Hold Dredging Corporation; target of Rs 450: ICICI Direct

ICICI Direct's research report on Dredging Corporation

Revenues de-grew 11% YoY to Rs 140 crore (I-direct estimate: Rs 150 crore). Revenue growth appears to have contracted after growing 17% YoY in Q4FY18, due to lower utilisation of fleet EBITDA margin declined 33 bps to 23.3% (I-direct estimate: 22%), mainly due to higher other expenses to sales ratio (58.7% in Q1FY19 vs 58.5% in Q1FY18). Absolute EBITDA de-grew 13% to Rs 33 crore (I-direct estimate: Rs 33 crore) Subsequently, PAT de-grew 28% to Rs 3 crore and was higher than I-direct estimate of Rs 2 crore.

Outlook

The Government of India is keen on stake sale (~73%) of Dredging Corp to three major ports (Visakhapatnam Port Trust, Paradip Port Trust and New Mangalore Port Trust) with the help of surplus funds parked with the ports. Such a stake sale may provide the required trigger to capture the huge growth opportunity presented by the above-mentioned projects and also inherit the ongoing dredging projects in the mentioned ports. It could also lead to deftness in decision making and upgrading/investing in modernisation of existing fleet and acquisition of new fleet/equipment to cater to requirement of various projects. At the current market price, DCI is trading at ~21x FY20E EPS of Rs 23 and 0.8x FY20E P/BV (book value). The stock has corrected ~ 50-60% in the last six months. Near term concerns related to execution of ongoing projects have led us to revise our target price to Rs 450 (20x FY20E EPS) with a HOLD rating on the stock.