Dilip Buildcon- IPO Analysis
About the issue
As the IPO season is flourishing, there is another IPO entering in the market- Dilip Buildcon. Mid-sized construction and roads developer Dilip Buildcon will open its initial public offering (IPO) from August 1 to August 3, 2016. The company aims at raising atleast Rs 430 crore by selling fresh equity shares of face value Rs 10; while its promoters are looking at offloading 1.02 crore shares in an offer for sale to fetch Rs 229 crore. The price band of the issue has been fixed at Rs 214- Rs 219 a piece.
Purpose of the IPO
The company plans to utilise the net proceeds of the fresh issue for prepayment or scheduled repayment of a portion of the term loans and to meet working capital requirements and for general corporate purposes.
Industry Outlook
India stands at third position in the world according to purchasing power of parity after China and United States. The series of comprehensive macroeconomic and structural reforms have gathered pace to promote economic stability and growth. The Indian economy is based on planning through successive five-year plans that set targets for economic development in various sectors including civil infrastructure. Considering India’s growth and government focus on infrastructural development, all infrastructure sectors including power, roads, railways, ports and airports are marked for massive capacity expansion. The Indian road network, at approximately 4.7 million kilometres in length, is the second longest road network in the world consisting of National Highways, Expressways, State Highways, Major District Roads, Other District Roads and Village Roads.
The value of roads and bridges infrastructure in India is projected to grow at a CAGR of 17.4 per cent over FY12–17. Recently NHAI has planned to invest around USD 250 billion in 240 projects spanning 50,000 kms over next 5-6 years. To speed up road network in India, the Ministry of Road Transport and Highways plans to set up Land Acquisition (LA) cells and also plans to build five more greenfield expressways across the country. In General Budget 2016-17, the Government of India has planned total outlay of Rs 55,000 crore for road transport and highways. The National Highways Authority of India (NHAI) has prepared a plan of connecting 27 vertical and horizontal highways in the form of an interconnected grid. Many such developments are on the cards and are playing a lead role in the economic progress of the country.
Company Outlook
Bhopal based Dilip Buildcon is a leading infrastructure company. The company has projects majorly across India in road EPC (70%), BOT (15%), Bridge (5%) and irrigation (6%) segment. In FY16, company has 14.7 per cent orders from own BOT road projects. Company also enjoys more government funded projects which consists of 76.3 per cent of government orders. Dilip Buildcon has expanded its business over 12 states apart from Madhya Pradesh which constitute 60.5 per cent of orders excluding Madhya Pradesh.
The company has majorly road projects under NHAI and State Highways. The investment in these sectors is expected to grow by 5 year CAGR of 23 per cent and 11 per cent, respectively over FY20. The company's business segment derives its major share from NHAI (23.5 per cent) and state and central government (13.2 per cent). The company will benefit from ongoing EPC road projects, government’s focus on public infrastructure development and NHAI's plans to connect PAN India. Company’s revenue split according to segment is shown in below graph.
Management
Company has experienced management team with significant experience in construction, technology and project management. Company’s management has led the company to achieve strong revenue and profit growth over the last couple of years. Particularly, company is benefitting from the expertise of the promoters and directors, Dilip Suryavanshi and Devendra Jain. Dilip Suryavanshi, company's managing director, has over 32 years of experience in construction and Devendra Jain, an executive director of the Company, has over 17 years of experience in the business of construction.
Finance Performance
Total revenue of the company has grown with CAGR of 30 per cent in FY16. The company is consistently maintaining operating profit margin in the range of 23 per cent to 24 per cent over the span of FY13-16. In FY16, net profit of the company has ballooned by 124 per cent, led by road segment. Owing to robust order book we expect healthy profit margins over next two-three years.
Peer Comparison and Valuation Outlook
Dilip Buildcon with EPS of 16.79 looks attractive at PE of 13.04 as compared to other peers like J Kumar Infraprojects, Ashoka Buildcon and PNC Infratech. Company also enjoys higher return on net worth of 19.64 per cent among peers. We believe that one can go for subscription as we can see 15-20 per cent upside stock movement after the issue.