Jayckieed’s Column     

Published: June 30, 2023
Updated: June 30, 2023

ITD CEMENTATION

Legacy name in urban infra

ITD Cementation, having roots dating back to the preIndependence era in 1931 as a subsidiary of The Cementation Company Ltd (UK) of the Trafalgar House group, London, and meant to carry out extensive cementing and drilling works for hydraulic structures, has over the years built extensive expertise in infrastructure construction.

MARGINS TO GROW

Consider: The company has an MNC parentage with a 46.64% holding, has a Rs 20,000 crore+ order book, and has established a good brand in the infrastructure and construction business. On its equity of Rs 17 crore, the company has a debt of around Rs 520 and reserves of Rs 1,220 crore.

With legacy contracts with low to no margins getting completed, margins should now grow in double digits if we go by the management’s commentary.

Recent quarter results: ITD Cementation’s net sales stood at Rs 1,631.41 crore in the March 2023 quarter, up 38.98% from Rs 1,173.84 crore in March 2022.

ITD achieved a quarterly net profit of Rs 37.79 crore in March 2023, up 130.67% from Rs 16.38 crore in March 2022. The EPS has increased to Rs 2.20 in March 2023 from Rs 0.95 in March 2022.

If we go by the management’s guidance, the total turnover for FY24 seems to be in the range of Rs 6,400-7,000 crore.

If we consider net profit at just a 7% margin (even as the management is confident of double-digit margin growth), the net profit may range between Rs 448 crore and Rs 490 crore, which translates to an EPS in the range of 26.65-28.80, and if we give a fair PE of 14-15, the price translates to the Rs 395-432 range.

And the visibility with the new order pipeline makes it more rewarding at this price because the market cap of this company with an MNC parentage is still below Rs 2,800 crore, which will rise as the long-term legacy contracts mature and it moves towards a higher margins growth trajectory.

As per the technical analysis, we expect the company to do relatively well in the next 24 months. Our target for 24 months remains Rs 280-350+.

Investment strategy: Please wait for a retracement at least till the Rs 145-150 level, when you may invest (because the stock has appreciated 60% from the Rs 103 levels to Rs 160+ and one can allow the stock to retrace).

If the stock goes below Rs 130, it’s a roaring ‘BUY’. The 2-year target is Rs 280-350+, while the long-term target is Rs 440.