Hold Dredging Corporation of India; target of Rs 380: ICICI Direct

ICICI Direct's research report on Dredging Corporation of India

Dredging Corporation of India reported strong revenues for Q4FY19 led by improved fleet utilisation. Further adjusted EBITDA margins came at ~15% levels, led by higher other expenses to sales ratio. The exceptional item included gain from reversal of provision amounting to Rs 114 crore, related to outstanding dues to be received from the Sethusamudram Corporation (SCI). The company received Rs 21 crore in Q4FY19, of the total outstanding Rs 137 crore from SCI. The management expects the cash inflow from SCI and its newer promoter structure to be beneficial for its working capital days.

Outlook

Change of promoters of Dredging Corp is expected to provide a trigger to capture the huge growth opportunity presented by the planned projects and could also lead to nimbleness in decision making and upgrading/investing in existing fleet and acquisition of new fleet/equipment to cater to requirement of various projects. At the current market price, DCI is trading at ~15x FY21E EPS of Rs 26.1 and 0.7x FY21E P/BV (book value). However, as concerns remain related to execution of ongoing projects and scaling up of the operations of the company by the consortium of the ports, we maintain HOLD on the stock, valuing it at Rs 380 (15x FY21E EPS).