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AnandRathi
ITD Cementation (Buy)
CMP: ₹58.65
Target: ₹74
Key takeaways: a) The about ₹1,000 crore Q1 additions were followed by about ₹1,900 crore in Q2, with L1 for about ₹2,000 crore already in Q3. With this, ITD is in touching distance of its 15-month FY19 addition of about ₹5,100 crore. The about ₹13,000 crore healthy prospects suggest more is likely in the rest of the year. Year-to-date additions, though diversified, seem to be lacking marine; consequently, marine’s share in the OB is now below 30 per cent.
b) The about ₹16,100 crore lower q/q consolidated net debt (at about ₹460 crore), despite sequentially flat standalone net debt implies the Bengaluru metro-rail SPV generated positive cash-flows to effect the lower debt. This augurs well as there were concerns about this zero-margin project (post lowered scope) generating cash flows to meet obligations.
c) Without quantifying, management reiterated that contingency reserves and the various insurances availed of would cover any additional costs it may face because of the issue at hand. With regard to time over-run (and, consequently, higher costs), it hopes to be reimbursed by the client. Work is expected to re-start by mid-December 19.
Valuations: FY20e earnings have been reduced around 17 per cent (and around 7 per cent for FY21) as we lower our margin expectation on slower marine inflows, and to adjust for the reported H1. Risk: Slower-than-expected execution.
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