Capacit’e Infraprojects Q4 FY18: A short-term blip

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Jitendra Kumar Gupta Moneycontrol Research

Barring issues related to implementation of the Goods & Service Tax, which led to negotiations of its projects as clients asked for benefits to be passed on, Capacit’e Infraprojects reported an 18.7 percent year-on-year (YoY) revenue growth accompanied by 14 percent YoY growth in net profit to Rs 78.7 crore in FY18. While the management is of the view that the GST-related issues are behind it and would not have much implications going forward, the Street continues to worry as the stock tumbled about 10.21 percent on Monday.

Worries relating to Q4 revenue growth, contraction in margin and extended working capital cycle were all linked to GST.

It is reasonable to expect that in FY19 debtors will come down, led by settlement of dues and the company will return back to the normal working capital cycle of about 60-65 days as against the current 89 days. Excluding the retention money (related to receivables), its working capital cycle stood at 58 days in FY18. Even though its working capital cycle has extended, the company’s net debt-to-equity ratio at -0.1 times is more than comfortable. Capacit’e is sitting on a cash equivalent of Rs 320 crore and free cash of Rs 200 crore (IPO proceeds), which it intends to deploy in the upcoming projects.

Earnings before interest, tax, depreciation and amortisation (EBIDTA) margin fell in FY18 by about 200 basis points YoY to 16.7 percent. In Q4, margin stood at about 18.3 percent. With GST impact easing and higher revenues, margins too will stabilise in FY19.

The company’s strong order book continues to provide high visibility. Its order book saw a 32.5 percent YoY growth, taking its order book to Rs 5,682 crore, or 4.2 times FY18 revenue. The book has an execution cycle of about 3-3.5 years indicating enough room for revenue growth, particularly in the light of free cash in the books.

Valuations

In the current fiscal, the company is targeting a sales turnover of about Rs 1,650-1,700 crore and net profit of around Rs 100 crore. At the current market price of Rs 298 per share or at market capitalisation of Rs 2,027 crore, its FY19e price-to-earnings works out to 20 times. Valuations are quite reasonable, particularly in light of growth, opportunities in the sector and strong return ratios.

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