1QCY2013 Result Update | Construction

May 14, 2013

ITD Cementation India

Performance highlights
Y/E December (` cr) Total operating income Operating profit OPM (%) Adj. PAT
Source: Company, Angel Research

BUY
CMP Target Price `180 `234
12 Months
4QCY12 % chg. (qoq) 313 33 10.5 1 13.2 6.1 (66)bp 306.8

1QCY13 355 35 9.8 6

1QCY12 384 49 12.8 12

% chg. (yoy) (7.6) (29.0) (295)bp (53.3)

Investment Period
Stock Info Sector Market Cap (` cr) Beta Debt 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Construction 207 0.4 640 276/163 2,386 10 19,722 5,995 ITCM.BO ITCE IN

For 1QCY2013, ITD Cementation reported mixed set of numbers. The revenue for the quarter came at `355cr, 4.5% higher than our expectation of `339cr. However, the company disappointed on the operating margin front which contracted by 295bp yoy to 9.8%, against our estimate of 11.3%, mainly on account of higher employee cost as a percentage of net sales. Recurring PBT came in at `1.3cr, however, significant other income led to a higher net profit of `6cr, against our estimate of `5cr.

Strong order book to drive revenue

The JV of ITD Cementation with its parent company, ITD (49% subsidiary), has bagged two order of `546cr and `752cr from Delhi Metro Rail Corporation (DMRC). Additionally, ITD cementation (standalone) has bagged an order worth ~`115cr in Ghaziabad for the construction of flyovers. The companys current order book stands at `3,680cr (as on 31st march, 2013). We expect the company to maintain the order book to sales at ~2.2 for both CY2013E and CY2014E. On account of strong order book and new order visibility, we expect the company to post a revenue CAGR of 11.0% over CY201214E to `1,602cr.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 69.6 2.8 0.8 26.8

Outlook and valuation:

We expect the companys revenue to post a 10.0% CAGR over CY201214E to `1,573cr. The operating margin for the company is expected to hover around 11.0% for the same period. Further, we expect the interest rate to soften by ~114bp to 15.5% for CY2014E resulting the net profit to grow at a CAGR of 18.6% over CY2012-14E at `31cr. We maintain our Buy recommendation on the stock with a revised target price of `234 with a target P/BV of 0.6x for CY2014E, given the strong order book and visibility of new order inflows. Key financials (Standalone)
Y/E Dec. (` cr) Net sales % chg Adj. net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
CY2010 1,057 8.7 9 72.0 9.2 7.9 22.7 0.6 2.6 7.5 0.6 6.8 CY2011 1,283 21.4 23 146.2 10.6 19.6 9.2 0.5 6.1 10.1 0.6 5.6 CY2012 1,300 1.3 22 (2.5) 12.1 19.1 9.4 0.5 5.6 11.8 0.6 4.9 CY2013E 1,430 10.0 22 (0.1) 11.1 19.1 9.5 0.5 5.3 11.4 0.6 5.0 CY2014E 1,573 10.0 31 40.9 11.0 26.9 6.7 0.5 7.1 12.0 0.5 4.7

Abs. (%) Sensex ITD cementation

3m 1.2 (6.6)

1yr 21.6 0.9

3yr 16.1 17.0

Tejashwini Kumari
022-39357800 Ext: 6856 tejashwini.kumari@angelbroking.com

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

ITD Cementation India | 1QCY2013 Result Update

Exhibit 1: 1QCY2013 performance (Standalone)

Y/E Dec. (` cr) Total operating income Net raw material (% of Sales) Employee cost (% of Sales) Other Expenses (% of Sales) Total expenditure Operating profit OPM (%) Interest Depreciation Other income PBT (% of Sales) Tax (% of PBT) Reported PAT PATM (%)
Source: Company, Angel Research

1QCY13 355 128 36.0 41 11.6 151 42.5 320 35 9.8 26 8 7 8 2.2 2 28.2 6 1.6

1QCY12 384 148 38.6 33 8.7 153 39.9 335 49 12.8 27 8 2 16 4.1 4 23.8 12 3.1

% chg. (yoy) (7.6) (13.9) 23.7 (1.6) (4.5) (29.0) (295)bp (3.2) (6.8) 299.0 (50.5) (41.4) (53.3)

4QCY12 313 99 31.5 38 12.0 144 46.0 280 33 10.5 27 10 2 (2) (0.7) (4) 164.5 1 0.4

% chg. (qoq) 13.2 29.5 9.4 4.6 14.0 6.1 (66)bp (4.9) (17.6) 298.5 (465.4) (162.6) 306.8

CY2012 1,300 456 35.1 143 11.0 544 41.8 1,143 157 12.1 103 36 9 27 2.1 5 17.8 22 1.7

CY2011 1,283 463 36.1 124 9.7 560 43.6 1,147 136 10.6 93 34 13 22 1.7 (1) (2.5) 23 1.8

% chg 1.3 (1.5) 15.5 (2.9) (0.3) 15 147bp 11.4 5.3 (30.2) 21.3 (963.6) (2.5)

Exhibit 2: Actual vs. Angel estimate (1QCY2013)

Actual (` cr) Total operating income Operating profit OPM (%) Adj. PAT
Source: Company, Angel Research

Estimate (` cr) 339 38 11.3 5

% variation 4.5 (9.0) (146)bp 18.9

355 35 9.8 6

Top-line better than expected, operating margin disappoints

The revenue for the quarter came at `355cr, 4.5% higher than our expectation of `339cr. On yoy basis the revenue declined by 7.6%, however, it witnessed a growth of 13.2% on qoq basis. The company disappointed on the operating margin front which contracted by 295bp yoy to 9.8%, against our estimate of 11.3%, mainly on account of higher employee cost as a percentage of net sales as the company gave wage hike in the quarter. Recurring PBT for the quarter came in at `1.3cr. The company reported other income of `7cr which included `4cr of income tax refund and the rest amount is interest refund from Kolkata Metro. Consequently, the bottomline stood at `6cr against our estimate of `5cr.

May 14, 2013

ITD Cementation India | 1QCY2013 Result Update

Exhibit 3: Delay in project execution weighs revenue inflow

500

Exhibit 4: Higher employee cost led to margin contraction

60 50 40 (` cr) 7.9 11.4 9.4

29.7
400

31.4 18.0 271 7.3 11.5 (0.7) 313

40 30 355 20 (%) 10 (4.0) (7.6) 1QCY13 0

13.5

12.8

12.3

12.7 10.5 9.8

15 12 9 6 (%)

(` cr)

300 200 344 335

30 20 27 32 33 44 49 41 34 33 35 1QCY13 10 0 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12

327

292

384

332

100

(7.3) 3QCY12

3 0

0 4QCY11
1QCY11 2QCY11 3QCY11 1QCY12 2QCY12 4QCY12

(10)

Revenue (LHS)

yoy growth (RHS)

EBITDA (LHS)

EBITDA Margin (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

May 14, 2013

ITD Cementation India | 1QCY2013 Result Update

Investment arguments
Strong order book to drive revenue
The JV of ITD Cementation with its parent company, ITD (49% subsidiary), has bagged two order of `546cr and `752cr from Delhi Metro Rail Corporation (DMRC). The first project includes construction of a 9,035m long elevated metro track along with eight elevated stations along with architectural finishing, water supply, sanitary installation and drainage works. The second project includes tunneling and station building. Moreover, this JV has also bagged an order worth ~`50cr for water supply in Agartala. Additionally, ITD cementation (standalone) has bagged an order worth ~`115cr in Ghaziabad for the construction of flyovers. It has also bagged projects worth ~`100cr on specialist engineering works of piling, civil works for power plant, water treatment plant etc. The companys closing order book for CY2012 stood at `2,891cr and after considering the order inflows during the 1QFY2013, the current order book stands at `3,680cr (as on 31st March, 2013). We expect the company to maintain the order book to sales at ~2.2 for both CY2013E and CY2014E.

Exhibit 5: Order Book break-up

Transportation 12% Hydro, Dams, Tunnels and irrigation projects 30%

Exhibit 6: Order book to sales ratio to be stable

4,000 3,500 2.09 2.75 Order book 2.15 2.22 OB/sales 3.00

(Order Book)

2,000 1,500

1.50 1.00

3,181

2030

2905

MRTS 26%

500 0

2889

2754

Marine works 20%

3,502

1,000

0.50 0.00

CY2009

CY2010

CY2011

CY2012 CY2013E CY2014E

Source: Company, Angel Research

Source: Company, Angel Research

Softening of interest rate to improve bottom-line

We expect some softening in the interest cost with the recent cuts in repo rate by the RBI. Additionally, looking at the growth of the company, few banks are offering lucrative interest rates to ITD Cementation. We expect the companys interest rate to witness a downward trend adding directly to the companys bottom line, which is expected to be `31cr in CY2014E.

Foray into the industrial segment long-term growth driver

The company had forayed into the industrial and power segments in 1HCY2012. It is currently very cautious in taking orders in the power segments due to the regulatory and financial issues involved. However, the company sees a huge potential in the industrial segment. The company currently has 3 small orders, totaling ~30-40cr in this segment, but it expects revenue inflow of ~400-500cr in coming 3-4years. The segment being a high-margin segment is expected to help the company in expanding its operating margin going forward.

May 14, 2013

(OB/sales)

Specialist works 12%

2.22

2.23

2.50 2.00

3,000
2,500

ITD Cementation India | 1QCY2013 Result Update

Financials
Revenue visibility to improve with strong order book
With a strong order book of `3,680 (as on March, 2013) we expect the revenue visibility to improve. We expect the company to post a revenue CAGR of 10.0% over CY201214E to `1,573cr.

Exhibit 7: Strong order book to drive revenue

1,800 22.2 21.4 25 20
1,430

1,500 1,200
(` Cr)
900 600

15

1,057

8.7

10.0
10

1,300

0 CY2009 CY2010 CY2011 CY2012 CY2013E CY2014E

Revenue (LHS)
Source: Company, Angel Research

973

300

1.5

1.3

1,573

1,283

5 0

Revenue growth (RHS)

On the operating expenses front, we expect the raw material cost to remain at same levels as a percent of net sales. However, we expect the employee cost to increase to 11.8% as a per cent of net sales against 11.0% for CY2012 on account of wage hikes given. Thus, the operating margin is expected to contract by 108bp at 11.0% in CY2014E. For the year ending December 2012, the companys effective interest rate rose to 16.6% from 14.9% in CY2011. However, going forward we expect the interest rate to come down to 15.5% for CY2014E. Also, for the CY2012, the companys effective tax rate was only at 17.8% due to tax credit . We expect the tax rate to normalalize at ~30% going forward. Consequently we expect the company to post a profit CAGR of 18.6% at `31cr for CY2014E.

Exhibit 8: Higher employee cost to impact margin

200
12.1 150 10.6 9.2

Exhibit 9: Lower interest cost to improve profitability

15

35 30

275.0

300 250
146.2 72.0

11.1

11.0

9.5

12 9

25 20
( ` Cr)

200 150 40.9

(2.5) (0.1) 22 31

( ` Cr)

(%)

100 6

15 10

100 50 0
(50)

50

136

157

159

173

92

5
0

97

23

22

CY2009

CY2010

CY2011

CY2012

CY2013E

CY2014E

CY2009

CY2010

CY2011
PAT (LHS)

CY2012

CY2013E CY2014E

EBITDA (LHS)

EBITDA margin (RHS)

PAT growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

May 14, 2013

(%)

(%)

ITD Cementation India | 1QCY2013 Result Update

The company
ITD Cementation is a subsidiary of Thailand-based Italian Thai Development Public Company Ltd. (ITD), which holds 70% stake in the company. ITD also provides its knowhow, technologies and skilled personnel to ITD Cementation. ITD Cementation provides EPC services to infrastructure projects in India. The company has a leadership position in the foundation and piling work, which contributes almost 45% to its revenue. The companys business operation areas include construction of maritime structures, mass rapid transit systems, hydro power, tunnels, dams, industrial structures, airports, highways, bridges, flyovers, tube heading and foundation and specialist engineering.

Outlook and valuation

We expect the companys revenue to post a 10.0% CAGR over CY201214E to `1,573cr. The operating margin for the company is expected to hover around 11.0% for the same period. Further, we expect the interest rate to soften by ~114bp to 15.5% for CY2014E resulting the net profit to grow at a CAGR of 18.6% over CY2012-14E at `31cr. We maintain our Buy recommendation on the stock with a revised target price of `234 with a target P/BV of 0.6x for CY2014E, given the strong order book and visibility of new order inflows.

Exhibit 10: One-year forward PBV band

800

700
600

500
(` )
400

300
200 100 0

Sep-08

Sep-10

May-09

May-11

Sep-12

Price
Source: Company, Angel Research

0.2x

0.4x

0.6x

0.8x

Exhibit 11: Relative valuation

Company ITD Cementation Simplex Infra Year end CY2013E CY2014E FY2014E FY2015E
Source: Company, Angel Research

Mcap (` cr) 207 207 549 549

Sales (` cr) 1,430 1,573 6,824 7,563

OPM (%) 11.1 11.0 9.2 9.4

PAT (` cr) 22 31 89 116

EPS (`) 19.1 26.9 18.0 23.4

RoE (%) 5.3 7.1 6.8 8.3

P/E (x) 9.5 6.7 6.2 4.7

P/BV (x) 0.5 0.5 0.4 0.4

EV/Sales (x) 0.6 0.5 0.5 0.4

May 14, 2013

May-13

Jan-10

Jan-08

Jan-12

ITD Cementation India | 1QCY2013 Result Update

Concerns
Proper execution of ongoing projects is necessary for the company as any slowdown or freezing of projects either because of some approvals, clearance or investment issues may adversely affect the companys performance , as it directly affects the companys revenue. Disruption in the schedule of projects due to natural calamities is a big risk for the company. Volatility in raw-material prices in the coming years (i.e., steel and cement prices) may put pressure on the companys margin. Any further slowdown in the economy may adversely affect the companys performance.

May 14, 2013

ITD Cementation India | 1QCY2013 Result Update

Profit and Loss (Standalone)

Y/E December (` cr) Total operating income % chg Net Raw Materials % chg Other Mfg costs % chg Personnel % chg Other % chg Total Expenditure EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges (% of loan) Other Income (% of Net Sales) Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported) Extraordinary Expense/(Inc.) ADJ. PAT % chg (% of Net Sales) Basic EPS ( `) Fully Diluted EPS ( `) % chg CY2010 1,057 8.7 418 11.9 238 (12.1) 102 22.0 201 32.5 960 97 5.0 9.2 31 66 7.3 6.3 78 14.8 24 2.3 (12) 18.3 12 3 23.3 9 0 9 72.0 0.9 7.9 7.9 72.0 CY2011 1,283 21.4 463 10.8 305 27.9 124 21.6 255 26.6 1,147 136 40.5 10.6 34 102 54.0 7.9 93 14.9 13 1.0 9 (178.9) 22 (1) (2.5) 23 0 23 146.2 1.8 19.6 19.6 146.2 CY2012 1,300 1.3 456 (1.5) 284 (7.0) 143 15.5 260 2.1 1,143 157 15.4 12.1 36 121 18.8 9.3 103 16.6 9 0.7 18 94.0 27 5 17.8 22 22 (2.5) 1.7 19.1 19.1 (2.5) CY2013E 1,430 10.0 501 9.9 312 10.2 169 17.9 289 11.1 1,271 159 1.1 11.1 38 121 (0.1) 8.5 101 15.8 11 0.8 20 12.4 31 9 30.0 22 22 (0.1) 1.5 19.1 19.1 (0.1) CY2014E 1,573 10.0 552 10.1 345 10.4 186 10.0 318 10.0 1,400 173 9.0 11.0 39 134 10.5 8.5 102 15.5 13 0.8 32 58.7 44 13 30.0 31 31 40.9 2.0 26.9 26.9 40.9

May 14, 2013

ITD Cementation India | 1QCY2013 Result Update

Balance Sheet (Standalone)

Y/E December (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Long Term Provisions Deferred Tax (Net) Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Lease adjustment Goodwill Investments Long Term Loans and adv. Other Non-current asset Current Assets Cash Loans & Advances Inventory Debtors Other current assets Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 322 165 158 12 37 1,014 35 131 357 491 335 679 886 395 197 198 3 41 93 0 1,181 23 161 680 317 514 667 1,002 426 233 193 14 47 103 0 1,234 12 116 791 315 0 575 659 1,016 447 271 177 14 47 103 0 1,289 5 127 809 348 0 575 714 1,054 465 310 155 14 47 103 0 1,416 4 140 890 382 0 633 783 1,102 12 350 361 525 886 12 370 381 624 4 (8) 1,002 12 389 400 621 5 (11) 1,016 12 409 420 640 5 (11) 1,054 12 437 449 659 5 (11) 1,102 CY2010 CY2011 CY2012 CY2013E CY2014E

May 14, 2013

ITD Cementation India | 1QCY2013 Result Update

Cash Flow (Standalone)

Y/E December (` cr) Profit before tax Depreciation Change in Working Capital Direct taxes paid Others Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in Investments (Incr)/Decr In LT loans & adv. Others Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2010 12 31 12 (3) 59 111 (39) (14) 0 17 (36) 0 28 (2) (77) (51) 24 11 35 CY2011 22 34 0 1 (24) 33 (64) (4) 0 5 (62) 0 99 (3) (79) 17 (12) 35 23 CY2012 27 36 (3) (5) 19 74 (41) (6) 9 3 (36) 0 (3) (2) (44) (50) (11) 23 12 CY2013E 31 38 (62) (9) (11) (14) (21) 0 0 11 (10) 0 19 (2) 0 16 (7) 12 5 CY2014E 44 39 (70) (13) (13) (12) (18) 0 0 13 (5) 0 19 (2) 0 17 (1) 5 4

May 14, 2013

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ITD Cementation India | 1QCY2013 Result Update

Key Ratios (Standalone)

Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Net sales EV/EBITDA EV / Total Assets Per Share Data ( `) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset TO (Gross Block) Inventory / Net sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Int. Coverage (EBIT/ Int.) 1.3 4.7 0.9 1.5 4.1 1.1 1.4 3.6 1.2 1.4 3.7 1.2 1.4 3.5 1.3 3.3 123 156 119 225 3.3 147 115 135 183 3.1 206 89 174 181 3.2 206 89 165 173 3.4 206 89 165 173 7.5 8.2 2.6 10.1 10.8 6.1 11.8 12.7 5.6 11.4 12.1 5.3 12.0 12.8 7.1 6.3 0.8 1.3 6.3 11.4 1.3 0.0 7.9 0.7 1.4 7.4 10.1 1.5 3.3 9.3 0.8 1.4 10.4 13.7 1.4 5.9 8.5 0.7 1.4 8.5 11.1 1.4 4.9 8.5 0.7 1.5 8.9 10.9 1.4 6.3 7.9 7.9 34.6 1.5 313.7 19.6 19.6 49.3 2.0 331.0 19.1 19.1 50.4 2.0 347.8 19.1 19.1 51.9 2.0 364.8 26.9 26.9 61.0 2.0 389.7 22.7 5.2 0.6 0.8 0.6 6.8 0.7 9.2 3.7 0.5 1.1 0.6 5.6 0.8 9.4 3.6 0.5 1.1 0.6 4.9 0.7 9.5 3.5 0.5 1.1 0.6 5.0 0.7 6.7 3.0 0.5 1.1 0.5 4.7 0.7 CY2010 CY2011 CY2012 CY2013E CY2014E

May 14, 2013

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ITD Cementation India | 1QCY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

ITD Cementation No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 14, 2013

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