Infrastructure September 9, 2014
ITD Cementation
Bloomberg: ITCE IN Reuters: ITCM.BO
Not Rated
Institutional Equities
India Research
MANAGEMENT MEET
Recommendation
CMP: Rs434
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Stock Information Market Cap. (Rs bn / US$ mn) 05/83
52-week High/Low (Rs) 449/114
3m ADV (Rs mn /US$ mn) 10 /0.2
Beta 1.0
Sensex/ Nifty 27,320/8,174
Share outstanding (mn) 12
Stock Performance (%) 1M 3M 12M YTD
Absolute 30.5 62.5 165.7 210.3
Rel. to Sensex 21.0 51.0 87.4 140.4
Performance
Source: Bloomberg
Analysts Contact Parikshit Kandpal
022 6184 4311
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30 130 230 330 430 530
15,000 17,000 19,000 21,000 23,000 25,000 27,000 29,000
Sep
-13
Oct
-13
No
v-1
3
Jan
-14
Feb
-14
Mar
-14
May
-14
Jun
-14
Jul-
14
Sep
-14
Sensex (LHS) ITD Cem (RHS)
A niche player – awaiting turnaround ITD Cementation (ITDC) is a niche player in the Indian EPC context with a
focus on complex yet differentiated segments. Having burnt its finger on
road EPC projects over 2002-12 period, ITDC is awaiting major turnaround.
This shall be achieved by QIP share dilution of Rs1.4bn (already raised –
Sep-14) and pending claims settlements with NHAI of Rs2bn. Presence in
high growth segments, potential margins expansion and robust project
pipeline remain key re-rating triggers. ITDC may be a CUB in the Indian
EPC markets but time is ripe to come out of past and build for future.
Strong diversified presence – complexity key differentiator ITDC is a subsidiary of the Thailand-based Italian -Thai Development Public
Company Ltd. (ITD) and is well entrenched in the construction of marine
works, highways & bridges, metros, airports, hydro-tunneling, dams &
canals, water & sewage, industrial structures and specialist foundation
engineering projects. ITD parent holds ~51.6% stake (post QIP dilution
during Sep-14) in the Indian company and has been at the forefront of
bringing Pre-qualification by Jointly bidding for the Indian Projects where
the Indian company’s qualification was insufficient. The complexities of
project undertaken by the company is also its key competitive strength.
NHAI claim settlement – equity dilution to strengthen BS ITDC is a focused player in the EPC segment and has consciously stayed
away from bidding for the BOT projects. Earlier road EPC project undertaken
by company resulted in ~Rs9.8bn of costs overruns which has largely been
absorbed in books. ITDC has presented 25% of the NHAI claims for awards
and is awaiting One time settlement (OTS). Going forward the focus will be
on debt reduction from current levels of Rs8.4bn (of this Rs3bn is disputed
with NHAI and ITD expects to receive about Rs2bn as one time settlement).
Current D/E is 2x which post OTS and QIP (Rs1.4bn) will come down to 0.8x.
Current order book 3.3x CY13 revenue – lends visibility to growth ITDC has current order book of Rs38.2bn, LOI of Rs7.3bn and L1 status of
Rs6.8bn this is ~3.3x CY13 revenue. Going forward the strong project pipeline
in Metro, Water network upgradation, Marine and River cleaning remains
key opportunity. Pick up in private Capex shall more or else augment order
misses on Road EPC segment, where ITDC won’t be participating in future.
Key Financial - Consolidated
Y/E Dec (Rs mn) CY10 CY11 CY12 CY13
Operating income 14,622 17,122 16,709 15,841
EBITDA 1,404 1,668 2,112 1,625
EBIDTA margins % 9.6 9.7 12.6 10.3
Net profit 94 226 220 93
EPS (Rs) 6.0 14.5 14.2 6.0
RoCE (%) 12.8 14.0 16.2 14.0
RoE (%) 2.6 6.1 5.6 2.3
Source: Company, Karvy Institutional Research
2
9th September 2014
ITD Cementation Ltd.
MNC parentage – helps in Pre-qualification
ITDC has a strong MNC parentage which helps in pre-qualification eligibility for
EPC projects. ITDC has been at the fore-front of India’s MRTS (Mass Rapid
Transport Systems) story, having worked for Kolkata, Delhi, Bangalore & Jaipur
Metro. The parent company ITD has long track record of executing complex urban
infrastructure works across the world. In segments where ITDC has acquired
credentials/qualification it bids alone whilst in newer segments or where net worth
requirement is higher the Company bids in JV with the parent. The ITD-ITDC JV
owns 4 TBMs – 2 Soil and 2 Rock TBMs and ITD owns 2 Micro TBMs. ITDC will
be bidding in JV with CEC & Tata Projects for the Mumbai Metro Line 3 – Colaba-
Bandra-SEEPZ. The higher net worth requirement and complexities of job (largely
rocky soil) has been the key reason for the joint bidding for this project.
Exhibit 1: Gaining qualification through JVs with the parent
Source: Company, Karvy Institutional Research
Marine Sector – ITD expects – Rs45bn of new order accretion over next 3 years
ITD has a big opportunity in Marine segment with respect to the modernization of
Ports. The Company pegs ~Rs400bn of new investments to happen in the segment
of which civil construction shall be about 60%. Based on the current market share
of the company, ITD is planning to get about Rs45bn of order over next 3-4years.
The key jobs undertaken by the Company in this segment include Dry docks,
Breakwater works, Wet docks, Berths, Diaphragm wall etc. Key clientele in the
segment include – PSA, DP World, Adani, JNPT etc. ITDC has constructed 2km of
Gujrat Container Terminal into the Sea during 1998. Opportunies : Recently the
parent has won $8bn concession to build Rail road transportation for mining coal
and transportation to Port in Mozambique. The part of EPC work may come to the
Indian Subsidiary. ITDC in the river segment has done frontage civil works for
Sabarmati River for a total project cost of Rs3bn.
ITD Cementation India Limited
ITD Cemindia
JV
ITD-ITDCem JV
ITD-ITDCem JV (Consortium
of ITD-ITD Cementation)
80% 49% 40%
Engaged in marine works, highways & bridges, metros, airports, hydro-tunneling, dams & canals, water & sewage and specialist foundation engineering projects
Construction of integrated
passenger terminal building at NetajiSubash Chandra
Bose International airport
Construction for MRTS and water projects
Construction for road projects
ITD Cem Maytas
Consortium
Design and execution of
water conveyor system
95%
FocusAreas
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9th September 2014
ITD Cementation Ltd.
Metro Tunneling approx – Rs1trn investments to happen over next decade
ITDC has strong credential in the MRTS segment with track record of executing
key jobs including (i) Tunneling works with large TBM – currently being executed
for Delhi Metro (Rs7.5bn), (ii) Bangalore Metro (iii) Kolkata Metro & (iv) Konkan
Railways. In the Micro tunneling segment ITD’s focus is on – laying Pipeline for
the Water Sanitation projects. With the Indian Government focus on Infrastructure
growth the ongoing/upcoming investments in MRTS is pegged at Rs1trn. Being
one of the leading player in the segment, ITDC is on the right side of the structural
growth story.
Exhibit 2: Expected investment in Metro Projects
City Size (Rs bn) Remarks
Patna 80 DPR under preparation
Jaipur 90 Under construction
Kochi 50 Under construction, awards largely done
Chandigarh 115 DPR prepared
Lucknow 125 Financial closure pending
Nagpur 92 DPR prepared
Pune 105 Project approved, DPR to be prepared
Surat 180 DPR under progress
Ahmedabad 98 DPR prepared
Patna 82 DPR under progress
Total 1,017
Source: Company, Karvy Institutional Research
Water, Dams, Irrigation, River cleaning projects – sky is the limit
ITDC executes EPC works for Dams, Irrigation projects & Civil
foundations/Pilings. The Company has been one of the oldest firm in Piling works
and has completed foundation for Industrial buildings, Power plants & High rises.
Some of the key projects executed by the company in the segment include (i)
Parliament house foundation (ii) Qutab Minar – Structural enhancement (iii)
Nariman Point Reclamation foundation (iv) New Cuffe Parade, Wadala by Lodha
& (v) Bombay Stock Exchange foundation. The company has developed new
technology which shall help in reducing the piling and foundation time by
3months. In the Airport segment, ITD has executed the Kolkata Airport project
construction and modernization.
Strong Equipment and Manpower base – focus on transparency
ITD has about 1,820 employees of which 47% (856) are engineers. Additionally
around 1,500 people comprise of labor work force. With Safety as the key criteria ,
ITDC has 180 people strong Safety department. The focus is on high quality
service delivery with safety. The MNC parentage brings in high (i) compliance (ii)
transparency in corporate governance & (iii) technical know how. Having burnt its
fingers by incurring ~Rs9.8bn of cost overruns in NHAI projects, ITD is no longer
bidding for NHAI projects.
4
9th September 2014
ITD Cementation Ltd.
Competitive positioning of the sectors
ITDC undertakes projects in highly complex segment and hence has benefit of
limited competition. With the expectation of strong ordering in these segments
ITDC is well poised to cash in the upcoming opportunity.
Exhibit 3: Segment wise competitors
Segment Main Competitors
Marine Structures Afcons, Simplex, Man Engineering, Navyuga, Samsung, Hyundai, Vijay Nirman
Specialist works- Piling & Foundation Simplex Infra, Simlex Projects, Valecha, L&T
Industrial Simplex, JMC, L&T, IVRCL, McNally Bharat, Ramky
Hydro, Dams &Tunnels Patel Engineering, HCC, Gammon, JP, Soma, NCC, L&T, Unity
Airports Consolidated Construction, L&T, BL Kashyap, NCC, Punj Lloyd, Ramky
MRT L&T, Simplex, Gammon, CEC-CICI, IJM, Welspun, IL&FS
Highways & Bridges GMR, Ramky, L&T, IL&FS, IRB, Gammon, HCC, Welspun
Water & Sewage IVRCL, Pratibha, NCC, L&T, Thermax, Jindal, KSB
Source: Company, Karvy Institutional Research
Strong order book lending visibility to growth – 3.3x CY13 revenue ITDC Jun-14 order book is Rs38bn, further LOI orders of Rs7.3bn and L1 orders of
Rs6.8bn takes total orders to ~Rs52bn (~3.3x CY13 revenue). Going forward we
expect ~Rs25-30bn of new orders to accrue to the Company on an annual basis.
Exhibit 4: Segment wise order book
FY14 Size (Rs mn) No . (Major) %
Hydro / Dams / Tunnels / Irrigation 7,026 4 18
Urban Infrastructure / MRTS 7,896 7 21
Marine 10,058 18 27
Specialist Works 3,339 20 26
Airport 65 1 -
Industrial 4,588 9 12
Transportation 5,750 6 15
Total 38,208 73 100
Source: Company, Karvy Institutional Research
Some of the recent order wins Exhibit 5 we highlight some of the recent order wins by ITDC. The orders are well
diversified across segment and average order size is ~Rs2400mn.
Exhibit 5: Recent order win
Description Rs mn
Design and Construction of Wharf Structure at Nhava Sheva (India) Gateway Terminal 1,965
Contruction of Coal berth from Ennore Port Ltd 1,989
Construction of Kolkata Metro stations 7 Nos. from RVNL. 3,512
Construction of Container berth (JSW Jaigarh) 1,090
Laying of water trunk main & laying of sewer line by micro tunneling method (Taratala) 1,459
Development of Marine Facilities at Karanja for KT&LPL 5,475
Design and Construction of Elevated Viaduct and 2 Elevated Stations for DMRCL (CC-50) 1,329
Total 16,819
Source: Company, Karvy Institutional Research
5
9th September 2014
ITD Cementation Ltd.
Financial Performance – a mixed bag, deleveraging necessary
ITDC has delivered muted revenue growth over CY11-13 owing to back ended
order book growth. During 1HCY14 order inflows was Rs6.6bn and during
3CY14E LOI/LOA and L1 order status is Rs16bn. ITDC is expecting Rs30bn of new
order for CY14E vs Rs23bn inflow for CY13. Back ended order intake shall start
reflecting in revenue from CY15E.
Exhibit 6: Order book/Revenue (x) increasing
Source: Company, Karvy Institutional Research
Exhibit 7: Order book growth recovery augurs well
Source: Company, Karvy Institutional Research
EBIDTA margins have remained volatile ranging between 9-12%, ITDC has been
absorbing ~Rs6.8bn of NHAI claims over last 10yrs and hence going forward there
is scope of EBIDTA margins re-rating.
Exhibit 8: Order book growth yet to reflect in revenue
Source: Company, Karvy Institutional Research
Exhibit 9: EBIDTA margins have scope for expansion
Source: Company, Karvy Institutional Research
High consolidated D/E of 2x has resulted in high interest cost & lower profits
Exhibit 10: Interest costs have been key overhang
Source: Company, Karvy Institutional Research
Exhibit 11: Profit impacted by high interest costs
Source: Company, Karvy Institutional Research
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-
10,000
20,000
30,000
40,000
50,000
60,000
CY10 CY11 CY12 CY13 1CY14 2CY14
Closing Order Book (Rs mn) Order Book/Sales (x)
(30.0)
(20.0)
(10.0)
0.0
10.0
20.0
30.0
40.0
-
10,000
20,000
30,000
40,000
50,000
60,000
CY10 CY11 CY12 CY13 1CY14 2CY14
Closing Order Book (Rs mn) Order book growth %
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
13,000
14,000
15,000
16,000
CY10 CY11 CY12 CY13
Net Sales (Rs mn) Growth %
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
-
400
800
1,200
1,600
2,000
CY10 CY11 CY12 CY13
EBIDTA (Rs mn) EBIDTA Margins %
-
5.0
10.0
15.0
20.0
-
350
700
1,050
1,400
CY10 CY11 CY12 CY13
Interest (Rs mn) Growth %
(100.0)
(50.0)
-
50.0
100.0
150.0
200.0
-
50
100
150
200
250
CY10 CY11 CY12 CY13
PAT (Rs mn) Growth %
6
9th September 2014
ITD Cementation Ltd.
Balance sheet – deterioration – bad project choice, high NHAI claims
Unlike its counterpart, ITDC gave into the temptation of participating in road
NHAI EPC contracts whilst staying away from asset based project acquisitions. As
obvious being a MNC, it gets cumbersome to execute a road contract owing to
managing approvals and right of way issues. ITDC lost heavily on roads contract
with total claims outstanding at Rs9.8bn. The company has already absorbed
~Rs6.8bn of claims on books which resulted in EBIDTA margin contractions. ITDC
still has ~Rs3bn of outstanding claims with NHAI and expect to receive ‘One Time
Settlement’ of ~Rs2bn (this would imply a ~20% of claims getting converted). This
along with QIP proceeds of ~Rs1.4bn shall result in Balance sheet deleveraging
with Consolidated D/E reducing from current 2x to 0.8x. Further deleveraging
shall result in Rs400mn reduction in interest costs and improvement in
profitability. ITDC has raised Rs1,440mn through new share issue during Sep-14
and adjusting the QIP proceeds of Rs1,440mn towards retiring debt the D/E as of
end 2QCY15 (2.1x) will reduce to 1.3x as of end 3QCY15E.
Exhibit 12: Consolidated D/E trend
Source: Company, Karvy Institutional Research
-
0.5
1.0
1.5
2.0
-
2,000
4,000
6,000
8,000
CY09 CY10 CY11 CY12 CY13
Debt (Rs mn) D/E (x)
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9th September 2014
ITD Cementation Ltd.
Financials - Consolidated
Exhibit 13: Profit & Loss - Consolidated
Year ending March CY10 CY11 CY12 CY13
Net Sales 14,622 17,122 16,709 15,841
Growth (%) (0.8) 17.1 (2.4) (5.2)
Material Expenses 7,746 9,184 8,752 8,346
Employee Expenses 1,482 1,736 1,894 1,923
Other Operating Expenses 3,990 4,535 3,951 3,948
EBIDTA 1,404 1,668 2,112 1,625
EBIDTA (%) 9.6 9.7 12.6 10.3
EBIDTA Growth (%) 1.8 18.8 26.6 (23.1)
Other Income 140 94 100 340
Depreciation 418 420 506 442
EBIT 1,125 1,341 1,706 1,522
Interest 918 1,060 1,195 1,283
PBT 207 282 511 239
Tax 114 56 291 146
PAT 94 226 220 93
APAT Growth (%) 73.6 140.5 (2.7) (57.6)
EPS 8.2 19.6 19.1 8.1
EPS Growth (%) 73.8 140.5 (2.7) (57.7)
Source: Company, Karvy Institutional Research
Exhibit 14: Balance Sheet
As at March CY10 CY11 CY12 CY13
Share Capital 115 115 115 115
Reserves 3,497 3,697 3,890 3,969
Total Shareholders’ Funds 3,613 3,812 4,005 4,084
Long Term Debt 5,272 579 778 114
Short Term Debt 197 5,845 6,294 6,852
Total Debt 5,468 6,424 7,072 6,966
Deferred Taxes (50) (126) (177) (212)
TOTAL SOURCES OF FUNDS 9,031 10,110 10,899 10,838
Net Block 1,909 2,287 2,297 2,236
CWIP 312 237 139 67
Inventories 4,728 8,415 9,533 9,568
Debtors 5,782 3,778 3,638 4,016
Cash & Equivalents 491 379 368 319
ST Loans & Advances, Others 1,098 1,988 1,747 2,180
Total Current Assets 12,099 14,561 15,287 16,083
Current Liabilities 5,201 6,844 6,672 7,390
Provisions 88 131 152 158
Total Current Liabilities 5,289 6,975 6,824 7,548
Net Current Assets 6,810 7,586 8,463 8,535
TOTAL APPLICATION OF FUNDS 9,031 10,110 10,899 10,838
Source: Company, Karvy Institutional Research
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9th September 2014
ITD Cementation Ltd.
Exhibit 15: Cash flow statement
Rs mn CY10 CY11 CY12 CY13
Reported PAT 94 226 220 93
PAT from Operations 94 226 220 93
Interest expenses 918 1,060 1,195 1,283
Depreciation 418 420 506 442
Working Capital Change (612) (1,247) (1,732) 238
OPERATING CASH FLOW ( a ) 818 459 189 2,057
Capex (724) (724) (413) (563)
Free cash flow (FCF) 94 (265) (224) 1,493
Investments (2) (48) (24) (39)
INVESTING CASH FLOW ( b ) (726) (772) (437) (602)
Debt Issuance 1,053 608 (139) 1,329
Interest expenses (918) (1,060) (1,195) (1,283)
Dividend (13) (20) (27) (27)
FINANCING CASH FLOW ( c ) 122 (472) (1,361) 19
NET CASH FLOW (a+b+c) 214 (785) (1,609) 1,474
Non-operating and EO items (129) 674 1,597 (1,522)
Closing Cash & Equivalents 491 379 368 319
Source: Company, Karvy Institutional Research
Exhibit 16: Key Ratio
CY10 CY11 CY12 CY13
PROFITABILITY (%)
EBITDA Margin 9.6 9.7 12.6 10.3
PAT Margin 0.6 1.3 1.3 0.6
RoE 2.6 6.1 5.6 2.3
RoCE 12.8 14.0 16.2 14.0
EFFICIENCY
Tax Rate (%) 54.8 19.9 57.0 61.1
Asset Turnover (x) 1.6 1.7 1.5 1.5
Inventory (days) 114 140 196 220
Debtors (days) 132 102 81 88
Payables (days) 117 128 148 162
Cash Conversion Cycle (days) 129 114 129 146
Net D/E 1.4 1.6 1.7 1.6
PER SHARE DATA
EPS (Rs/sh) 6.0 14.5 14.2 6.0
CEPS (Rs/sh) 33.0 41.6 46.8 34.5
DPS (Rs/sh) 1.5 2.0 2.0 1.0
BV (Rs/sh) 232.8 245.7 258.1 263.2
VALUATION
P/E 71.8 29.8 30.6 72.3
P/BV 1.9 1.8 1.7 1.6
EV/EBITDA 8.3 7.7 6.4 8.2
Dividend Yield (%) 0.4 0.5 0.5 0.2
Source: Company, Karvy Institutional Research
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Disclosures Appendix
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