Dilip Buildcon IPO review by Dilip Davda

Dilip Buildcon Ltd (DBL) is one of the leading private sector road-focused EPC contractors in India. During the last five Financial Years ended March 31, 2016 it has completed the construction of 47 road projects in the states of Madhya Pradesh, Gujarat, Himachal Pradesh, Rajasthan and Maharashtra in India, with an aggregate length of approximately 5,611.94 lane kms, achieving a CAGR of 38.18% of revenue growth on a consolidated basis for the said period. In addition to the states where DBL has completed projects,  has expanded its presence to ten more states, Tamil Nadu, Punjab, Chhatisgarh, Jharkhand, Haryana, Telangana, Andhra Pradesh, Karnataka, Goa and Uttar Pradesh with ongoing projects.

As the owner of the one of the largest fleets of construction equipment in India, the company has maintained, as of March 31, 2016, a modern equipment fleet of 7,345 vehicles and other construction equipment from some of the world‘s leading suppliers, such as Schwing Stettar, Metso, Wirtgen and Vogele. DBL is one of the largest employers in the construction industry in India and employed 19,746 employees as of March 31, 2016.

Its core business is undertaking construction projects across India in the roads and irrigation sectors. The company specializes in constructing state and national highways, city roads, culverts and bridges. As a result of the natural growth of its road construction business, as well as the recent government support to the infrastructure sector and rising opportunities in new business areas, DBL recently expanded into the irrigation and urban development businesses. Thus its business comprises: (i) our construction business, under which it undertake roads, irrigation and urban development projects on an EPC basis; and (ii) infrastructure development business, under which it undertakes building, operation and development of road projects on a BOT basis with a focus on annuity projects. As of March 31, 2016, DBL had an order book of Rs.  10778.73 crore, consisting of 50 third party road EPC projects, six of our own road BOT projects, three irrigation projects, one mining project, one cable-stayed bridge project and three urban development projects. Management has claimed that they have completed all its projects well before the scheduled time and has thus improved its prestige and enhanced its margins with before time completion.

To repay highcost debt and meet working capital requirements and general corpus funds needs, the company is coming out with a maiden IPO to mobilize Rs. 654 crore (at the upper price band) with its combo offer of fresh equity issue of Rs. 430 crore (approx 19634703 equity share of Rs. 10 each) and offer for sale of 10227723 equity share worth Rs. 224 crore. Issue opens for subscription on 01.08.16 and will close on 03.08.16. Minimum application is to be made for 65 shares and in multiples thereon, thereafter. BRLMs to the IPO are Axis Capital Ltd, IIFL Holdings Ltd, J M Financial Institutional Securities Ltd and PNB Investment Services Ltd. Link Intime India Pvt Ltd is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE. After initial capital issued at par it issued further shares in the price range of Rs. 20 to Rs. 370. It has also issued bonus shares in the ratio of 1 for 2 in September 2009 and 2 for 1 in January 2015. Post IPO its current paid up equity capital of Rs. 117.14 cr. will stand enhanced to Rs. 136.78 crore.

On performance front, the company has (on a consolidated basis) reported turnover and net profit of Rs. 1926.87 cr. / Rs. 241.29 cr. (FY13), Rs. 2401.59 cr. /Rs. 185.69 cr. (FY14), Rs. 2768.51 cr. / Rs. 87.66 cr. (FY15) and Rs. 4348.98 cr. / Rs. 196.66 cr. (FY16). Thus although its top line has shown improvement, its net declined for FY14 and FY15. This is attributed to higher expenses for financial cost and provisions for depreciations due to investments in equipments in FY14 and FY 15. Its finance cost increased from Rs. 115.36 crore in FY 13 to Rs. 514.21 crore for FY16. Similarly its depreciation provisions stood higher from RS. 75.60 crore in FY13 to Rs. 284.13 crore. As the company will repay its high cost debt, it is expecting major savings in finance cost. If we attribute the latest earnings on the fully diluted equity post IPO then asking price is at a P/E of around 15 which is just at or around same level compared to its peers.

On BRLM’s front, they have mixed track records for their past mandates on the day of listings.

Conclusion: Considering the next two year’s order book and the likely benefits in finance cost, company is expected to show better performance and ripe rewards on its investments. Issue may be considered for medium to long term investment.

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only.

(SEBI registered Research Analyst-Mumbai).

(Email: dilip_davda@rediffmail.com)

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