INITIATING COVERAGE 21 DEC 2018

Capacite Infraprojects BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

On The Way To Super High Rise Capacite Infraprojects Ltd. (CIL) is a Buildings - EPC focused company with expertise in the Super High Rise/High Rise segments. These are typically dominated by high end luxury residential projects and pose high entry barriers for contractors. We have seen very few EPC companies operate in this space viz. L&T, CIL, Tata Projects, and Afcons. Over the short term (last 5yrs) CIL has emerged as a significant player in this segment and has built durable relationships with marquee clients. Our interaction with CIL’s clients suggested clear advantages including (1) CIL’s better preparedness at pre-bid presentation stage (2) Adoption of advanced formworks design (3) Management accessibility in case of dispute resolution & (4) Strong execution track record. On the balance sheet side (1) NWC days are under control with a 65-70days guidance band (2) Robust FY19-21E 26.4% revenue CAGR (3) ROIC of 14.5-19% & (3) Valuation at 11.6x (Core EPC) Dec-20E EPS. We initiate with BUY and TP of Rs 352/sh (at 15x Dec-20E EPS, BDD NPV at Rs 15/sh).

Investment arguments Order intake not a concern - repeat orders & new

clients to be key drivers: CIL has become a preferred vendor for marquee developers like Oberoi Realty, Tata Trust, Godrej Properties etc. CIL ventured into Southern India with projects of Prestige Estates/Brigade Enterprise, with significant possibilities of mining a larger share of their order book.

Growth driven by a robust balance sheet: Post the Rs 3.7bn IPO at Rs 250/sh in Sep-17, CIL’s net D/E reduced from 0.5x in FY17 to -0.1x in FY18. NWC cycle has been

stable at 55-65days. NWC is further ring fenced by receivable discounting and creditors’ letters of credit. Profitability has been the key driver of CIL’s order booking and is evident from the rise in order book share of the high margin Super High Rise segment which now contributes about 28% of order backlog vs. 19% in FY17. With robust FY19-21E 26.4% revenue CAGR, EBITDA margins ~15%, tight control on finance costs (FY19/FY20/21E interest coverage is 3.6/4.8/5.8x), CIL should deliver a 30.5% FY19-21E EPS CAGR with PAT multiplying 1.7x.

Near-term outlook: With (1) Strong order inflow of Rs 30.7bn in YTDFY19, Rs 78.0bn order book (2) ~4.6x book to bill (FY19E revenue), (3) Steady 14.9-15.0% EBITDA margins and (4) Stable finance costs, we expect CIL to post 30.5% earnings CAGR over FY19-21E. This translates into >12.1% RoE and 14.5-18.7% RoIC over FY19-21E. Competitive intensity remains low as most of the private orders are on invitation basis. CIL is now bidding for Government sector projects and has won BSNL’s data center job of Rs 3.4bn. We remain constructive on CIL’s prospects.

Financial Summary (Standalone) (Rs mn) FY17 FY18 FY19E FY20E FY21E Net Revenues 11,251 13,356 16,954 21,369 27,101 EBITDA 1,971 2,033 2,535 3,173 4,025 APAT 692 787 961 1,225 1,637 Diluted EPS (Rs) 15.9 11.6 14.2 18.0 24.1 P/E (x) 16.4 22.5 18.4 14.5 10.8 EV/EBIDTA (x) 6.5 8.3 6.8 5.5 4.2 RoE (%) 29.5 15.0 12.1 13.7 16.0 Source: Company, HDFC sec Inst Research

INDUSTRY INFRASTRUCTURE

CMP (as on 20 Dec 2018) Rs 261

Target Price Rs 352 Nifty 10,952

Sensex 36,432

KEY STOCK DATA

Bloomberg CAPACITE IN

No. of Shares (mn) 68

MCap (Rs bn) / ($ mn) 18/253

3m avg traded value (Rs mn) 27

STOCK PERFORMANCE (%)

52 Week high / low Rs 424/171

3M 6M 12M

Absolute (%) 5.4 (6.3) (36.3)

Relative (%) 7.3 (8.8) (44.1)

SHAREHOLDING PATTERN (%)

Promoters 43.79

FIs & Local MFs 5.46

FPIs 6.64

Public & Others 44.11 Source : BSE

Kunal Bhandari kunal.bhandari@hdfcsec.com +91-22-6639-3035 Parikshit D Kandpal, CFA parikshitd.kandpal@hdfcsec.com +91-22-6171-7317

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Content Historical Inflows: Marquee developers dominate .............................................................................................. 3 Order Book Analysis ........................................................................................................................................... 6 Residential: Recovery visible .............................................................................................................................. 7 Commercial trends: Top cities ............................................................................................................................ 9 Sky Scrapers: Mumbai Leads The Pack ............................................................................................................... 10 Sky Scrapers: Geographic Concentration ............................................................................................................ 11 Future Potential from Key Clients/geographies .................................................................................................. 12 Channel Checks ................................................................................................................................................. 13 The Story in Charts ............................................................................................................................................ 15 NWC Cycle Beginning to Rationalize .................................................................................................................. 18 Peer Comparison ............................................................................................................................................... 19

Order Book ....................................................................................................................................................... 20 Capacite’s Capex Higher On Account Of Investment In Formworks And Capitalization Of Site Establishment Costs From FY17 ............................................................................................................................................... 21 Operational Metrics ......................................................................................................................................... 22 Working Capital Comparison ............................................................................................................................ 23

Key Assumptions And Estimates (Standalone) ................................................................................................... 24 HDFC sec vs. Consensus ..................................................................................................................................... 25 Outlook And Valuation ...................................................................................................................................... 26 Key Risks ........................................................................................................................................................... 27 Timeline – Key Events........................................................................................................................................ 29

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Historical Order Inflows: Marquee developers dominate Client Group FY14 FY15 FY16 FY17 FY18 YTDFY19 Total % of Total inflows

Oberoi Constructions Limited 3,076 3,433 9,765 16,274 13%

The Wadhwa Group 3,159 2,471 172 4,400 10,201 8%

Hiranandani 8,770 7%

Arihant Abode Ltd 8,250 8,250 7%

Kalpataru 4,790 908 5,698 5%

Piramal Mahalakshmi 5,609 5,609 5%

Puravankara Projects Limited 1,372 3,588 4,960 4%

Lodha Group 4,910 4,910 4%

Godrej Properties Ltd 2,187 2,234 4,422 4%

Brigade 3,708 3,708 3%

BSNL 3,354 3,354 3%

T Bhimjyani Realty 3,300 3,300 3%

Emaar MGF 1,932 942 2,874 2%

Tata Trust 2,556 2,556 2%

Saifee Burhani Upliftment Trust 2,234 2,234 2%

Rustomjee 2,158 2,158 2%

Transcon Developers - Sheth Creators 2,157 2,157 2%

Furien Construction Engineering Pvt Ltd 2,078 2,078 2%

Sheth Creators 1,909 1,909 2%

Prestige Estates Projects Limited 1,890 1,890 2%

Radius Deserve Builders LLP 1,801 1,801 1%

Ahuja Constructions 1,211 444 1,654 1%

Others 4,480 4,223 5,519 2,073 3,198 3,433 22,927 19%

Grand Total 17,989 6,411 14,452 21,065 24,460 30,547 123,694 Source: Company, HDFC Sec Institutional Research

Capacite has been regularly winning orders from marquee developers – Oberoi and Wadhwa (majorly Shell & Core). With the award of the recent Goregaon project and the Borivalli mall, YTD inflows from Oberoi group are close to breaching the Rs 10bn mark.

Apart from its top 20 clients, it has a fat tail contributing Rs 2.0-5.5bn annually. This could see an increase as Capacite builds up its credentials in the government and industrial segments (where it has just begun its foray in FY19).

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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MMR Region Domination Visible In Order Inflows

Source: Company, HDFC sec Inst Research

Super/High Rise Buildings Remain The Key Drivers Of Growth And Margins Order Inflow Breakup (%) FY14 FY15 FY16 FY17 FY18 YTDFY19 Grand Total West 69% 39% 67% 86% 70% 87% 76%

Gated Community 36% - 41% 46% 48% 16% 40% High Rise Buildings 64% 42% 45% 18% 7% 55% 34% Other Buildings - 58% 14% 35% 30% 2% 16% Super High Rise Buildings - - - 1% 14% 27% 10%

North 23% 34% 15% 4% 10% 6% 11% Gated Community 47% 100% - - - - 30% High Rise Buildings 17% - - - - - 5% Other Buildings - - 100% 100% - 91% 35% Super High Rise Buildings 36% - - - 100% 9% 30%

South 8% 27% 17% 9% 20% 7% 12% Gated Community - 50% 92% 95% 13% - 39% High Rise Buildings 100% 50% 8% - 87% - 46% Other Buildings - - - 5% - 100% 15%

Total Inflows (Rs bn) 18.0 6.4 14.5 21.1 24.5 30.5 123.7 Source: Company, HDFC sec Inst Research

4.1 2.2 2.2 0.9 2.6 1.8

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North South WestRs bn

~87% of YTDFY19 inflow is from MMR

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Transition To Higher Ticket Size & Superior Order Wins Shell & Core Segment Has Witnessed Contraction

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Bolstered by enhanced credentials in the super/high rise segment and an order backlog filled to the brim, Capacite is being selective while taking on new projects. Focus remains on the quality (and financial health) of the developer, margin profile and geography.

Capacite is effectively working on ~40 sites now (vs ~50 sites earlier) and aims to reduce to ~35 sites. This will

lead to better utilisation of management bandwidth across key projects as Capacite forays further into government and southern geographies.

Capacite has approx. 50% of its order book with Lock & Key contracts, where it enjoys higher margins.

Capacite has recently forayed into the industrial/government segments with Furien/BSNL (data centers) respectively.

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12

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FY15

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Y19

Average win (Rs bn) No of wins - RHS

0%10%20%30%40%50%60%70%80%90%

100%

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FY15

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FY17

FY18

YTD

FY19

Civil Works Design & Build Lock & Key Shell & Core

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Order Book Analysis YTDFY19 Order Book: Structure Wise

YTDFY19 Order Book: Segment Wise

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

YTDFY19 Order Book: Dominated by Shell & Core

Margin Structure: - Breakup

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

Shell & Core64%

Lock & Key24%

Design & Build9%

Civil Works3%

Capacite’s order book is dominated by residential projects with ~48% in its specialty Super/High rises where it claims to make 18-20% EBITDA margins

Super High Rise

Buildings28%

High Rise Buildings

20%

Gated Community

34%

Other Buildings

18%

Residential77%

Commercial5%

Institutional3%

Industrial3%

Retail8%

Govt.4%

0%

5%

10%

15%

20%

25%

Margin Structure

Super High Rise Buildings

High Rise Buildings

Others -Lock & Key

Vanilla (20-22 storeys)

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Residential: Recovery visible MMR Residential Sales Robust Vs Other Geographies

Source: Liases Foras, HDFC sec Inst Research

We have analysed the sales in the residential sector across the top 6 cities – MMR, Pune, NCR, Bengaluru, Hyderabad and Chennai.

MMR: has shown sufficient stickiness in the periods following demonetisation and RERA coming in and has continued outperforming its counterparts over FY18. Top grade developers in MMR like Oberoi Realty (highest % share in Capacite’s Order book) look to be unfazed by the ongoing NBFC crisis and have sufficient ammunition in place (fund raising over the last 6 month) to tap further opportunities. Inventory levels have also stabilized over the past 6 quarters post

demonetisation (after a consistently rising trend which was in sharp contrast to the other markets).

NCR: has underperformed vs. its western peers in a period marred by fading investor interest, hoarders staying away, affinity towards completed inventory even as the period was marred by some well known developers defaulting in big ticket projects. The completed inventory has displayed a declining trend since demonetisation (despite tepid sales velocity) as new launches were kept under wraps post stricter compliance ushered in by RERA in a period marred by some well known developers defaulting in big ticket projects.

MMR & Pune sales have been fairly robust vs the Bengaluru market in spite of RERA and Demonetisation NCR has underperformed its western peers with investors staying away and buyers preferring completed inventory in a period marred by continuing defaults in some big ticket projects

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MMR + Pune Chennai + Hyderabad Delhi BengaluruMn sqft

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Inventory Levels Stabilizing Across Over Last 8 quarters

Source: Liases Foras, HDFC sec Inst Research Bengaluru: has seemingly been the worst affected of

the lot by the dual shocks of demonetisation and RERA. The recovery over the last 6 months looks promising with various Grade A developers like Prestige, Brigade, Sobha etc. reporting extremely strong performance especially since Jul-18 (in addition to having guided improvement in future launch velocity). Commentary by the top listed developers have centered around consolidation post RERA and steady gains in market share for organized sector with balance sheet strength to withstand temporary liquidity constraints.

Chennai/Hyderabad: Hyderabad (more than Chennai) has been fairly resistant and stable in the face of demonit and RERA. These are comparatively smaller markets compared to MMR and Bengaluru, but these have seen decent traction in the near term and have outperformed the former. With sentiment slightly better in Hyderabad, the pace of new launches has been better than its peers leading to inventory levels witnessing an upward trend (in contrast with Bengaluru and MMR + Pune, while NCR has been catching up over the past 2 quarters)

Commentary by the top listed developers in Bengaluru have centered around consolidation post RERA and steady gains in market share for organized sector with balance sheet strength to withstand temporary liquidity constraints

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5

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7

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Mar

-18

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-18

Jul-1

8

Sep-

18

MMR + Pune Chennai + Hyderabad NCR BengaluruMonths

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Commercial trends: Top cities MMR + Pune: Vacancy rates have bottomed

Bengaluru: Recovery has started

Source : Cushman & Wakefield, HDFC sec Inst Research Source : Cushman & Wakefield, HDFC sec Inst Research NCR: Supply starting to pick up Chennai and Hyderabad: Vacancy Rates Recovering

Source : Cushman & Wakefield, HDFC sec Inst Research Source : Cushman & Wakefield, HDFC sec Inst Research

Cushman & Wakefield have projected strong leasing in the MMR market growing at a 5-6% CAGR led by IT-BPM, co working and consulting sectors The upward momentum continues in the Bengaluru market with co working spaces continuing to scale up and activity in Pharma and Healthcare witnessing good traction Gurugram and Noida to drive major supply in NCR Demand here too is largely led by IT- BPM and Co working

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Supply (Mn sqft) Absorption (Mn sqft)Vacancy (%) - RHS

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Supply (mn sqft) Absorption (mn sqft)Vacancy (%) - RHS

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Supply (Mn sqft) Absorption (Mn sqft)Vacancy (%) - RHS

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Supply (mn sqft) Absorption (mn sqft)Vacancy (%) - RHS

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Skyscrapers: Mumbai Leads The Pack Building Name Height (ft) Floors City Developer World One 1450 117 Mumbai Lodha Group Three Sixty West Tower B 1185 90 Mumbai Oasis Realty Imperial 3 1165 70 Mumbai Shapoorji Pallonji Palais Royale 1050 88 Mumbai Shree Ram Urban Infrastructure Ltd Namaste Tower 1017 63 Mumbai Jaguar Buildcon Lokhandwala Minerva 1007 83 Mumbai Lokhandwala Infrastructure Brys Buzz 984 82 Greater Noida Brys Group Supernova Spira 984 80 Noida Supertech HBS Skylink 984 76 Mumbai HBS Realtors World View 955 82 Mumbai Lodha Group Indiabulls Sky Suites 955 75 Mumbai Indiabulls Indiabulls Sky Forest 922 80 Mumbai Indiabulls Piramal Aranya Tower A 921 69 Mumbai Piramal Piramal Aranya Tower B 921 69 Mumbai Piramal KUL Couture 902 90 Mumbai Kumar Urban Development Orchid Heights 1 899 63 Mumbai DB Group Orchid Turf View Tower A 896 76 Mumbai DB Group The Park 1 879 78 Mumbai Lodha Group The Park 2 879 78 Mumbai Lodha Group The Park 3 879 78 Mumbai Lodha Group The Park 4 879 78 Mumbai Lodha Group The Park 5 879 78 Mumbai Lodha Group Source: CTBUH, HDFC sec Inst Research Upcoming 15 Tallest Skyscrapers (Proposed) City Average Height (ft) No. Mumbai 787 10 NCR 449 3 Pune 476 1 Hyderabad 394 1 Grand Total 672 15 Source: CTBUH, HDFC sec Inst Research

The Island City leads the pack in the no. of super/high rises in completed/under construction and proposed buildings (the lack of developable space in the CBD being a major contributor). Capacite enjoys a significant market share in MMR having already worked with Oberoi, Lodha, DB Group, Sheth Creators and now Piramal being the latest addition. High rises in MMR are also significantly higher vs. other cities, which bodes well for specialist contractors like Capacite who have a competitive edge in this segment due to the specialized nature of form work required (also making comparatively higher margins in the process).

Mumbai was ranked tied-11th in the world in terms of buildings (200 meter+) completed in 2017 by CTBUH (India was ranked 10th overall)

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Sky Scrapers: Geographic Concentration

Source: CTBUH, HDFC sec Inst Research

Source: CTBUH, HDFC sec Inst Research

Source: CTBUH, HDFC sec Inst Research

High Rises are significantly concentrated in Southern Mumbai, with 11 centered around Lower Parel/Worli (host of builders including Lodha, Oberoi, Raheja, Indiabulls Ahuja, Omkar etc).

The Malad & Borivali catchments have approx. 4 towers each led by Oberoi and Sheth creators with additional 2 in Mulund (Oberoi).

In the NCR region super rises are led by Supertech with two towers in and around Greater Noida in addition to a Vrindavan Mandir (~700ft, world’s tallest temple) near Mathura. Kolkata has a lone super high structure – ‘The 42’ (~853ft).

Upcoming skyscrapers will be highly concentrated in Mumbai (>65%) and NCR (~20%), with cities like Pune, and Hyderabad also in the fray.

MMR - ~32/66% of under construction & proposed (200m+) buildings are >75/50-74 stories MMR - 97% of the under construction and proposed skyscrapers are residential habitats (vs. 93/17/25% for India/Asia/World)

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Future Potential from Key Clients/geographies

Source: HDFC sec Inst Research Win Rate Assumption (Residential + Commercial) Location Oberoi Godrej Prestige Brigade Puravankara MMR 30% 30% 30% - 15% Bengaluru - 10% 10% 10% 10% Pune - 10% 10% - - Chennai - - 5% 5% 5% Kochi - 5% 5% - 5% NCR - 5% - - - Others - 5% 5% 5% - Source: HDFC sec Inst Research We have compiled the data from the near term

launches as disclosed by the respective companies.

Significant opportunities also remain on the government side (with Capacite already winning projects from MHADA and BSNL) – ONGC, MHADA NBCC, BMC, Defence etc.

Capacite has already undertaken one Cancer Hospital project (Varanasi) for Tata Trust (which will be awarding more such hospitals over the next 2-3years).

Significant opportunities also remain in the Industrial segment, where Capacite has just opened its account with Furien. There is a sizeable opportunity in this space too, with the potential for medium size repeat orders large in this space.

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4,000

8,000

12,000

16,000

20,000

24,000

28,000

MMR Bengaluru Pune Chennai Kochi NCR Others

Oberoi Godrej Prestige Brigade PurvankaraRs mn

CAPACITE INFRAPROJECTS: INITIATING COVERAGE

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Channel Checks: Impressive Planning/Designing And Direct Approach

Type Geography Current

Value (Rs mn)

% share Future

Potential (Rs bn)

Commentary - View on CIL

Client West 1,760 2% 22 - They liked CIL’s strong presence in the West/ North and have already awarded 3 projects to them. - Clients have direct access to the Promoters .

Client South 1,276 2% 17

- Gave 1st contract in Kochi to CIL: (a) Weak presence of other larger peers . (b) Lack of viable local alternative vendors. (c) Good track record of CIL.

Client West 14,510 19% 14 - They believe CIL is a capable alternative to a large competitor. - They feel CIL is a capable contractor with a sound track record, a good management which is hungry for business.

Client South 2,720 3% 5

- They found CIL to be far ahead than its peers and bigger players in terms of advance planning, preparedness and form work design. - CIL is quite competitive in terms of pricing. - Preferred CIL for the tallest building in Chennai as it was already present in the commercial segment and is a specialist in high structures.

Client South 4,460 6% 5

- Impressed by the execution and the pace of its 1st project, and gave 3 more projects later. - Now moving towards lock & key model as lack of co-ordination among multiple vendors gets complicated (this bodes well for CIL). - They believe CIL would make 4-5% net margins on its projects. - Though there will be demand for pre-cast with RERA, not many players have the capacity to invest in such plants and hence the use of Mivan shuttering is increasingly being preferred vs conventional construction.

Client West 300 0% - - CIL has a fast response and turnaround time. - They believe CIL is a good Company, capable of handling niche projects.

Overall clients have been impressed with CIL’s bid preparedness, planning at the designing stage (including formwork) CIL has a far direct approach (vs its more bureaucratic peers) with stakeholders having direct access to the management

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Type Geography Current

Value (Rs mn)

% share Future

Potential (Rs bn)

Commentary - View on CIL

Client West 365 0% -

- They found CIL as good to work with where they have direct access to the promoters. - Rapid execution strength and fast decision making unlike peers like L&T and Afcons which are more bureaucratic .

Competitor Across India - - -

- They were impressed by the working capital management of CIL - They were pessimistic about the higher life of form works as industry generally considers only 4-5 years - They felt the margins of CIL may not sustain and WC may get distorted as and when they compete for more government orders

Banker - - - -

- They believe in the capability of CIL and had already taken opinion of developers for whom CIL had completed prestigious projects earlier - They are able to directly access the promoter to address any issues and were looking to increase exposure as they never faced any defaults - Generally consider only 4-6years of life for formworks and LTV of 50% (vs PSU banks who consider ~10 years & NBFC with LTV of ~75%)

Source : HDFC sec Inst Research

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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The Story in Charts Revenue Trend: 38% CAGR Over FY15-18

Record Order Inflows In YTDFY19

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research Return Ratios Declining With Investment In Capex To Service Super/High Rise Orders & Equity Dilution

Positive OCF Since Inception (Ex. FY16 – 10days Increase Of Retentions)

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

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5.1

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11.3 13.4

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59 40

19 43

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19

Revenue (Rs bn) % Growth (YoY) (RHS)

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0

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Inflows (Rs bn) % Growth (YoY) - RHS

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OCF (Rs mn) ICF (Rs mn) CFF (Rs mn)

Despite commencing operations only in FY13, Capacite had breached the ~Rs 10bn mark in revenues in its 5th year and is on the verge of doubling that run rate in its 7th year Capacite has grabbed ~Rs 10bn of inflows from Oberoi alone in YTDFY19 apart from adding orders from industrial and government segments

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

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Capex: Heavy Investment In Form Works (Rs 2.8bn Till 1HFY19)

Debt Increase (FY14-17) Fuelled By ~Rs 3.0bn Capex

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research Retentions Have Now Peaked, Debtor Days To Decline As BG’s Effectively Replace Retentions

Acceptances For Cement & Steel Have Significantly Contributed To Higher Creditor Days Vs Peers

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

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0.8

0.5

(0.1)(0.1)

(0.4)(0.2)-0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6

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(500)

0

500

1,000

1,500

2,000

FY14

FY15

FY16

FY17

FY18

1HFY

19

Net Debt (Rs mn) - LHS Net D/E (x) - RHS

163

120 135 100

122 110

-

50

100

150

200

-

1.0

2.0

3.0

4.0

5.0

6.0

FY14

FY15

FY16

FY17

FY18

1HFY

19

Acceptances (Rs bn)Creditors (Rs bn)Trade Payables (Days) - RHS

From FY17 Capacite has changed its policy of capitalizing Site establishment expenses and depreciating over the project life (vs. treating it as WIP earlier and expensing out in proportion of revenue) Capacite uses Letter of Credit acceptances from banks for steel and cement purchases (which account for ~60% of direct costs and >40% of revenue) Prudently this should be construed as debt financing since Capacite gets extended credit period at a better than its borrowing rate

9%

74%65% 61%

52%

71%

23%

0%10%20%30%40%50%60%70%80%

-

500

1,000

1,500

2,000

FY13

FY14

FY15

FY16

FY17

FY18

1HFY

19

Core Capex (Rs mn)Site Establishment (Rs mn)Formwork (% of Core Capex) - RHS

13 19 29 31 31 21

144

85 91 90 96

78

-

50

100

150

200

-

1,000

2,000

3,000

4,000

5,000

FY14

FY15

FY16

FY17

FY18

1HFY

19

Total Retentions (Rs mn) Total Debtors (Rs mn)

Retention (Days) - RHS Debtors - (Days) - RHS

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 17

Margin Trend: While EBITDA Margins Have Been Volatile PAT Margins Have Been More Stable

Margin Expansion led by Super/High Rises

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

Labour Subcontracting Cost Has Peaked, Capex Investment To Pay Off

Margin Breakup: Construction & Material Costs (% of Revenue) Have Been Volatile

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

49.5 51.7 42.8 40.8 44.5 43.5

21.4 24.1 31.0 29.9 27.8 29.7

13.1 9.1 8.5 7.7 8.7 8.4 7.5 3.4 4.7 4.1 3.7 4.2 8.5 11.7 13.0 17.5 15.2 14.2

0%

20%

40%

60%

80%

100%

FY14

FY15

FY16

FY17

FY18

1HFY

19

Material Cost (%) Construction Cost (%)Employee Cost (%) Opex (%)EBITDA Margin (%)

From FY17 onwards, site establishment expenses are coming below EBITDA (as depreciation over project life) These expenses are ~1.5% of the total project cost (and include costs of setting up labour camps, site offices and other set up costs) Capacite has been minimizing dependence on labour/subcontracting for minor works like water proofing and will further reduce from here as projects move into later completion stages

8.5

11.7 13.0

17.5 15.2

14.2

2.9

6.1 5.9 6.2 5.9 5.4

-2.0 4.0 6.0 8.0

10.0 12.0 14.0 16.0 18.0 20.0

FY14

FY15

FY16

FY17

FY18

1HFY

19

EBITDA Margin (%) PAT Margin (%)Capitalization of Site Expenses Started from FY17

0.9 1.8 2.6 3.9 5.0 5.7

17.9%19.6%

24.9% 24.7% 22.9%25.2%

-

1.0

2.0

3.0

4.0

5.0

6.0

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

FY14

FY15

FY16

FY17

FY18

1HFY

19

Gross Block (Rs bn) Subcontracting Cost (% of Revenue)

29.1 24.2 26.2

29.3 27.7 26.8

-

10.0

20.0

30.0

40.0

0%

50%

100%

FY14

FY15

FY16

FY17

FY18

1HFY

19

Super High Rise Buildings High Rise BuildingsGated Communities Other BuildingsGPM (%) - RHS

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 18

NWC Cycle Beginning to Rationalize Working Capital Cycle (Standalone)

Source: Company, HDFC sec Inst Research Trade Receivables have been on a reducing trend with

Capacite replacing its client retentions with bank guarantees (as credit history improves) with retentions already reducing by 10 days on TTM basis in 1HFY19 vs FY18.

Traditionally Capacite has had higher creditor days vs peers due to its policy of using letter of credit acceptances from banks for steel and cement purchases (which account for ~60% of direct costs and >40% of revenue, ~37 days of revenue in 1HFY19).

Capacite has invested heavily (Rs 2.8bn till 1HFY19) in specialized form work (including automatic climbing technology for high rises).

With WC under control we expect Capacite to continue posting strong operating cash flows over FY19-21E and positive FCFF over FY20-21E.

Capex intensity is expected to remain high as Capacite internally targets a ~25% CAGR over the next few years.

Free Cash Flow (FCF) Generation (Standalone) Particulars (Rs mn) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E EBITDA 148 592 1,045 1,971 2,033 2,535 3,173 4,025 NWC Changes 308 (67) (1,094) (609) (917) (710) (453) (925) Cash Flow From Operations 420 458 (108) 1,215 911 1,307 2,061 2,218 Capex (801) (762) (763) (1,075) (1,368) (1,417) (1,606) (1,722) Free Cash Flow (FCFF) (381) (304) (871) 140 (457) (109) 455 496 Enterprise Value (EV) 16,667 16,998 17,125 16,864 FCF/EV (%) (2.7) (0.6) 2.7 2.9 Source: Company, HDFC sec Inst Research

Particulars (days) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Inventory (days) 80 72 91 55 59 60 60 60 Debtors (days) 157 104 120 116 113 110 105 105 Payables (days) 163 120 135 100 122 120 120 120 NWC (days) 74 56 76 71 50 50 45 45 Other Current Assets (days) 66 24 37 30 58 65 65 65 Other Current Liab (days) 222 115 88 45 42 45 45 45 Net Working Capital Cycle (Days) (82) (35) 26 56 66 70 65 65

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 19

Peer Comparison Grading Chart (Ranking) Capacite Ahluwalia PSP JMC Projects* Geographical Diversity 3 2 4 1 Segment Diversity 3 2 4 1 Equipment Base 1 3 4 2 Revenue Visibility 1 2 4 3 Margin Trajectory 1 3 2 4 Capital Allocation History 1 3 1 4 NWC Cycle 3 2 1 4 Debt 2 2 1 4 Interest Coverage 3 1 1 4

Overall 1 2 3 4 Source: Company, HDFC sec Inst Research, for JMC – includes other segments Geographical Presence vs Ahluwalia & PSP

Segment breakup – Ahluwalia more diversified

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

While Capacite has only just begun diversifying its segmental exposure, it will continue to focus in and around the MMR region Capacite does not have any stuck investments/major non moving projects on its books NWC could see rationalization as retention money gets unlocked (replaced with BGs) Capacite has a superior margin profile compared to peers as it has a large market share in the super/high rises in the MMR region vs peers like PSP and Ahluwalia

0%10%20%30%40%50%60%70%80%90%

100%

Capacite Ahluwalia PSP Projects

West (%) South (%) North (%) East (%)

MM

R

Guj

arat

80% 18%2%

14%

7%

1%

25%83%

3%9%

2%

38%

12% 6%

0%

20%

40%

60%

80%

100%

Capacite Ahluwalia PSP Projects

Residential Commercial/ Retail InstitutionalIndustrial Hospitals Infra/ Other Govt.

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 20

Peer Comparison – Order Book Order Book Size (Rs mn) FY13 FY14 FY15 FY16 FY17 FY18 YTD FY19 FY19E FY20E Ahluwalia 25,860 24,427 33,705 36,073 35,530 30,740 53,000 51,129 50,668 Capacite 3,310 16,930 22,660 28,050 42,890 56,820 77,983 84,435 88,066 PSP 2,120 4,458 4,841 3,307 7,292 25,590 28,000 26,186 35,278 JMC* 55,830 50,876 58,357 64,067 71,057 76,160 1,01,300 99,300 112,945 Average 21,780 24,173 29,891 32,874 39,192 47,327 65,071 65,262 71,052 Source: Company, HDFC sec Inst Research, *JMC’s YTDFY19 Buildings order book is ~Rs 56.7bn, #Excludes BDD Project (Capacite’s share Rs 43.6bn, executable over 8 years) Order Inflows (Rs mn) FY13 FY14 FY15 FY16 FY17 FY18 YTD FY19 FY19E FY20E Ahluwalia 6,765 8,170 19,877 14,864 13,722 11,676 31,000 40,000 20,000 Capacite 3,180 15,340 10,060 13,220 24,110 27,220 30,681 41,215 25,000 PSP 982 4,443 3,187 3,046 7,993 25,597 5,959 11,000 24,000 JMC* 24,439 21,641 31,480 31,550 32,861 32,659 39,700 55,000 50,000 Average 8,842 12,399 16,151 15,670 19,672 24,288 26,835 36,804 29,750 Source: Company, HDFC sec Inst Research, *For JMC – includes other segments viz Infra Book to Bill (x) FY13 FY14 FY15 FY16 FY17 FY18 YTD FY19 FY19E FY20E Ahluwalia 1.9 2.5 3.2 2.9 2.5 1.9 3.2 3.1 2.6 Capacite 9.8 4.5 3.5 3.8 4.3 4.6 4.9 4.1 PSP 0.8 2.1 1.7 0.7 1.8 3.5 2.7 2.5 2.4 JMC* 2.2 1.9 2.4 2.7 3.1 2.8 3.2 3.1 3.1 Average 1.6 4.1 3.0 2.4 2.8 3.1 3.4 3.4 3.0 Source: Company, HDFC sec Inst Research, * for JMC – includes other segments viz Infra After a strong FY18 for the Buildings segment in terms

of exit inflows, Ahluwalia (already exceeding its original guidance), Capacite and JMC have witnessed record inflows in YTD FY19. PSP (in spite of having ~Rs 6.0bn wins) has had a tepid year, failing to add a major project to reduce its dependence on the Surat Diamond Bourse project for revenue visibility.

Capacite has the highest book to bill in the building segment (4.6x vs peer group average of 3.4x). This provides us comfort wrt its 25% YoY targeted top line growth in the next 2-3 years.

The order book for our coverage is sufficient if there is any marked slowdown in tendering as elections approach (with the looming uncertainty of policies of the succeeding government).

Our entire Buildings coverage universe is sitting on a comfortable order book Except PSP (which is searching for an alternative to SDB), the companies are not likely to bid too aggressively

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 21

Capacite’s Capex Higher On Account Of Investment In Formworks And Capitalization Of Site Establishment Costs From FY17 Capex (Rs mn) FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Ahluwalia 618 325 314 176 219 203 175 269 350 Capacite 41 801 762 763 1,075 1,368 1,450 1,633 PSP 231 41 37 199 258 71 475 628 450 JMC* 897 394 812 816 817 771 899 1,000 800 Average 582 200 491 488 514 530 729 837 808 Source: Company, HDFC sec Inst Research, *for JMC – includes other segments viz Infra Asset Turnover (x) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Ahluwalia 2.1 2.2 2.0 2.2 2.5 2.1 2.3 Capacite 2.0 2.9 3.1 2.9 2.6 2.7 2.9 PSP 6.8 5.5 6.1 4.9 6.1 5.7 6.5 JMC* 4.8 7.6 6.1 5.2 5.1 5.0 5.1 Average 3.9 4.5 4.3 3.8 4.1 3.9 4.2 Source: Company, HDFC sec Inst Research, *for JMC – includes other segments viz Infra Operating Cash flows (Rs mn) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Ahluwalia 153 1,149 373 1,948 879 1,465 875 Capacite 420 458 -108 1,215 911 1,307 2,061 PSP 208 305 411 11 716 -167 1,174 JMC* 985 -652 554 2,500 2,558 2,238 2,626 Average 442 315 307 1,418 1,266 1,211 1,684 Source: Company, HDFC sec Inst Research,* for JMC – includes other segments viz Infra

Capacite has invested heavily in state of the art form work solutions, including Automatic climbing system, jump formwork and Automatic safety screen which lends it significant advantage in the super/high rises segments where it specializes and makes the highest margins.

It has developed the capability for using modern technologies including temperature-controlled

concrete for mass pours, self-compacting free flow concrete for heavily reinforced pours and special concrete for vertical pumping in Super High Rise Buildings and High Rise Buildings.

Capacite will post strong OCFs led by rationalization of debtors (including retentions). This should be sufficient to meet incremental capex requirement for the current order book.

Capacite believes in owning its core assets including modern formwork which allows them to cater to super/high rise structures and address complex projects (by reducing the construction cycle time of replicating floors) From FY17 onwards significant site establishment charges are also being capitalized by Capacite and depreciated over the life cycle of the respective projects Lower asset turnovers vs peers is compensated by higher gross margins in its projects With the coming of RERA, grade-A developers prefer awarding projects to contractors who have strong operational capabilities and have demonstrated it in the past

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 22

Operational Metrics Revenue Growth (%) FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Ahluwalia 1.8 (30.8) 10.4 17.9 14.2 15.4 19.1 20.5 Capacite 6,549.8 191.2 59.1 39.9 18.7 26.9 26.0 PSP 44.0 (18.2) 33.3 63.3 (12.5) 82.1 42.6 43.3 JMC* 22.5 4.7 (9.6) 0.0 (3.0) 18.3 15.6 14.1 Average 22.8 1,626.4 56.3 35.1 9.6 33.7 26.1 26.0 Source: Company, HDFC sec Inst Research, *for JMC – includes other segments viz Infra EBITDA Margins (%) FY14 FY15 FY16 FY17 FY18 FY19E FY20E

Ahluwalia 4.3 10.8 12.9 12.1 13.3 13.2 13.0 Capacite 8.5 11.7 13.0 17.5 15.2 15.0 14.9 PSP 8.0 8.0 8.6 16.4 13.9 13.6 13.3 JMC* 5.1 6.8 8.9 9.1 10.3 10.4 10.1 Average 6.5 9.3 10.8 13.8 13.2 13.0 12.8 Source: Company, HDFC sec Inst Research, *for JMC – includes other segments viz Infra OCF/EBITDA conversion (x) – Generally In line with peer Group Average FY14 FY15 FY16 FY17 FY18 FY19E FY20E Ahluwalia 0.4 1.0 0.2 1.1 0.4 0.6 0.3 Capacite 2.8 0.8 -0.1 0.6 0.4 0.5 0.6 PSP 1.2 1.4 1.0 0.0 0.7 -0.1 0.6 JMC* 0.7 -0.4 0.3 1.2 0.9 0.7 0.7 Average 1.3 0.7 0.4 0.7 0.6 0.4 0.6 Source: Company, HDFC sec Inst Research,*for JMC – includes other segments viz Infra

Capacite commenced operations from FY13, but has already much bigger than PSP Projects and has also significantly closed the gap on Ahluwalia Contracts in terms of revenue The CIL management was able to replicate the growth on back of past experience as building EPC contractors in Pratibha Industries and timely capital raise from PE firms Capacite’s margins are not strictly comparable vs peers in FY17/18, on account of it capitalizing site establishment expenses vs its peers expensing majority of the same We expect a few peers to also move to capitalizing site establishments expenses (allowed under IND AS) from FY19

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 23

Working Capital Comparison Cash Conversion Cycle (Days)

Source : Company, HDFC sec Inst Research, *for JMC – includes other segments viz Infra

NWC Cycle (Days)

Source : Company, HDFC sec Inst Research, *for JMC – includes other segments viz Infra

The NWC of Capacite will improve as it replaces its client retentions with bank guarantees (as credit history improves) with retentions PSP has the best NWC in our Buildings universe, aided in part by significant presence in its home state – Gujarat and its marquee project – SDB also progressing comfortably wrt timely payments JMC’s NWC cycle is comparatively high vs its CC Cycle on account of bloated other current assets (FY18 – 148days, mostly accrued revenue and unbilled contractual costs – out of which 18 days are long outstanding)

109 108

90 84

101 101

74

56

76 71

50 50 45

-43 -46 -44

-12

14 22 23

3 11

23 15 13

3 3

-50

-30

-10

10

30

50

70

90

110

FY14 FY15 FY16 FY17 FY18 FY19E FY20E

Ahluwalia Capacite PSP JMC Average

74 75 71

51 48

72 70 52 54

64 56

66 70 65

-63 -67 -66 -54 -43

8 10

50

86 98

105 98 84 85

-70

-50

-30

-10

10

30

50

70

90

110

FY14 FY15 FY16 FY17 FY18 FY19E FY20E

Ahluwalia Capacite PSP JMC Average

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 24

Key Assumptions And Estimates (Standalone) Key Assumptions FY19E FY20E FY21E Comments Closing order book 84,435 88,066 92,965 Order book growth (%) 49% 4% 6% New order booking 44,569 25,000 32,000 FY19E expected to be a record year with YTDFY19 inflows already

crossing Rs 30bn Book to bill ratio 5.0 4.1 3.4 Total Revenue 16,954 21,369 27,101 26.4% Revenue CAGR over FY19-21E Growth (%) 26.9 26.0 26.8 EBIDTA 2,535 3,173 4,025 EBIDTA margin (%) 15.0 14.9 14.9 Margins expected to stabilize around 14.9-15.0%

Depreciation 928 1,162 1,321 Depreciation to increase as site establishment expenses are now amortized over the project life

Financial Charges 448 418 466 We expect debt to come down and BG and other bank charges to form bulk of the finance cost

Other Income 319 291 282 Other Income to reduce as PBT 1,478 1,885 2,519 PBT margin (%) 8.7 8.8 9.3 Tax 517 660 882 Tax rate (%) 35.0 35.0 35.0 Capacite will continue operating at a full tax rate RPAT 961 1,225 1,637 Net margin (%) 5.7 5.7 6.0 Extraordinary - - - Adjusted PAT 961 1,225 1,637 30.5% APAT CAGR led by stable interest costs despite no

significant EBITDA margin expansion Gross Block Turnover 2.7 3.0 3.3 Debtor days 110 105 105 Debtor Days to stabilize as Capacite replaces retentions by

furnishing BGs CFO - a 1,307 2,061 2,218 CFI - b (1,098) (1,658) (1,347) Majorly consist of capex for formworks, investment in MHADA

project and capitalization of site establishment expenses FCFF (109) 455 496 CFF - c (1,633) (1,030) (759) Total change in cash - a+b+c (1,424) (628) 111 Source: HDFC sec Inst Research

FY19E is expected to be a record year with YTDFY19 inflows already crossing Rs 30bn 26.4% Revenue CAGR over FY19-21E Margins expected to stabilize around 14.9-15.0% 30.5% APAT CAGR led by stable interest costs despite no significant EBITDA margin expansion

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 25

HDFC sec vs. Consensus Rs mn Consensus HDFC Sec % Divergence

Sales FY19E 17,513 16,954 (3.2) FY20E 21,334 21,369 0.2 FY21E 26,614 27,101 1.8

EBITDA FY19E 2,622 2,535 (3.3) FY20E 3,185 3,173 (0.3) FY21E 4,019 4,025 0.1

Net Profit FY19E 999 961 (3.8) FY20E 1,292 1,225 (5.1) FY21E 1,766 1,637 (7.3)

Divergence (bps)

EBITDA Margin FY19E 15.0% 15.0% (1.9) FY20E 14.9% 14.9% (7.7) FY21E 15.1% 14.9% (25.1)

NPM FY19E 5.7% 5.7% (3.5) FY20E 6.1% 5.7% (32.1) FY21E 6.6% 6.0% (59.5)

Source: HDFC sec Inst Research

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 26

Outlook And Valuation Target Price of Rs 352/sh implies ~34.7% upside Valuation methodology We have valued the core construction business at 15x

one-year forward (a 15% discount to our peer average of 18x) Dec-20E EPS at Rs 339/share and NPV of BDD project at Rs 13/sh. We arrive at SOTP value of Rs 352/sh. Discount is attributable to (1) Large share of Revenue dependence on few marquee clients operating in luxury segment & (2) Limited listing history.

Multiple revision in future is contingent to (1) Better balanced order book mix between Government/Private & Residential/Institutional buildings, (2) Sustainable launches by Tier 1 developers, (3) Easier liquidity to real estate sector (4) Further improvement in EBIDTA margins surprise beyond 15-16% as share of super high

rise increase in order book, (5) Improvement in NWC days with retention replacement with BG’s & (6) Further deleveraging and gross debt free status over next 2-3yrs.

CIL has been able to mine a better order book share in existing clients and has very limited competition in the super high-rise segment with tickets values >Rs 4bn. CIL has been bidding conservatively for new orders as order backlog is robust.

Given its strong operational credentials, a robust balance sheet, strong revenue visibility, tight control on WC, we expect CIL to continue to demonstrate exceptional execution and earnings growth trajectory.

Valuation

Particulars Segments Value (Rs mn)

Value per share (Rs) Rationale

Standalone Core construction business 23,012 339 At 15x Dec-20E EPS

Associate (Effective Share) BDD – MHADA 857 13 DCF Valuation Total 23,860 352 Source: HDFC sec Inst Research

We value the EPC business at 15x one-year forward (a 15% discount to our peer average of 18x) Dec-20E EPS at Rs 339/share We add NPV of BDD project at Rs 13/sh to arrive at SOTP TP of Rs 352/sh

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 27

Key Risks Developer funding drying out: Capacite is

systemically exposed to the financial health of the lending and the financing community which is relied upon both by developers and property buyers. Though Capacite derives its business from Marquee clients like Oberoi (whose coffers have just been refilled post QIP), Wadhwa, Radius, Piramal, DB Group etc in the MMR region which unlike the NCR is well placed financially. In any case Capacite would be exposed to ~60-75days of receivables post which it will pause the work, if its earlier bills remain uncertified (Month +15days: Bill raised, +10-15days: certification, +5-15days: Payment. Capacite also uses the bill discounting (with recourse) mechanism for clients which uses extended credit.

Overall health of the real estate sector: ~77% of Capacite’s order book (ex MHADA) is in the residential segment. It is also significantly exposed to Super/high rises (~48% of order book) where the individual unit ticket size is higher. If there were to be any visible slowdown in sales velocity, there is a risk of stressed projects being put on hold by the developers.

Capex Intensive Model: Capacite has invested heavily in specialized form works (eg – self climbing technology) for catering to the super/high rise segment. If the real estate sector underperforms, Capacite could witness low asset turnover during the period. This coupled with low operating cash flows due to bloated WC can lead to debt increasing. Capacite also depreciates its investments in formworks over 15 years.

Relative Valuation (Buildings)

Company P/E (x) EV/EBITDA (x) P/BV (x)

FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Ahluwalia 19.1 15.6 13.1 9.6 7.8 6.4 3.6 2.9 2.4 Capacite 21.4 17.6 13.8 7.9 6.5 5.1 2.3 2.0 1.8 PSP 11.5 9.1 6.5 18.6 11.0 8.2 4.6 3.7 3.0 JMC 9.0 7.8 7.1 5.4 4.8 4.2 1.2 1.1 0.9 Average 15.3 12.5 10.1 10.4 7.5 6.0 2.9 2.4 2.0 Source: HDFC sec Inst Research

CAPACITE INFRAPROJECTS : INITIATING COVERAGE

Page | 28

Peer Set Comparison: Core EPC

COMPANY MCap (Rs bn)

CMP (Rs) RECO TP

(Rs) Adj. EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)

FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

Dilip Buildcon 59.3 434 BUY 817 46.5 53.8 54.1 7.5 6.5 6.4 5.9 4.5 3.8 29.5 26.0 20.8

IRB Infra Developers 58.0 165 BUY 256 19.7 14.5 17.2 1.9 2.6 2.2 2.7 2.9 2.6 30.2 22.0 24.4

NCC 53.5 89 BUY 168 5.2 8.0 8.8 15.4 10.0 9.1 7.8 5.6 5.0 8.1 10.8 10.8

PNC Infratech 35.4 138 BUY 285 4.1 8.7 13.9 20.5 9.7 6.1 8.5 5.9 4.0 6.2 11.6 16.0

Sadbhav Engineering 35.7 208 BUY 423 12.9 16.0 16.9 6.9 5.5 5.2 7.2 5.6 4.5 11.8 13.0 12.1

Ashoka Buildcon 36.7 131 BUY 223 8.4 8.3 8.5 7.2 7.4 7.2 5.9 5.3 4.8 13.0 11.5 10.7

KNR Constructions 28.1 200 BUY 330 13.4 11.6 15.0 10.5 12.1 9.3 5.5 5.7 4.5 18.3 13.0 14.3

ITD Cementation * 19.8 115 BUY 189 6.1 8.3 10.5 18.8 13.8 10.9 8.7 6.4 6.4 16.2 16.7 15.3

Ahluwalia Contracts 23.0 343 BUY 465 17.3 21.1 25.1 19.1 15.6 13.1 9.6 7.8 6.4 20.5 20.4 19.9

Capacite Infra 17.7 261 BUY 352 11.6 14.2 18.0 21.4 17.6 13.8 7.9 6.5 5.1 15.0 12.1 13.7

JMC Projects 13.8 82 BUY 163 6.3 7.3 8.0 9.0 7.8 7.1 5.4 4.8 4.2 14.4 14.4 13.9

PSP Projects 13.9 385 BUY 576 18.0 24.0 32.0 21.3 16.0 12.0 11.5 9.1 6.5 31.7 25.6 27.4

HG Infra 12.8 196 BUY 399 12.9 20.7 25.6 15.2 9.5 7.7 7.3 4.7 3.9 23.5 22.1 22.0 J. Kumar Infraprojects 10.4 137 BUY 284 17.5 20.3 23.7 7.8 6.8 5.8 4.4 3.7 3.1 9.2 9.8 10.6

Average 14.3 16.9 19.8 13.0 10.1 8.3 7.0 5.6 4.6 17.7 16.4 16.6 Source: Company, HDFC Sec Inst Research *ITD Cementation (Consol) FY19E/FY20E should be read as 15MFY19E/FY20E

CAPACITE INFRAPROJECTS: INITIATING COVERAGE

Page | 29

Timeline – Key Events

Promoters Rohit Katyal, Executive Director & CFO: Previously

headed Teknoworks (India) before being a director in Pratibha Industries and Pratibha Pipes and Structures.

Rahul Katyal, Managing Director: Previous management career includes stints at Teknoworks (India), Pratibha Industries and Pratibha Pipes and Structures.

Subhir Malhotra, Executive Director: A BITS Pilani Alumni with 25 years of experience in the construction industry with expertise in technical and project management.

Major Shareholders >2% Share % share

Promoter Group 43.79

Newquest Asia Investments II 9.75

Paragon Partners 8.89

Sundaram MF 3.26

Mirae Asset India 2.09

Goldman Sachs India 2.07 Source: Company (Sep -18 BSE filing)

2013 • Incorporated as a Private Limited Company • Won a Rs 8.7bn order from Hiranandani (Gated Community - Thane)

2013 • Won Rs 4.9bn marquee Trumph Towers project from Lodha Group (establishing its presence in

the super high rise segment)

2016 • Investment of Rs 0.6bn by HW Investments

2017 • Investment of Rs 0.6bn by Paragon, Infinia, JT HUF and NewQuest • Won its 1st project from Oberoi Group - Enigma (Rs 2.9bn)

2018 • Rs 4.0bn IPO listing • Order book crosses the Rs 50bn mark

2019 • Foray into Governement projects with MHADA (33% stake in JV) and BSNL orders • First Industrial project - from Furien (Rs 2.1bn)

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Income Statement(Standalone) Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E Net Revenues 11,251 13,356 16,954 21,369 27,101 Growth (%) 39.9 18.7 26.9 26.0 26.8 Material Expenses 7,955 9,663 12,351 15,674 19,879 Employee Expenses 867 1,166 1,441 1,774 2,249 Other Operating Expenses 458 494 627 748 949 EBIDTA 1,971 2,033 2,535 3,173 4,025 EBIDTA (%) 17.5 15.2 15.0 14.9 14.9 EBIDTA Growth (%) 88.6 3.1 24.7 25.2 26.8 Depreciation 651 672 928 1,162 1,321 EBIT 1,320 1,361 1,607 2,012 2,703 Other Income (Incl. EO Items) 151 244 319 291 282 Interest 417 398 448 418 466 PBT 1,054 1,207 1,478 1,885 2,519 Tax 362 420 517 660 882 RPAT 692 787 961 1,225 1,637 APAT 692 787 961 1,225 1,637 APAT Growth (%) 45.1 13.7 22.1 27.5 33.6 EPS 15.9 11.6 14.2 18.0 24.1 Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Share Capital 436 679 679 679 679 Reserves 2,552 6,816 7,685 8,797 10,291 Total Shareholders’ Funds 2,988 7,495 8,364 9,476 10,970 Minority Interest - - - - - Long Term Debt 670 480 450 350 300 Short Term Debt 1,282 1,908 845 445 345 Total Debt 1,952 2,388 1,295 795 645 Other Non Current Liabilities 1,099 1,035 1,139 1,252 1,378 Deferred Taxes 258 404 409 409 409 TOTAL SOURCES OF FUNDS 6,297 11,322 11,206 11,932 13,402 APPLICATION OF FUNDS Net Block 3,255 4,099 4,589 5,033 5,434 CWIP 67 1 - - - Investments 273 424 424 767 674 Other Non Current Assets 478 1,139 1,128 1,141 1,171 Total Non-current Assets 4,073 5,663 6,141 6,941 7,279 Inventories 1,704 2,156 2,787 3,513 4,455 Debtors 3,578 4,147 5,109 6,147 7,796 Cash & bank balances 497 3,237 1,813 1,186 1,297 Other Current Assets 928 2,132 3,019 3,805 4,826 Total Current Assets 6,707 11,672 12,729 14,651 18,374 Creditors 3,097 4,468 5,574 7,025 8,910 Other Current Liabilities & Provns 1,387 1,545 2,090 2,635 3,341 Total Current Liabilities 4,484 6,013 7,664 9,660 12,251 Net Current Assets 2,223 5,660 5,065 4,991 6,123 Misc Expenses & Others - - - - - TOTAL APPLICATION OF FUNDS 6,297 11,322 11,206 11,932 13,402 Source: Company, HDFC sec Inst Research

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Cash Flow (Standalone) Year ending March FY17 FY18 FY19E FY20E FY21E PBT 1,054 1,207 1,478 1,885 2,519 Non-operating & EO items (59) (208) (319) (291) (282) Interest expenses 417 398 448 418 466 Depreciation 651 672 928 1,162 1,321 Working Capital Change (609) (917) (710) (453) (925) Tax paid (239) (241) (517) (660) (882) OPERATING CASH FLOW ( a ) 1,215 911 1,307 2,061 2,218 Capex (1,075) (1,368) (1,417) (1,606) (1,722) Free cash flow (FCF) 140 (457) (109) 455 496 Investments (18) (301) - -344 93 Non operating income 38 183 319 291 282 INVESTING CASH FLOW ( b ) (1,056) (1,486) (1,098) (1,658) (1,347) Share capital Issuance 595 3,744 - - - Dividend payment - (31) (92) (112) (143) Debt Issuance (236) (14) (1,093) (500) (150) Interest expenses (382) (384) (448) (418) (466) FINANCING CASH FLOW ( c ) (23) 3,315 (1,633) (1,030) (759) NET CASH FLOW (a+b+c) 136 2,740 (1,424) (628) 111 Opening Cash & Equivalents 361 497 3,237 1,813 1,186 Closing Cash & Equivalents 497 3,237 1,813 1,186 1,297 Source: Company, HDFC sec Inst Research

Key Ratios (Standalone) Year ending March FY17 FY18 FY19E FY20E FY21E PROFITABILITY (%) GPM 29.3 27.7 27.2 26.7 26.7 EBITDA Margin 17.5 15.2 15.0 14.9 14.9 EBIT Margin 11.7 10.2 9.5 9.4 10.0 APAT Margin 6.2 5.9 5.7 5.7 6.0 RoE 29.5 15.0 12.1 13.7 16.0 Core RoCE 23.5 16.1 14.5 15.8 18.7 RoCE 23.0 14.1 12.8 15.0 17.7 EFFICIENCY Tax Rate (%) 34.3 34.8 35.0 35.0 35.0 Asset Turnover (x) 2.9 2.6 2.7 3.0 3.3 Inventory (days) 55 59 60 60 60 Debtors (days) 116 113 110 105 105 Payables (days) 100 122 120 120 120 Cash Conversion (days) 71 50 50 45 45 Other Current Assets (days) 30 58 65 65 65 Other Current Liab (days) 45 42 45 45 45 Net Working Capital Cycle (Days) 56 66 70 65 65 Debt/EBITDA (x) 1.0 1.2 0.5 0.3 0.2 Net D/E 0.5 (0.1) (0.1) (0.0) (0.1) Interest Coverage 3.2 3.4 3.6 4.8 5.8 PER SHARE DATA EPS (Rs/sh) 15.9 11.6 14.2 18.0 24.1 CEPS (Rs/sh) 30.8 21.5 27.8 35.2 43.6 DPS (Rs/sh) - 0.5 1.4 1.7 2.1 BV (Rs/sh) 69 110 123 140 162 VALUATION P/E 16.4 22.5 18.4 14.5 10.8 P/BV 3.8 2.4 2.1 1.9 1.6 EV/EBITDA 6.5 8.3 6.8 5.5 4.2 OCF/EV (%) 9.5 5.4 7.6 11.9 13.0 FCF/EV (%) 1.1 (2.7) (0.6) 2.6 2.9 FCFE/Market Cap (%) (4.2) (4.8) (9.3) (2.6) (0.7) Dividend Yield (%) 0.0 0.2 0.5 0.6 0.8 Source: Company, HDFC sec Inst Research

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Date CMP Reco Target 21-Dec-18 261 BUY 352

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Capacite TP

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

RECOMMENDATION HISTORY

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