ITD Cementation India Limited

The company maintains a robust and diversified order book, totalling ₹22,080 crore as of September 30, 2023, ensuring multiyear revenue visibility. It anticipates strong revenue growth of approximately 25 per cent for FY25, building on the guidance of ₹7,000 crore revenues provided for FY24  [EasyDNNnews:PaidContentStart]

Companies in the construction sector have always remained in the spotlight, not only for achieving social objectives such as ensuring that all citizens have access to basic services and amenities but also for generating significant employment and boosting connected industries through infrastructure development. Likewise, ITD Cementation India Limited, a Small-Cap civil construction company, has garnered attention, potentially attributed to securing substantial orders from esteemed clients, including a recent ₹1,001 crore order, or experiencing a robust rally driven by growing optimism that has drawn the focus of investors.

Let’s delve into the factors propelling this robust rally and assess its sustainability by examining the financial performance of the company, anticipating future headwinds and tailwinds, and the overarching outlook for the sector.

Company Overview
The Cementation Company Limited of the United Kingdom (CCL, UK), a member of the Trafalgar House Group, operated as a branch in India since 1931. In 1978, the Reserve Bank of India granted permission for CCL, UK to continue its activities in India, contingent on converting its India branch into an Indian company. Consequently, in 1978, it was incorporated as Cemindia Company Limited. In 2004, Italian-Thai Development Public Company Limited acquired it through a share purchase and sale agreement with The Cementation Company Limited and Skanska AB, leading to a name change to ITD Cementation India Limited. 

Italian-Thai Development Public Company Limited (ITD), the parent company, has been a leader in infrastructure construction in Thailand for more than 65 years and is one of the largest in Southeast Asia. The geographic reach of the parent company encompasses Bangladesh, Cambodia, Laos, Indonesia, Myanmar, the Philippines, Madagascar, Mozambique and Taiwan. ITD Cementation India Limited stands as one of the leading companies in the realm of engineering and construction, boasting a robust legacy spanning nine decades. The company specialises in heavy civil, infrastructure and EPC businesses. 

It has carved a niche in diverse sectors such as maritime structures, mass rapid transit systems, airports, hydro-electric power, tunnels, dams and irrigation, highways, bridges and flyovers, as well as industrial buildings and structures, along with profound expertise in foundation and specialist engineering. The company’s esteemed clientele comprises renowned organisations such as the Adani Group, Rail Vikas Nigam Ltd., National Highways Authority of India, Central Public Works Department, IRCON International Ltd., Airports Authority of India, Military Engineer Services, and more.

Sector Overview
India’s compelling need for substantial growth in the coming years will primarily stem from significant developments in key sectors, with infrastructure development playing a pivotal role in driving progress. The success of the infrastructure and construction industry is considered an indicator of economic growth since it serves as the backbone of any economy. In order to fulfil India’s aspiration of attaining a USD 5 trillion economy by 2025, it is imperative to focus on infrastructure development. 

Given the significance of the industry, the government gave infrastructure development a much greater priority, and in the budget for 2023-24, it raised the outlay for capital expenditure on infrastructure by 33 per cent to ₹10 lakh crore. The government has already declared that it would spend ₹100 lakh crore on infrastructure initiatives, including social and economic infrastructure projects. The fundamental components of the construction industry encompass roads, highways, bridges, railways, electricity, telecommunication systems, water supply, dams, airports, warehousing facilities, gas pipelines, and more.

The PM Gati Shakti National Master Plan for multimodal access to economic zones has received a lot of attention since it was announced as everything will be integrated into the plan, from roads to trains, from agriculture to aviation, as well as a number of distinct ministries. Under the PM Gati Shakti NMP, it is expected that two lakh kilometres of national roads will be finished by 2024-2025, as well as an addition of 25,000 kilometres to the national highways network. In the Union Budget, Finance Minister Nirmala Sitharaman announced the highest-ever capital outlay for railways of ₹2.4 lakh crore, which is nine times the amount of FY14. The railways will prioritise speeding the pace of construction in addition to a variety of projects, which include setting up new lines and doubling the existing tracks. The UDAN (Ude Desh ka Aam Nagrik) programme was launched by the government to reduce the expense of air travel for the general public and enhance air connectivity from the country’s un-served airports. 

The goal of the Pradhan Mantri Sahaj Bijli Har Ghar Yojana – Saubhagya is to accomplish universal household electrification in the country by supplying last-mile connectivity and electricity connections to all unconnected households in rural and urban regions. The government’s mission Pradhan Mantri Awas Yojana (Urban) launched in June 2015 aims to provide housing for all in urban areas. The government’s Smart City Project with a plan to build 100 smart cities is a prime opportunity for real estate as well as power companies. Given the significance accorded to the industry by the government and the prospective benefits it stands to capitalise on in the future, the industry is poised for substantial growth.

Financial Overview
ITD Cementation India Limited has showcased robust performance in the latest quarter on a consolidated basis, marking a substantial 55.65 per cent growth from ₹1,034.65 crore in Q2FY23 to total revenue of ₹1,610.42 crore in Q2FY24. The revenue experienced a notable decline of 12 per cent quarter-on-quarter, primarily attributed to the substantial impact of heavy rains in July, which significantly disrupted operations on a large scale. Notably, the consolidated net profit for the second quarter of FY24 surged an impressive 171.57 per cent from ₹19.75 crore to ₹53.63 crore when compared to the same period last year. 

In its annual performance, the company exhibited significant growth, with the consolidated net profit climbing by 80.57 per cent to reach ₹124.24 crore, compared to the previous year’s figure of ₹68.80 crore. Additionally, net sales experienced a substantial increase of 33.65 per cent, rising from ₹3,809.02 crore in the previous fiscal year ending in March 2022 to ₹5,090.91 crore. As of the financial year ending on March 31, 2023, the return on equity (ROE) and return on capital employed (ROCE) stood at 10.53 per cent and 19.36 per cent, respectively, surpassing the performance of the company’s listed peers. 

In terms of valuation, the stock boasts a PE ratio of 26.80 times, significantly outperforming the industry average of 56 times. Additionally, the price-to-book (PB) ratio, calculated using a share price of ₹281, stands at 3.64. The company maintains a conservative financial approach, reflected in its net debt-toequity ratio of 0.34 times. Examining the shareholding pattern, the promoter, Italian-Thai Development Public Company Limited, maintained a substantial stake of 46.64 per cent in the company. Notably, the company stands out as one of the few in the construction sector with promoters having ‘zero pledge’.

Furthermore, foreign institutional investors (FIIs) have shown increased interest, collectively holding a stake of 14.42 per cent in the company. In terms of stock price movement, the company’s shares have recently experienced a robust rally, surging by 25 per cent over the last month and delivering impressive multibagger returns exceeding 120 per cent year-to-date. As of the current writing, the shares are trading at ₹280 per share, having reached a recent peak of ₹305, marking a52-week high on the BSE. 

Outlook
To assess the prospective outlook of the company, it is essential to examine both its ongoing projects and those expected to materialise in the future. Regarding the ongoing projects, the company reported that the Bangalore metro project has reached 80 per cent completion, the Chennai metro project stands at 20 per cent completion, and the Mumbai and Kolkata metro projects are nearing completion. The Ganga expressway road project, since its inception, has successfully generated over ₹900 crore in the last eight months. 

The company maintains a robust and diversified order book, totalling ₹22,080 crore as of September 30, 2023, ensuring multiyear revenue visibility. Notably, it has secured orders worth ₹4,823 crore in H1FY24. The clientele consists of government (50 per cent), PSU (20 per cent) and the private sector (30 per cent). The overseas order book translates into a revenue visibility of 3.1 times the FY24 estimated revenue. The management has indicated that the bid pipeline for FY24 stands at approximately ₹14,000 crore.

It anticipates a strong revenue growth of approximately 25 per cent for FY25, building on the guidance of ₹7,000 crore revenues provided for FY24. With the construction sector displaying an optimistic outlook, the government’s emphasis on infrastructure development, coupled with the company’s robust parental support, consistent strong financial performance and a sturdy order book, the company is well-positioned to experience substantial growth. Hence, we recommend BUY.

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