Diversification into coal MDO and rail seems synergistic substantially de-risking future sales mix new Rs 810 TP DBL’s diversification into connected sectors leads to semi-annuity form income stream more than the next 5 years preserve Buy with TP of Rs 810 (62% enhance) DBL management has stated its intent to diversify from roads and highways to other sectors. We note the company’s considerable and synergistic progress in the path, with its entry into railways and also into coal mining improvement and operations (MDO). We think that rewards from this will be visible in the longer run. Coal MDO operations secured by DBL can lead to sustainable OCF of Rs 2.4- 2.7bn/pa in steady state. DBL has secured Siarmal MDO, with peak production level of 50 mntpa, for a concession period of 25 years. This contract carries production danger though cost danger is on the client, i.e. Coal India. With land compensation currently paid and clearances in location, we anticipate restricted operational dangers.
We estimate annual OCF (operating money flow) of Rs 2.4-2.7bn and revenues at Rs 15-18bn/pa throughout peak production phase. With expense escalation clauses in the contract, we anticipate restricted commodity expense dangers. We see considerable MDO possibilities ahead. DBL’s entry into rail can be linked to its powerful presence in roads, as properly as presence in metros. DBL is taking up composite civil functions contracts from RVNL. DBL, with its encounter in highway earthworks, sub-base building, and getting significant stone crushing operations, can operate in this segment in a synergistic manner.
We anticipate de-leveraging at the standalone level, driven by early money realization from asset sales: Under new regulations, DBL can exit the hybrid annuity model assets earlier, major to inflows of Rs 20bn more than FY22-23F. This can cover equity demands for projects and let additional uptake of new projects.
Trading at ~9x FY23F EPS of Rs 65.6 (underlying EPC P/E at ~7x). We worth the stock at 11.0x (vs 8.5x earlier, based on powerful infra prospects) FY23F EPS (based on a sustainable lengthy-term ROE of 17.5%) and add BOT/HAM investments at book worth (FY22F) to arrive at a larger TP of Rs 810, implying ~39% upside, and preserve ‘buy’ rating. Key dangers are slowdown in ordering, WC deterioration and weak execution levels.