Stock Fundamentals

ITD Cementation India: En route to growth

Meera Siva | Updated on January 17, 2018 Published on August 21, 2016

Near-term positives of this infra player seem priced in, but long-term prospects are bright

The government’s push in the transportation sector — ports, roads and airports — had kindled investor interest in many infrastructure stocks. One example is ITD Cementation India (ITD), a developer of marine, metro rail, airport, hydro plants, mines and other infrastructure projects.

The company has a strong execution track record, having worked on key metro rail projects in cities such as Bengaluru, Delhi and Kolkata.

ITD’s stock hit a high recently after the company (as a part of a JV, with 40 per cent share) won the ₹2,830-crore order for the third phase of Mumbai Metro. Its stock price has nearly doubled in the last year.

The current price of ₹142 discounts ITD’s trailing 12-month earnings by 34 times. This is slightly costlier than the stock’s three-year median price to earnings valuation of about 30 times. The valuation is also higher than that of peers such as J Kumar, KNR Construction and L&T which are trading at 6, 11 and 27 times, respectively.

ITD's valuation is not too attractive and the near-term positives seem to be priced in. However, its long-term revenue and profit growth prospects seem bright and improvements in order and margin expansion would aid earnings growth in the next few years. Investors can therefore, hold the stock at current valuations.

Order growth

ITD has a diversified revenue base. Its order book stands at ₹4,435 crore as of June 2016, executable over 20 months. Nearly half of it is for marine and maritime construction work. Dam and irrigation project construction accounts for 19 per cent and metro/urban infrastructure as well as highways constitute 10 per cent each.

Some of the ongoing projects include marine work at ports, such as Visakhapatnam and Mundra and metro rail work in Delhi, Bengaluru, Kolkata and Jaipur.

The company is also looking at maritime opportunities in Bangladesh. It is also the lowest bidder for ₹1,685-crore worth of projects in Tamil Nadu and others. Its revenues come from Government agencies (39 per cent), private companies (41 per cent) and PSUs (20 per cent).

Revenue increased 62 per cent in the last four quarters, compared with the same period a year ago. The management however, estimates that revenue growth in 2016 will be 10-15 per cent. The lower growth is due to sluggish order book growth — the current order book is only 1.2 times the trailing 12 months revenue of ₹3,626 crore. Order growth, such as the recent Mumbai Metro rail project wins, are expected to revive in the next few quarters.

Margin to improve

The company’s operating margin dipped in the June 2016 quarter to 5.5 per cent, compared with the average of 6.5 per cent in the past.

This was due to losses from its Delhi Metro Rail Joint Venture; this is expected to reduce as the project nears completion. The management expects that margin will improve to 7-8 per cent for the full year.

The company has also been reducing its debt levels. Consolidated debt stands at ₹500 crore as of June 2016, down from about ₹600 crore in December 2015. Interest paid in the trailing 12 months decreased 11 per cent to ₹125 crore. Profit in this period was ₹62 crore compared to a loss of ₹61 crore over the same period last year.

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