Order Book Of INR 10,047 Crores Will Strengthen Future Prospects

Key Takeaways

• Diversified order book and new project awards could significantly boost revenue growth and pipeline strength.
  
• Optimized project portfolio and resolution of one-time expenses could enhance net margins and management efficiency.
  
• Reliance on government projects and litigation issues pose revenue risks while high material costs pressure margins, emphasizing the need to manage operational challenges effectively.

Catalysts

Engages in the engineering, procurement, and construction business in India.

• Capacit'e Infraprojects is expected to enter a high-growth phase supported by a diversified order book, which could lead to significant revenue growth as the company surpasses its guided order book addition for FY '25.
  
• The company has optimized its project portfolio, resulting in increased revenue contribution per project and enhanced management efficiency, which could potentially improve net margins.
  
• The company reported that its order book stands at ₹10,047 crores as of December '24, with significant contributions expected from both the public and private sectors, indicating a strong revenue pipeline.
  
• Capacit'e Infraprojects has been awarded new projects worth ₹2,579 crores within a short period, reaching an L1 position in projects worth ₹600 crores, which may further enhance revenue growth.
  
• The company anticipates substantial reversals of one-time expenses such as the ₹12 crores GST differential, which, once resolved, could positively impact net margins and earnings.

Capacit'e Infraprojects Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Capacit'e Infraprojects's revenue will grow by 20.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.9% today to 6.6% in 3 years time.
• Analysts expect earnings to reach ₹2.6 billion (and earnings per share of ₹31.07) by about March 2028, up from ₹2.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 14.7x today. This future PE is greater than the current PE for the IN Construction industry at 19.2x.
• Analysts expect the number of shares outstanding to decline by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.61%, as per the Simply Wall St company report.

Capacit'e Infraprojects Future Earnings Per Share Growth

Risks

• The company's margins were impacted due to a one-time booking of expenses related to a differential GST rate increase, which, though expected to be reversed, could affect net margins if not resolved soon.
  
• Capacit'e faces potential collection risks, as evidenced by ongoing litigation and recoveries from past dues, indicating a challenging receivables environment, which could impact cash flow and earnings stability.
  
• Increased other income from specialized items traded to joint ventures suggests reliance on non-operational income, which may not be sustainable, potentially affecting future revenue streams.
  
• The company's order book is heavily reliant on government projects (76% from the central government), which could pose revenue risks if there are delays or changes in government funding or priorities.
  
• High material cost increases (45% YoY) could pressure operational margins if not effectively managed with escalations and pass-through contracts in both public and private sector projects.

Valuation

• The analysts have a consensus price target of ₹453.667 for Capacit'e Infraprojects based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹40.0 billion, earnings will come to ₹2.6 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 14.6%.
• Given the current share price of ₹351.45, the analyst price target of ₹453.67 is 22.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.