ITD Cementation India Ltd, currently trading at ₹501, offers a promising investment opportunity with a low debt-to-equity ratio of 0.58 and constant promoter holding at 46.6%. The company has a high OPM of 9.65%, zero pledged holdings, and robust profit growth of 121%. The stock’s P/E ratio is 31.5, with an EPS of 5.21. Despite a book value of ₹87.0, the high current market price suggests caution. The company’s steady financial performance and absence of pledged holdings make it a potential buy, albeit at a high valuation.

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ITD Cementation India Ltd.

TLDR:

Company Overview:

• Current Stock Price: ₹501
• Intrinsic Value: ₹154.9
• Market Cap: ₹8,600 Cr.
• Key Services: EPC services for infrastructure projects (ports, highways, bridges, airports, MRTS, water & wastewater, etc.)

Financial Data:

• Debt to Equity Ratio: 0.58 (₹871 Cr. debt)
• Promoter Holding: 46.6% (constant)
• Pledged Holding: 0.00%
• OPM: 9.65%
• Stock P/E: 31.5
• Book Value: ₹87.0
• Dividend Yield: 0.34%
• EPS: 5.21 (Q1 2024), showing growth
• Current Ratio: 1.08
• ROCE: 27.5%
• ROE: 20.0%
• 5-Year Sales Growth: 19.5%
• Profit Growth (TTM): 121%

Pros:

• Promising quarterly performance expected.
• Strong profit growth (26.8% CAGR over the last 5 years).

Cons:

• Low ROE (12.7% over the last 3 years).
• High borrowing costs.

Recommendation:

• Buy: The company has a low debt-to-equity ratio, constant promoter holding, zero pledged holding, and improving OPM.
• Caution: Despite strong fundamentals, the stock P/E is high, and the stock price significantly exceeds its intrinsic value.
• Sell/No Buy: If the debt-to-equity ratio were extreme, promoter holding was decreasing, or pledged holding was high, the recommendation would shift.

Peer Comparison Highlights:

• High/Low Prices: ₹590/175
• Industry PE: 24.2
• Stock Performance: Outperformed with a return of 43.5% over the last 3 months.

Company Introduction and Profile:

ITD Cementation India Ltd, currently trading at ₹501 with a market cap of ₹8,600 Cr, is a leading EPC service provider for infrastructure projects in India. Specialising in marine, highways, bridges, airports, and more, the company has showcased robust performance with sales of ₹7,718 Cr and an operating profit margin (OPM) of 9.65%. It boasts a return on capital employed (ROCE) of 27.5% and return on equity (ROE) of 20%. The company maintains a low debt-to-equity ratio of 0.58, with debt at ₹871 Cr. Promoter holding stands steady at 46.6%, with no pledged shares, indicating strong corporate governance.

Should We Buy, Sell or Hold This Stock and Why?

Given ITD Cementation’s stable financial metrics, including a low debt-to-equity ratio of 0.58 and zero pledged shares, the stock presents a compelling buy opportunity. The consistent promoter holding of 46.6% and a significant profit growth rate of 121% further reinforce confidence. However, the stock’s P/E ratio of 31.5 suggests a high valuation compared to the industry average. The stock price of ₹501 vastly exceeds its intrinsic value of ₹154.9, urging caution. Investors should consider buying for its strong fundamentals and growth potential but remain vigilant of the high market price.

Vital Company Ratios:

Understanding key ratios can simplify investment decisions. ITD Cementation’s debt-to-equity ratio of 0.58 indicates low leverage. The company’s OPM of 9.65% highlights profitability from operations. With a high promoter holding of 46.6% and zero pledged shares, investor confidence is bolstered. The current ratio of 1.08 reflects adequate liquidity. An EPS of 5.21 shows earnings strength, while the stock’s P/E ratio of 31.5 signals market expectations of growth. Despite a book value of ₹87.0, the stock’s market price is ₹501, suggesting it trades at a premium. The dividend yield of 0.34% provides modest income for shareholders.

Company Analysis: ITD Cementation India Ltd

Data Points:

• Promoter Holding: 46.64% (Constant)
• FII Holding: 20.00% (Increasing)
• Sales Trend: Consistently growing, latest quarter sales at ₹2,258 Cr.
• Profit Trend: Positive growth, latest quarter profit at ₹90 Cr.
• Debt Trend: Debt to equity ratio is 0.58, total debt ₹871 Cr.
• Margin Trend: OPM around 10%, improving over quarters.
• Latest News Updates: Not provided.
• Company PE: 31.5
• Industry PE: 24.2
• Gap between Intrinsic Value and Current Market Price: Intrinsic value ₹154.9, current market price ₹501.
• Market Cap: ₹8,600 Cr.
• Peers Market Cap: Varies (Rail Vikas ₹130,000 Cr., IRB Infra ₹40,853 Cr., etc.)
• Industry Trend: Growth in infrastructure projects and government initiatives.
• Cash in Hand: Not provided.
• Dividend Payout: 0.34%

Peer Comparison:

ITD Cementation India Ltd (ITD Cem) vs Competitors: ITD Cem, with a market cap of ₹8,600 Cr and a PE of 31.5, shows a positive sales growth trend and a stable promoter holding of 46.64%. It has a low debt to equity ratio of 0.58 and zero pledged shares, indicating financial stability. The company’s OPM is around 10%, reflecting efficient operational performance. Competitors like Rail Vikas (market cap ₹130,000 Cr, PE 88.84) and IRB Infra (market cap ₹40,853 Cr, PE 67.44) show higher PE ratios, indicating potentially overvalued stocks compared to ITD Cem. G R Infraprojects and PNC Infratech have lower PE ratios (14.91 and 14.40 respectively) but also lower market caps. ITD Cem’s dividend yield is comparable at 0.34%, with an ROCE of 27.5%, higher than most peers, indicating better capital efficiency.

Recommendations:

• Buy Recommendation: Low debt to equity ratio (0.58), stable promoter holding (46.64%), zero pledged shares, and improving OPM (10%).
• Sell/No Buy Recommendation: If debt to equity ratio increases significantly, promoter holding decreases, or if PE ratio becomes excessively high or negative.
• Caution Recommendation: If debt to equity ratio increases moderately, promoter holding starts decreasing, or OPM starts declining.

Summary: ITD Cementation India Ltd. is performing well with a stable financial structure, consistent promoter holding, and improving operational performance. The company’s low debt and zero pledged shares make it a viable investment, while its market positioning and industry trends suggest a positive outlook. Comparing with peers, ITD Cem stands out with its higher ROCE and competitive OPM.

Is This Stock Overvalued or Undervalued?

Based on the provided data, ITD Cementation India Ltd. appears to be overvalued. The intrinsic value of the stock is ₹154.9, while the current market price is ₹501. This significant disparity indicates that the stock is trading at a price much higher than its calculated intrinsic value. Furthermore, the stock P/E ratio is 31.5, which is higher than the industry P/E of 24.2, suggesting that the market is valuing the company higher than its peers, possibly expecting higher future growth.

Should We Buy This Stock and Why?

Given the current financial metrics and valuation, a buy recommendation for ITD Cementation India Ltd. may not be warranted at this time. Although the company has shown consistent sales and profit growth, along with stable promoter holding and zero pledged shares, the high P/E ratio and significant gap between intrinsic value and market price raise concerns about its current valuation.

• Low Debt to Equity Ratio: 0.58, which is favourable.
• Promoter Holding: Constant at 46.64%.
• Pledged Holding: 0%, indicating no pledged shares.
• Improving OPM: OPM of 10% in the latest quarter.
• EPS: 5.21 in the latest quarter, showing improvement.
• Dividend Yield: 0.34%, which is relatively low.
• Gap Between CMP and Book Value: Current market price ₹501 vs. book value ₹87.

Industry Growth Analysis

The infrastructure sector in India is experiencing significant growth driven by government initiatives and investments in large-scale infrastructure projects. The industry trend is positive, with a focus on developing ports, highways, bridges, and mass rapid transit systems, which aligns well with ITD Cementation India’s services. The company’s consistent involvement in major infrastructure projects positions it well to benefit from this industry growth.

Conclusion and Recommendation

• Buy Recommendation: ITD Cementation India Ltd. has a favourable debt to equity ratio, stable promoter holding, and zero pledged shares, making it a fundamentally strong company. However, given its high P/E ratio and overvaluation compared to intrinsic value, it is recommended to buy this stock only if there is a correction in its market price closer to its intrinsic value.
• Sell/No Buy Recommendation: Given the current market price, which is significantly higher than the intrinsic value, it is prudent to avoid buying at this inflated price. If the stock price decreases significantly, reevaluation would be necessary.
• Caution Recommendation: If the company shows any signs of increasing debt to equity ratio, decreasing promoter holding, or declining operational performance, it is advisable to exercise caution and monitor the stock closely.

Risk Factors Related to ITD Cementation India Ltd and the Industry

Key Risks Associated

• Business and Commercial Risks:

1. • Competition: The infrastructure sector is highly competitive with many players such as Rail Vikas, IRB Infra, and G R Infraprojects. Intense competition can lead to margin pressures.
   • Regulatory Changes: Changes in government policies and regulations regarding infrastructure development and construction can significantly impact the company’s operations and profitability.
   • Project Delays: Infrastructure projects often face delays due to land acquisition issues, environmental clearances, and other regulatory hurdles, impacting revenue and profitability.
2. Financial Risks:
   • Debt Levels: Although the debt to equity ratio is 0.58, the total debt stands at ₹871 Cr. High debt levels can strain cash flows and increase financial risk, especially if interest rates rise.
   • Cost of Borrowing: The company’s cost of borrowing seems high, which can affect profitability.
3. Operational Risks:
   • Execution Risk: Given the nature of EPC projects, execution risks such as project delays, cost overruns, and quality issues can impact profitability.
   • Dependence on Subcontractors: Reliance on subcontractors for various project components can introduce risks related to quality and timely delivery.

Risks to Consider Before Investing

• High P/E Ratio: At 31.5, the company’s P/E ratio is higher than the industry average of 24.2, indicating potential overvaluation.
• Intrinsic Value vs. Market Price: The current market price is ₹501, significantly higher than the intrinsic value of ₹154.9, suggesting the stock may be overvalued.
• ROE: The company’s return on equity is 12.7% over the last 3 years, which is relatively low compared to industry standards.
• Dividend Yield: A dividend yield of 0.34% is relatively low, which may not be attractive to income-focused investors.

Potential Risks of the Industry

• Economic Cycles: The construction and infrastructure industry is cyclical and heavily dependent on economic conditions. Economic downturns can lead to reduced government spending on infrastructure, impacting revenues.
• Funding Issues: Infrastructure projects require substantial funding. Any issues in securing financing can delay or halt projects.
• Commodity Price Fluctuations: Fluctuations in the prices of raw materials like steel and cement can impact the cost structure and profitability of projects.

Management Quality Assessment

• Promoter Holding: The promoter holding has been constant at 46.64%, indicating stability.
• Pledged Holding: There is zero pledged holding, which is a positive sign.
• Management Background: There are no known criminal cases against the promoters or the management, suggesting a clean and reliable management team.

Recommendations

Buy Recommendation

• Low Debt to Equity Ratio: 0.58, which is favourable.
• Promoter Holding: Constant at 46.64%.
• Pledged Holding: 0%, indicating no pledged shares.
• Improving OPM: OPM of 10% in the latest quarter.
• EPS: 5.21 in the latest quarter, showing improvement.

Sell or No Buy Recommendation

• High P/E Ratio: 31.5, indicating potential overvaluation.
• Significant Gap Between Intrinsic Value and Market Price: Intrinsic value ₹154.9 vs. market price ₹501.
• Low Dividend Yield: 0.34%.

Caution Recommendation

• Debt to Equity Ratio: While currently low, any significant increase could warrant caution.
• Promoter Holding: Any decrease in promoter holding should be monitored.
• Operational Performance: Decline in OPM or ROE should be a red flag.

Long-Term Performance (6-10 Years)

Data-Driven Analysis:

• Sales Growth: The company has demonstrated a 19.5% sales growth over the past five years and is expected to continue growing due to increasing infrastructure investments in India.
• Profit Growth: The profit growth of 121% over the last trailing twelve months (TTM) and 26.8% CAGR over five years indicate strong financial health and profitability.
• ROCE and ROE: With a Return on Capital Employed (ROCE) of 27.5% and a Return on Equity (ROE) of 20%, the company is efficiently using its capital to generate profits.
• Debt Management: The current debt to equity ratio is 0.58, which is manageable and indicates prudent financial management.
• Promoter Holding: Constant at 46.64%, which reflects stability in ownership and confidence of the promoters.

Forecast: Given the company’s robust sales and profit growth, stable financial management, and favourable industry outlook, ITD Cementation India Ltd is likely to perform well in the long term. The company’s involvement in major infrastructure projects positions it to benefit from India’s economic growth and infrastructure development initiatives.

Medium-Term Performance (2-6 Years)

Data-Driven Analysis:

• Operational Efficiency: The company has consistently improved its operating profit margin (OPM) to around 10%.
• Capital Expenditure: Capital work in progress (CWIP) indicates ongoing and future projects, which will contribute to revenue growth in the medium term.
• Earnings Growth: The earnings per share (EPS) have shown an upward trend, with the latest EPS at 5.21, suggesting profitability growth.

Forecast: In the medium term, ITD Cementation India Ltd is expected to maintain its growth trajectory due to its strong order book, ongoing projects, and expanding footprint in the infrastructure sector. The company’s efficient operations and strong financial metrics will likely support continued performance.

Short-Term Performance (2-5 Months)

Data-Driven Analysis:

• Recent Performance: The company has shown a return of 43.5% over the past three months, indicating positive market sentiment.
• Quarterly Sales: The latest quarterly sales stood at ₹2,258 Cr, reflecting steady revenue generation.
• Profit Margin: The operating profit margin has stabilised around 10%, showing consistent operational efficiency.

Forecast: In the short term, ITD Cementation India Ltd is expected to perform well given its recent positive performance metrics and market trends. The company’s ability to deliver good quarterly results and maintain operational efficiency will support its stock price in the short term.

Management Quality Assessment

Management and Promoters:

• Promoter Holding: Stable at 46.64%, with no pledged shares, indicating strong commitment and confidence in the company’s future.
• Management Integrity: No known criminal cases against the promoters or management. The management team has a proven track record in executing large-scale infrastructure projects.

Recommendations

Buy Recommendation:

• Long-Term and Medium-Term: Given the company’s strong fundamentals, low debt to equity ratio, improving operational margins, and stable promoter holding, ITD Cementation India Ltd is a buy for long-term and medium-term investors.

Caution Recommendation:

• Short-Term: While the short-term outlook is positive, investors should be cautious of market volatility and any potential regulatory changes affecting the infrastructure sector.

No Buy/Sell Recommendation:

• If High Debt to Equity: If the debt to equity ratio significantly increases or if the operational performance declines, a sell or no buy recommendation would be appropriate.

Conclusion

ITD Cementation India Ltd is well-positioned for long-term and medium-term growth due to its strong financial metrics, efficient operations, and favourable industry trends. Short-term performance is expected to be stable, with potential for positive returns. Investors should monitor key financial indicators and industry developments to make informed decisions.