completion date including EOT (Extension of time), in the state of Odisha
- Completed Varanasi-Dagmagpur (Pkg-1) EPC project worth Rs 5,987 million (EPC cost excl. GST) on 29.09.2022, on scheduled completion date including EOT (Extension of time), in the state of Uttar Pradesh
Update:
Latest news in last 3 days:
-
Dilip Buildcon Limited has received letter of acceptance (LOA) for a new HAM project 'Development of 6 Lane- Maradgi S Andola to Baswantpur (Package -III of Akkalkot-KNT/TS Border) in the state of Karnataka, Order worth Rs. 1589.00 Crores.
-
Dilip Buildcon Limited has received letter of acceptance (LOA) for a new HAM project ‘Construction of Four lane Urga-Pathalgaon section NH-130A under Bharatmala Pariyojana’ in the state of Chhattisgarh, Order worth Rs. 1955 Crores.
-
Dilip Buildcon Limited has received letter of acceptance (LOA) for a new HAM project ‘4-Laning of Karimnagar Warangal Section of NH-563’ in the state of Telangana, Order worth Rs. 1647.00 Crores.
-
Dilip Buildcon Limited has informed the Exchange about Awarding orders/contract Dilip Buildcon Limited has received letter of acceptance (LOA) for a new HAM project 'Four Laning of Mehgama-Hansdiha in the state of Jharkhand, Order worth Rs. 976.00 Crores.
-
Company through RBL-DBL JV has executed a contract agreement with the Gujarat Metro Rail Corporation (GMRC) Limited on December 13, 2022.
2 Likes
Frequent resignation of CFO is a red signal which is further strenghtened by one sided fall in stock price for the last 5 years,…
Any updates on this company? Fundamentally looks promising currently and also price increasing with high volumes?
DBL is planning to set up an INvit. If that happens the upside could be significant
1 Like
Dilip Buildcon in the recent call looks like a new story emerging , the management in the May 2024 concall has mentioned about some new things , one thing that is evident is the intent to build db 2.0 , starting mainly with debt reduction , Expecting a reduction in borrowing costs with a potential credit rating upgrade in the coming year , it also has a lesser known coal segment which seems to be on fire and capacties seems to be exceeding what was expected
on the orderbook front , things remain stable for this year , as election is now behind us , and the stock is around 500 levels , where 5 year return is close to 0 infact lesser.
Things that make up a bull case ,
1)
2 Likes
- good revenue visibility for this year , should aggressively bid for projects that govt looks to accept bids for the first 100 days , and election year is going behind so order inflow should only increase
- debt reduction , reducing finance cost
- overall govt focus on infra, TDP led andhra to mostly receive large `infra package and alliance should remain committed to the sector
- reasonable valuations on dips to accumulate as well
key risks - execution risk
- slowness in debt reduction might lead to back ended value unlocking
- lack of clarity on the overall business mix and how that will emerge in the next 5 years , due to the coal business
3 Likes
Q1FY25 UPDATES
My subjective summary of the concall –
On the execution front challenges adding to debtors, mainly due to elections and lack of payment intent, should slowly pickup as govt intent payments will normalize
Target debt level 1000 cr shall be achieved soon, delayed a bit
Creating INVIT by end of FY , in touch with SEBI
Total prod of coal 7MT VS 5MT ( IN MILLIONS) , this year is 10 MT , EXPECTING 50% incremental production TO 15MT , on target to achieve full capacity in coal
DBL 2.0 , aim to achieve 0 net debt in next 2 years , slowly building towards that
Management Intent seems very high , to shape DBL into a large corp ( subjective biased analysis )
Should be able to reach guidance, have also gone into optic fiber participating in those tenders, hoping some positive flows into that business
HAM VS EPC (more aligned to EPC) 5-6K CR OF HAM (HYBRID ANNUITY)
2/3RD EPC IN ORDERBOOK
1/3RD in rest
Working capital situation improving after June, from here only looking at reduction of 1000 cr + levels till year end
Net Cash target by FY26
Full year finance cost between 350-400 cr , and on other income like dividends from INVIT units should be achieved
5500 cr revenue in next 3y to accrue in coal business, long term contracts (inflation adjusted) brings stability and adding to the painting of DBL 2.0
Management playing conservative on growth, which may lead to more positive H2 a case for positive surprise and mor info on the optical fibres as tenders are bid for , will be interesting to track the optical fibres segment in next 3 years
Tax rates around 33% for FY25 and FY26 , no change in depreciation rate , net block is reduced
Total capex for the year 150-170 cr ( 30 done in this quarter)
EBITDA this year conservative to 11-12% , longer term 12-14%
Opinion- ( biased and invested from 460 rupees price , please Take with hand of salt )
I think the transition of DBL as the management is showing strong intent to shape a structural transformation in the company is looking good , a base is seeming to be formed to create a runway of growth in next 4-5 years , only thing now is building a diversified order book in new sectors like water and optical fibres and strengthening the existing balance sheet by debt reduction and cost structures
Only major risk and thing to track remains the management execution and tracking finance costs as every quarter proceeds , and management in next two years needs to walk the talk , or might not create value for incremental shareholders
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Dilip Buildon: Q1 FY25 concall highlights
Order book:
- In Q1, got only 1 order for railway of Rs. 926 cr. Confident of receiving Rs. 15000 -16000 cr order for the full year.
- ~Rs. 5000 cr order book will be road. (2/3rd EPC : 1/3rd HAM)
- Ventured into optical fibre laying. Have bid 16 project worth ~ Rs. 50000 cr along with JV partner.
- Currently bid out < Rs. 25000 cr which are yet to open.
Debt:
- Expecting standalone debt to reduce by 1000 cr by end of FY25
- As on 31st Mar 24, total debt (standalone) was 1515 cr. In Q1, debt increased by Rs. 700 cr. Out of this total, only Rs. 140 cr is term debt. So reduction will happen in working capital loan. Current working capital is Rs. 2226 cr, which will reduce to 1000 cr by year end. By FY26 will become net cash company.
- However, there will be debt at project level
- Standalone debt will be nil, however there will be ~Rs. 2000 cr debt in MBO project. If they bid for HAM projects, they will be required to take debt which will be for 2.5 – 3 yrs, till the time project is sold / transferred to InvIT.
- Interest cost will be Rs. 350 - 400 cr for FY25
Asset transfer:
- Completed the deal with shrem group. Transferred last asset. Will continue to provide O&M services.
- In Alpha alternatives deal, progressing as per plan. So far transferred 26% in 4 assets out of the deal of 18 assets. Received Rs. 161 Cr.
- Have written to SEBI for formation of InvIT and already received initial remarks. Should be able to create it by end of this FY.
DBL 2.0:
- Aim to diversify across 8-10 sectors.
- To achieve net debt (standalone) in next 2 yrs.
- To have short term and long term assured cash business and industry leading return ratios.
Guidance:
- FY25 may see a degrowth of ~5%.
- FY26 will be good but exact growth guidance will give by FY25-end based on orders in hand that time.
- For FY25 margins, earlier guidance was 12-14% but due to degrowth in revenue, margins will be ~11-12% (similar to FY24).
- FY25 total capex standalone will be Rs. 150-170 Cr of this Rs. 30 cr was done in Q1.