ITD Cementation Ltd (Q3 FY17): Weak quarter; Execution likely to improve – Accumulate
CMP (Rs) 149, 12-mts Target (Rs) 162, Upside 8.7%
ITD Cementation (ITDC) Q4 CY16 performance was below our estimates on both, topline and bottom-line front. The Company reported 31% yoy decline in revenue on account of slower execution in certain projects. However, operating margins improved 144 bps to 7.6% owing to benign sub-contracting expense and tight cost control. During the quarter, finance cost declined 14% mainly due to significant debt reduction. However, higher depreciation and increase in tax outgo resulted into 57% de-growth in PAT. Its order book currently stands at Rs.65.8 bn (~2.1x CY16 revenues). In addition, the Company expects conversion of L1 orders worth Rs.17 bn soon. While the execution for the quarter has been weak, the outlook continues to remain positive. The strong order book and expected pickup in execution would lead to strong topline performance in the coming years. We lower our estimates to factor in the weak quarter performance and slow progress in certain orders. We however expect the strong order book, L1 project conversion, minimal JV related losses and improvement in operating performance to be key drivers of earnings growth over next few years. As we roll over our estimates to CY18, we maintain our Accumulate rating with the target of Rs.162 per share.
DERIVATIVES STRATEGY
Rollovers (D–1) Feb’17
Another month of solid gains for Index, driven by major themes a) Global equity rally b) Historical low levels of VIX c) leadership from Nifty heavy weights with frenzy moves seen on HDFC Bank, Reliance on back of positive developments lead the Nifty/BankNifty clocking gains of 5.2/9.5% respectively on D-1 days.
Catch up play of emerging markets to its developed peer’s lead Nifty march past 8900 levels. Rollovers for Nifty/BankNifty rollovers improved significantly in shares terms, towards long bias stood at 54/44% (1.34cr/24lacs shares) as against 55/43% (1.34cr/12.6lacs shares) previous expiry. Market wide rollover stood at 61% in line with previous month of 60%. On options front traders scrabble to cover as continues call unwinding along with aggressive put writing was theme during the month.
FII’s long/short index futures positions stands at 2.03x (1.49lac vs 1lac contracts net long). Bullish stance seen as continues improvement of data seen during the month on net long index futures positioning, however last few trading session hint of short index futures seen at higher levels. March series likely to remain more volatile as traders look forward to UP election outcome/Fed policy stance. Volatility likely to inch upwards from current levels of below 13.5 levels.