EQUITY RESEARCH: ITD Cementation Limited (ITDC)

With a presence in 15 states and 2 UTs, ITD Cementation India Limited is in the business of providing design, engineering, procurement, and construction (EPC) services for infrastructure projects in India. In order to deliver landmark projects, the Company makes use of the knowledge of its parent company, Italian Thai Development Public Company Limited (ITD, Bangkok). The company is also present internationally in Sri Lanka and Myanmar. With experience working with most of India's major ports, the business is the market leader in the marine and maritime sector. It also has a significant sectoral presence in urban infrastructure, MRTS, airports, hydro, dams, tunnels, irrigation, industrial structures, and buildings. With orders totaling Rs. 18,517 crores from Tamil Nadu, Uttar Pradesh, Karnataka, Gujarat, West Bengal, Maharashtra, Delhi, and other states, ITD Cementation has a very robust order book.

ABOUT:

• ITD Cementation Limited (ITDC) specializes in infrastructure development, construction, and management and has experience with EPC contracts and turnkey projects. The company, which is present in 15 states and 2 UTs, is a significant player in EPC projects. With experience working with most of India's major ports, the business is the market leader in the marine and maritime sector. It also has a significant sectoral presence in urban infrastructure, MRTS, airports, hydro, dams, tunnels, irrigation, industrial structures, and buildings. The company has tried to diversify its order book over the years by adding projects in the marine, metro, and turnkey tunnel segments.
• The business is also focusing on prospects in the marine and metro sectors, including projects with the Port of Singapore, DP World, and several international projects with the governments of the Maldives, Bangladesh, and South Africa.
• ITD Cementation has given guidance for the forthcoming FY24, predicting an increase in topline of around 25% YoY and an improvement in margin levels to higher teens to double-digit margins as a result of its conservative bidding discipline and the completion of legacy orders like the Bengaluru Metro projects. With orders totaling Rs. 18,517 crores as of June 2023's end (excluding those of about Rs. 5,500 crores received after the first quarter), this indicates a strong visibility of 3.6 times FY23 sales. Due to the company's order book's outstanding performance, the Ganga Motorway project is anticipated to provide the majority of the company's revenue.
• A project for the design, supply, installation, testing, and commissioning of the Jamuna river crossing segment of the Bogura-Kaliakair 400 kV double circuit transmission line on a turnkey basis was also recently given to the company by Power Grid Company of Bangladesh Ltd. (PGCB). The order book now totals Rs. 18,517 crores. The company received both of the orders totaling approximately Rs.1300 crores on August 9 from Bangladesh and another order totaling approximately Rs.3,290 crores from the marine sector on August 31. This brings the total order intake for Q1FY24 to approximately Rs.250 crores, down from the L-1 position of Rs.5,500 crores as of June 30, 23. A rough estimate of the YTD inflow is Rs. 5600 crores.
• In addition to the robust bid pipeline of Rs. 15,000-17,000 crores, the firm is confident in getting a Total Order Intake of Rs. 7,000-8,000 crores during FY24, the majority of which the company has already received.

SHAREHOLDING PATTERN

CONCALL SUMMARY- AUG

Financial Performance:

• Highest ever quarterly income of over INR 1,800 crores, representing a growth of about 67% YoY
• EBITDA for the quarter stood at INR 174 crores, a growth of about 73% YoY
• PAT for the quarter was about INR 52 crores
• Net debt-equity of just around 0.5 times

Order Book and Contracts:

• Revenue scaled up to INR 1,800 crores, a big jump from the previous year
• Contributions from Chennai Metro, Bangalore Metro, Ganga Expressway, IOCL at Ennore Port, JNPT contract, and Udangudi
• INR 18,500 crores work in hand and two big contracts expected to be confirmed soon worth around INR 5,500 crores
• Bid pipeline of around INR 15,000-17,000 crores
• Order book timeline of around three years
• INR 5,500 crores of orders in the pipeline, with a possibility of INR 8,000-9,000 crores of new orders secured by the end of the year
• The execution timeline for orders in the pipeline is around three years

Guidance and Outlook:

• The expectation of improvement in margins in the later part of the year, aiming for double-digit margins
• Revenue guidance of INR 6,000-7,000 crores for FY24
• Focus on marine, underground metro, and mining projects
• International exposure primarily in Sri Lanka and expected order from Bangladesh
• Margins for international orders depend on risk provisions and can vary
• No significant impact from taxes expected
• No change in dividend payout policy discussed

Project Updates:

• Provision made for Bangalore Metro project, not expected to have a further negative impact
• The execution timeline of the Ganga Expressway project is two years
• No significant impact from heavy rains expected in Q2
• No specific focus on NHAI tenders at the moment
• Different conditions and issues with NHAI projects compared to the Ganga Expressway

Other Points:

• Working capital days under 100 days
• Appreciation for the questions and opportunity to explain the company's position.

FINANCIALS

• Operating revenue increased by 67% YoY and 12.3% QoQ during the quarter to Rs. 1,832 crores.
• EBITDA for the quarter was Rs. 161.5 crores, rising 80.4% (10.2%) year over year and quarter over quarter. EBITDA margins increased by 60 bps to 8.8% from 8.2% year over year.
• The management has forecast a gradual increase in its current EBITDA margins, advancing to the high single digits and then the low teens.
• Consolidated PAT was Rs. 52.2 crores for the quarter, up 73%/39.1% (YoY/QoQ).
• During the quarter, the company produced consolidated EPS of Rs. 3.
• ITD had a combined gross debt of Rs. 790 crore as of June 23. The ratio of net debt to equity was 0.50x.

KEY AREAS:

Strong MNC Parental Support: ITD Thailand, one of the top infrastructure and largest construction companies in Thailand for more than 60 years, has a global presence in countries including India, Bangladesh, Lao PDR, the Philippines, Vietnam, Africa, and others, with a total work pipeline of Rs. 72,600 crores. The parent gives the Indian entity access to the most up-to-date technology and expertise, global design and engineering, as well as trained staff, to bolster challenging projects of Marine, Metro, and airport construction, especially under the Underground metro segment. The parent receives 0.5% of the Indian Entity's revenue in the form of royalties. The promoter owned 46.64% of the company as of June 23.

Improvement in Execution provides strong revenue guidance and expansion in Margins:- Strong revenue guidance is produced by improved execution, and margins are expanded: ITD Cementation has projected high revenue growth in the following years, with a prediction of roughly Rs. 6,000–7,000 crores in FY24 and an ambition to maintain revenue growth rates of 20–25% in the years to come. Due to strong revenue contributions from significant projects like the Ganga Motorway and Colombo Terminal, the execution of the current order book is projected to increase in the upcoming quarters. The Ganga Motorway project in Uttar Pradesh, which has already provided Rs. 700 crores out of Rs. 4,850 crores in revenue, is expected to make up a sizeable portion of revenue in FY24. Additionally, the company has predicted a significant increase in operating margins (upper single digit to low teens) starting in Q1FY24. Additionally, the company has predicted a significant increase in operating margins (upper single digit to low teens) starting in Q1FY24. Additionally, the decline in commodity prices during the previous fiscal year has improved margins to some extent, and this trend is likely to continue in the following fiscal year, eliminating legacy jobs.

KEY RISKS:

• Operating margins may be further impacted by rising input and raw material costs.
• Sluggish execution of current orders.
• Relatively higher interest rates compared to competitors in the sector. Debt levels rise as a result of lower client advances and higher capex requirements for order book execution.
• Significant exposure in Private Orders of about Rs. 5,500 crores to a single client.

ORDER BOOK ANALYSIS

• A diversified order book of Rs 1,85,168 million provides multi year revenue visibility
• Secured orders worth Rs 2,471 million in Q1 FY24
• Clientele comprises of Government (46%), PSU (19%) and Private Sector (35%)
• Established presence in India and is currently executing international project in Sri Lanka
  • Tamil Nadu (25.4%), Uttar Pradesh (22.8%), Karnataka (12.8%), Delhi (10.4%), West Bengal (9.6%), Maharashtra (5.0%), Sri Lanka (3.9%), Gujarat (3.6%) and Others (6.4%)

URBAN INFRASTRUCTURE, MRTS, AND AIRPORTS: ORDER BOOK Rs 57,413 million

HIGHWAYS, BRIDGES AND FLYOVERS: ORDER BOOK Rs 42,272 million

MARITIME STRUCTURES: ORDER BOOK Rs 32,409 million

INDUSTRIAL STRUCTURE AND BUILDINGS: ORDER BOOK Rs 28,708 million

HYDRO, DAMS, TUNNELS, AND IRRIGATION: ORDER BOOK Rs 15,151 million

WATER AND WASTE WATER: ORDER BOOK Rs 5548 million

FOUNDATION & SPECIALIST ENGINEERING: ORDER BOOK Rs 3,667 million

VALUATION

• ITD Cementation Ltd. is one of the main gainers from the government's increased attention to infrastructure development and upgrading projects for the railways and metro, as well as from the Union Budget's strong allocation, which focuses on the implementation of both EPC, civil construction and turnkey institutional projects over the coming years.
• From a long-term standpoint, its emphasis on margins and cash flow generation is encouraging. Due to its competence in specialized fields including complex road projects, marine projects, and metro projects, the company has evolved over the years into one of the top EPC providers. ITD Cementation Limited has increased its order book, revenue, and margins at a good rate.  company with a broad order book, steady growth, linked execution capabilities, and solid parental backing in terms of technological know-how.
• ITD Cementation Limited has strong financial standing and a healthy balance sheet when compared to its peer companies, giving the company a competitive edge when bidding for new large projects. The company expects to experience healthy revenue growth over the coming years as a result of the smooth execution of numerous large projects and the anticipated revenues it will generate.
• Over the period of FY23–24E, we anticipate a CAGR of 43% for revenue, EBITDA and PAT. With a target price of Rs. 230.

SOURCE

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