itd cementation management meet update_060115

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India Equity Research | Construction & Infrastructure

January 6, 2015

Management Meet Update

ITD Cementation India Ltd.

Focus on Balance Sheet Improvement

CMP

Rs505

Rating

NOT RATED

Change in Estimates

EPS Chg FY16E/FY17E (%) NA

Target Price change (%) NA

Previous Reco NA

Emkay vs Consensus

EPS Estimates

FY16E FY17E

Emkay - -

Consensus - -

Mean Consensus TP -

Stock Details

Bloomberg Code ITCE IN

Face Value (Rs) 10

Shares outstanding (mn) 16

52 Week H/L 522 / 114

M Cap (Rs bn/USD bn) 8 / 0.12

Daily Avg Volume (nos.) 12,511

Daily Avg Turnover (US$ mn) 0.1

Shareholding Pattern Sep '14

Promoters 51.6%

FIIs 3.3%

DIIs 23.7%

Public 17.7%

Price Performance

(%) 1M 3M 6M 12M

Absolute 11 13 42 258

Rel. to Nifty 1 9 31 175

Relative price chart

Source: Bloomberg

Nitin Arora

[email protected]

66242491

Kushan Parikh

[email protected]

66121431

-20

20

60

100

140

180

100

185

270

355

440

525

Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14

%Rs

ITD Cementation (LHS) Rel to Nifty (RHS)

Meeting highlights

Expects to garners orders worth Rs30-40 bn in CY15E largely to come from Marine and

metro segments, currently remains L1 for projects worth Rs8 bn. Current order book

provides revenue visibility for 3 years

Focus on improving the balance sheet, already reduced debt worth Rs1 bn from the QIP

proceeds, likely to close debt at Rs6.5 bn in CY14E. The company believes that raising

equity coupled with one time settlement money from NHAI will help reducing working

capital debt levels for the company

Given that 10-12% of the order book remains slow-moving/low margin and further write

offs are expected in some orders which will get executed over the next two quarters and

with newer order wins remains accretive , management expects that EBITDA margins

to rebound to 10-11% range in CY15E/16E

Eyes significant increase in the order book

The current order book stands at Rs44.1 bn (implies 2.8x CY13 revenue) and stands L1 for

projects worth Rs7.7 bn which includes projects like construction of Elevated road at Noida

worth Rs4.16 bn, Construction of IIT Ropar worth Rs2.73 bn from CPWD Ropar.,

Rehabilitation and Refurbishment of Water Works at Palta and Garden Reach worth Rs806

mn. The company expects to win following order in CY15E which include

Rs33 bn for 4th container terminal at JNPT from PSA (Port of Singapore) – Will be given

in two phase , Phase -1 Rs25 bn (Reclamation & dredging ) and Phase –II Rs8 bn for

berth construction

Piling order of Rs10 bn in Nigeria.

Mumbai Metro phase -3 (Prequalified for 2 packages worth Rs30 bn )

For future visibility company sees potential from Ganga Cleaning project with respect to

dredging, Navigation, Jetties, Building Ghats, redevelopment alongside river.

Financial Snapshot (Consolidated)

(Rs mn) CY10 CY11 CY12 CY13 9MCY14

Net Sales 14,469 16,976 16,509 15,841 12,048

EBITDA 1,404 1,668 1,912 1,625 704

EBITDA Margin (%) 9.7 9.8 11.6 10.3 5.8

APAT 94 226 220 93 (346)

EPS (Rs) 8.1 19.6 19.1 8.1 (28.3)

EPS (% chg) 73.4 140.7 (2.7) (57.7) -

ROE (%) 2.6 6.1 5.6 2.3 -

P/E (x) 61.0 25.3 26.0 61.5 -

EV/EBITDA (x) 7.6 7.1 6.9 8.1 -

P/BV (x) 1.6 1.5 1.4 1.4 -

Source: Company, Emkay Research

ITD Cementation India Ltd. (ITCE IN) India Equity Research | Management Meet Update

Emkay Research | January 6, 2015 2

Some of the recent project wins include:

Construction of Bose Institute at Salt Lake, Kolkata worth Rs1334 mn from Rites Ltd.

Container Terminal 4 at Mundra worth Rs1178 mn from Adani Port & SEZ Ltd.

Design and Construction of reclamation and container yard at JNPT worth Rs4067 mn from

Nhava Sheva (I) Gateway Terminal.

Construction of rail tunnel in J&K worth Rs1334 mn from KRCL.

Construction of LNG storage tanks at Mundra worth Rs1113 mn from IHI Corporation.

Construction of Coal berth worth Rs1989 mn from Ennore Port Ltd.

Construction of Kolkata Metro stations 7 Nos. worth Rs3512 mn from RVNL.

Construction of Container berth (JSW Jaigarh) worth Rs1090 mn.

Laying of water trunk main & laying of sewer line by micro tunneling method (Taratala)

worth Rs1459 mn from KEIIP.

Exhibit 1: Segmental Order Book Breakup as of September 30, 2014


18.6%

15.1%

34.1%

5.8%

0.2%15.0%

11.2%

Hydro / Dams / Tunnels /Irrigation

Urban Infrastructure /MRTS

Marine

Specialist Works

Airport



Exhibit 2: Major Tender Prospects

SEGMENTS

VALUE

(in Rs mn) PROJECTS

PROJECT VALUE

(in Rs mn)

MARINE 17703 Phase-2 Expansion of Coal Terminal at Ennore Port 50

EPC Tender for LNG Port Terminal at Jafrabad 10000

Shore Protection Works for Site Development of PTA - 10 at RIL, Hazira 800

EPC Tender for Construction of Mundra LNG Terminal 2000

EPC Tender for Backup Yard for Ennore Container Terminal 1000

Proposed Bulk Terminal at Ennore Port on EPC Basis 1000

Construction of Backup Yard for Mundra Container Terminal - CT 4 1000

Modification & Strengthening of Existing Cargo Berths

Nos. 1 to 6 at Kandla – Left Out Work 1853

URBAN INFRASTUCTURE

/ MRTS 6726

Contract CC-87, CT -1B, CT-1A: Part Design and Construction of elevated viaduct and 8

elevated stations of Phase III Delhi MRTS 2577/549/1600

Dhaka Elevated Expressway PPP Project, Dhaka, Bangladesh 2000

HYDRO/ DAMS /

TUNNEL / IRRIGATION 15400

Construction of Barrage-cum-Bridge across River Koel near Village Jhirpani in

the District of Sundargarh 5000

Construction of Barrage-cum-Bridge across River Ib near Village Kopasingha in

the District of Sundargarh 5000

Construction of Barrage-cum-Bridge across River Ib near Village Deogaon in the

District of Jharsuguda 5000

Design and Construction of 578 m long Theng Tunnel including Geological Investigation

on Gangtok-Chungtahang Road under Project Swastik in Sikkim State 400

INDUSTRIAL 7141 Supply and Construction of 110/33 KV GIS Base Receiving Station at Kurla

(General Civil Works) 300

Proposals for various works pertaining to 75 km New Broad Gauge Line,

Sarguja Rail Corridor Pvt. Ltd. (SRCPL) 1000

Project HIRA-K, a manufacturing facility at Kharagpur, West Bengal for

admixture production 200

Construction of General Civil Works including Piling for Unit #6 of Coal Conversion

Project at Trombay 2750

Development of Permanent campus for IIT Jodhpur at Karwar Rajasthan 2891

SPECIALIST PROJECTS 25900 Various




Exhibit 3: Revenue CAGR of 2% over CY09-13


Exhibit 4: EBITDA CAGR of 4% over CY09-13


Exhibit 5: PAT CAGR of 15% over CY09-13


Exhibit 6: EPS


Exhibit 7: Order Book CAGR of 7% over CY09-13


Exhibit 8: Order Inflow CAGR of 6% over CY09-13


14675 14469

16976 16509 15841

12048

0

4000

8000

12000

16000

20000

CY09 CY10 CY11 CY12 CY13 9MCY14

1379 1404

16681912

1625

704

0

500

1000

1500

2000

2500


5494

226 220

93

-346-400

-300

-200

-100

0

100

200

300


4.78.1

19.6 19.1

8.1

-28.3-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0


28641

35366

29070 28911

38210

44093

0

10000

20000

30000

40000

50000


1998721347

10826

16350

25140

17931

0

5000

10000

15000

20000

25000

30000




Exhibit 9: EBITDA Margins averaged 10.1% over last 5 years


Exhibit 10: Non Cash NWC as a % of sales continued to rise


Exhibit 11: Debt levels kept rising on working capital requirements


Exhibit 12: Debt equity brought under control


Exhibit 13: ROEs averaged 3.6% over last 5 years


Exhibit 14: ROCEs averaged 11.5% over last 5 years


9.3% 9.6% 9.7%

11.6%10.3%

5.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


42% 44% 43%

54%56%

0%

10%

20%

30%

40%

50%

60%

CY09 CY10 CY11 CY12 CY13

Non Cash NWC As % of Sales

50045468

6509

7834 7695 7578

0

2000

4000

6000

8000

10000


1.4 1.51.7

2.0 1.9

1.5

0.0

0.5

1.0

1.5

2.0

2.5


1.5%

2.6%

6.1%5.5%

2.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%


10.9% 11.2%

12.9% 12.7%

10.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%




Focus on balance sheet improvement

The company’s execution run rate slowed down from CY12 onwards due to disputed/ pending

claims in one of the road projects awarded by the NHAI and irrigation projects in Andhra Pradesh

amounting Rs3.5 bn which led to increase in the working capital.

The pending claims from the NHAI stands at Rs3 bn which the management expects to get one

time settlement of Rs1.8-1.9 bn over the next 2-3 months. However the management has stated

that the company is in active discussion with both the clients for an amicable settlement of the

claims. According to the management, this process could have fructified earlier, had it not been

for central election (thereby applicability of model code of conduct) and Andhra re-organisation.

The company recently raised Rs1.4 bn and issued 4 mn shares. With this dilution the promoter

stake would stand reduced from 69.57% to 51.63%. The proposed funds got utilised primarily

for reducing the debt levels of the company and reduced the working capital from Rs7.2 bn to

Rs6.5 bn till date. Interest cost stagnated on sequential basis from Q3CY15 as company repaid

debt of Rs1 bn and its current debt stands at Rs6.5 bn down from Rs7.56 bn and expects benefit

of lower interest expense (post partial debt repayment) to come in from the next quarter.

The company believes that raising equity coupled with one time settlement money the company

will help reducing working capital debt levels for the company.

Exhibit 15: Net Working Capital Days

Net Working Capital - DSO CY09 CY10 CY11 CY12 CY13

Inventories 57 60 40 39 44

Unbilled WIP 92 76 70 80 137

Sundry Debtors 114 134 119 146 81

Cash and Bank 30 11 10 12 8

Loans and Advances 46 38 31 28 43

Total Current Assets ex cash 309 309 260 293 305

Current Liabs 197 159 104 131 145

Provisions 13 2 2 2 3

Net Working Capital Days ex cash 99 148 154 159 157




Booked 85% of loss making projects, new project wins value accretive

Given that 10-12% of the order book remains slow-moving/low margin and further write offs are

expected in some orders which will get executed over the next two quarters and with newer order

wins remains accretive, management expects that EBITDA margins to rebound to 10-11% range

in CY15E/16E.

During the Q3CY14, the company took write downs on three projects to the tune of Rs140 mn.

Of these Rs70 mn was on account of premature closure of project due to delayed payments from

the client. The balance was on account of cost overruns that the company had incurred. In

addition to above, the ITD made a provision of Rs50 mn for project works at Kolkata Airport. The

same is covered under the escalation clause and would be recognized as revenue after it is

being approved/ reimbursed by the client. According to the management, the total charge of

Rs190 mn (stated above) are one time in nature. In absence of such charges, adjusted EBITDA

margin stands at 8.3%.

Parentage help in prequalification

ITD is a subsidiary of Thailand-based Italian Thai Development Public Company Ltd, which holds

52% stake in ITD. Italian-Thai Development Company Limited is the largest construction

company in Thailand (~41% market share) and one of the largest in South East Asia. The parent

company also provides its knowhow, technologies and skilled personnel to ITD. ITD-Parent is

one of the leading infrastructure company based in Thailand. Some of the marquee projects

executed by ITD-Parent include:

Bangkok’s first underground mass transit system comprising of 10.5 km of twin tunnels, 9

underground stations.

Bangkok Mass Transit System - The train systems for this 23 kms project was provided by

Siemens and the whole project was managed by the Siemens ITD Consortium.

Suvarnabhumi International Airport – capacity of 45 mn passengers

Several Dams and tunnels - completed 7 major dams and more than 30 km of large

diameter tunnels in Thailand.

ITD-parent also helps the ITD cementation for pre-qualification requirement in specifically Marine

segment and several other verticals of infrastructure segments. Since 2005, ITD has entered

into 3 separate JV’s with its parent to build for projects in Roads, MRTS, Water and Airport

sectors.

Exhibit 16: Corporate Structure


ITD Cementation India Limited

Engaged in marine works, highways & bridges, metros, airports, hydro-tunneling, dams & canals, water & sewage and specialist foundation engineering projects.

ITD Cem Maytas Consortium

Design and execution of water conveyor system

ITD Cemindia JV

Construction for road projects

ITD-ITDCem JV

Construction for MRTS and water projects

ITD-ITDCem JV (Consortium of ITD-ITD

Cementation)

Construction of integrated passenger terminal building at Netaji Subash Chandra Bose International airport

95% 80% 49% 40%



Exhibit 17: Joint Ventures

ITD-ITD Cem JV

ITD-ITD Cem JV

(Consortium of ITD-ITD

Cementation)

ITD Cem Maytas

Consortium ITD Cem india JV

Shareholders ITD Cem – 49%

ITD (Thailand) – 51%

ITD Cem – 40%


ITD Cem – 95%

Maytas – 5%

ITD Cem – 80%


Key projects Supply and installation of track work for

Bangalore Metro (to be commissioned in

37 months)

Construction of integrated

passenger terminal building

at Netaji Subas Chandra

Bose (International) airport in

Kolkata

Design and execution of

water conveyor system for

government of Andhra

Pradesh

MP2 road: 35 kms stretch

connecting Jhansi and

Shivpuri

Construction of 3 under ground stations

and tunnels for Kolkata Metro

RJ-4: construction of bypass

on NH-76 at Kota

Design and construction of elevated

viaduct including entry exit line, ramp to

depot, and elevated stations for DMRCL

(CC26) worth 5,460 mn

Recently secured contract of Design and

Construction of Tunnels by Shield TBM

under Delhi MRTS Project for DMRCL

(CC32) worth 7,520 mn

Procurement of Ground Water Treatment

Plants

Design, Construction, Supply, Installation,

Commissioning including Mechanical &

Electrical Equipment and Operation in

Agartala worth 399 mn

Laying of Water Trunk Main from Garden

Reach Water Works to Taratala Valve

Station and Laying of Sewer Line along

Diamond Harbour Road by Microtunelling

Method for KEIIP worth 1,459 mn

Contract value Rs26828 mn Rs19390 mn Rs6632 mn Rs3629 mn

Work in Hand as

on September

30, 2014

Rs11753 mn Rs173 mn Rs5750 mn Nil




Exhibit 18: Brief History

Year

1931 – 1978 The Cementation Company Limited, U.K, a member of Trafalgar House Group, operated a branch in India

In 1978, the branch office was converted into India subsidiary (named as Cemindia Company Limited) of The Cementation Company Limited, U.K,

1994 Cemindia Company Limited renamed as Trafalgar House Construction India Limited to reflect relationship with its then parent

1996-98 Kvaerner ASA acquired Trafalgar House Plc in 1996

Cemindia Company Limited changed its name to Kvaerner Cementation India Limited

2000-01 Skanska AB acquired Kvaerner Construction Group Limited

Kvaerner Cementation India Limited changed its name to Skanska Cementation India Limited

2004-05 ITD, acquired Skanska AB interest in Skanska Cementation India Limited

Skanska Cementation India Limited changed its name to ITD Cementation India Limited

2006-11 Raised Rs. 564 mn through rights issue in October 2006 (fully subscribed by parent)

Raised Rs. 2,447 mn through rights issue in December 2007 (partially subscribed by parent due to regulatory compulsions)

Entry into MRTS and airport segments with support from parent

2012 Construction of Impounded Wet Basin at Mazagon Dock, Mumbai and Dry Dock in GRSE, Kolkata

Construction of double tier elevated structure for Jaipur Metro

2013 Construction of modernized integrated passenger terminal at Kolkata Airport

Entry in Industrial Segment


Exhibit 19: Segment Competitor Presence

Segment Main Competitors

Marine structures Afcons, Simplex, Mann 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,

Water & Sewage IVRCL, Pratibha, NCC, L&T, Thermax, Jindal, KSB


Exhibit 20: Equipment List

Equipment (Excluding JV Assets) Number of units

Hydraulic and rotatory rigs 39

Cranes 60

Excavators 16

Crushers 5

Batching plants 36

Sensor Pavers 7

Hot Mix Plants 5

Concrete Pump 34

DG Set 103

Gantry 22

Launching Girder / segment 3

Total 330




Key Financials (Consolidated)

Income Statement

Y/E Dec (Rs mn) CY10 CY11 CY12 CY13 9MCY14

Net Sales 14,469 16,976 16,509 15,841 12,048

Expenditure 13,065 15,308 14,597 14,216 11,344

EBITDA 1,404 1,668 1,912 1,625 704

Depreciation 418 420 506 442 324

EBIT 985 1,247 1,405 1,183 380

Other Income 140 94 100 340 192

Interest expenses 918 1,060 1,195 1,283 1,024

PBT 207 282 311 239 (453)

Tax 114 56 91 146 (106)

Extraordinary Items 2 1 3 1 0

Minority Int./Income from Assoc. 0 0 0 0 0

Reported Net Income 96 227 223 94 (346)

Adjusted PAT 94 226 220 93 (346)

Balance Sheet

Y/E Dec (Rs mn) CY10 CY11 CY12 CY13 9MCY14

Equity share capital 115 115 115 115 -

Reserves & surplus 3,498 3,697 3,890 3,969 -

Net worth 3,613 3,812 4,005 4,084 -

Minority Interest 0 0 0 0 -

Loan Funds 5,468 6,509 7,834 7,695 -

Net deferred tax liability (50) (126) (177) (212) -

Total Liabilities 9,031 10,194 11,662 11,567 -

Net block 1,909 2,287 2,297 2,236 -

Investment 0 0 0 0 -

Current Assets 12,099 14,562 15,292 16,089 -

Cash & bank balance 491 379 368 319 -

Other Current Assets 3,165 6,361 7,477 7,533 -

Current liabilities & Provision 5,289 6,892 6,066 6,825 -

Net current assets 6,810 7,670 9,225 9,264 -

Misc. exp 0 0 0 0 -

Total Assets 9,031 10,194 11,661 11,567 -

Key Ratios

Profitability (%) CY10 CY11 CY12 CY13 9MCY14

EBITDA Margin 9.7 9.8 11.6 10.3 5.8

EBIT Margin 6.8 7.3 8.5 7.5 3.2

Effective Tax Rate 54.8 19.8 29.3 61.1 23.5

Net Margin 0.6 1.3 1.3 0.6 (2.9)

ROCE 12.8 14.0 13.8 13.1 -

ROE 2.6 6.1 5.6 2.3 -

RoIC 12.1 14.0 13.6 10.6 -

Per Share Data (Rs) CY10 CY11 CY12 CY13 9MCY14

EPS 8.1 19.6 19.1 8.1 (28.3)

CEPS 44.5 56.1 63.0 46.5 0.1

BVPS 313.6 330.9 347.6 354.5 -

DPS 1.5 2.0 2.0 1.0 -



Valuations (x) CY10 CY11 CY12 CY13 9MCY14

PER 61.0 25.3 26.0 61.5 -

P/CEPS 11.2 8.8 7.9 10.7 -

P/BV 1.6 1.5 1.4 1.4 -

EV / Sales 0.7 0.7 0.8 0.8 -

EV / EBITDA 7.6 7.1 6.9 8.1 -

Dividend Yield (%) 0.3 0.4 0.4 0.2 -

Gearing Ratio (x) CY10 CY11 CY12 CY13 9MCY14

Net Debt/ Equity 1.4 1.6 1.9 1.8 -

Net Debt/EBIDTA 3.5 3.7 3.9 4.5 -

Working Cap Cycle (days) 159.4 156.8 195.8 206.1 -

Growth (%) CY10 CY11 CY12 CY13 9MCY14

Revenue (1.4) 17.3 (2.8) (4.0) -

EBITDA 1.8 18.8 14.6 (15.0) -

EBIT 10.0 26.6 12.7 (15.9) -

PAT 75.3 136.2 (1.6) (57.7) -

Quarterly (Rs mn) Q3CY13 Q4CY13 Q1CY14 Q2CY14 Q3CY14

Revenue 3,769 3,785 3,807 4,164 4,078

EBITDA 356 451 259 292 152

EBITDA Margin (%) 9.4 11.9 6.8 7.0 3.7

PAT (33) 25 (103) (24) (220)

EPS (Rs) (2.9) 2.1 (8.9) (2.1) (17.3)

Shareholding Pattern (%) Dec-13 Mar-14 Jun-14 Sep-14 Sep-14

Promoters 69.6 69.6 69.6 51.6 51.6

FIIs 0.5 0.5 0.5 3.1 3.3

DIIs 0.8 0.8 2.0 20.8 23.7

Private Corp 3.6 2.4 3.0 6.1 3.7

Public 29.1 29.1 27.9 18.4 17.7



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“Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report

includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

www.emkayglobal.com

Emkay Global Financial Services Ltd.

CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

Emkay Rating Distribution

BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.

ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.

HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.

REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.

SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.

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