Incorporated in 1976, Dredging Corporation of India (DCI) is the largest public sector player providing dredging services in India. It commands ~75% of the total dredging market. It caters to India’s major ports, non-major ports, the Indian Navy and ship yards in the form of maintenance dredging, capital dredging, reclamation, hydrographic surveys and beach nourishment. Government of India (GoI) holds ~78.5% interest in the company.
Valuation and view
DCI is expanding in terms of both capacity and efficiency and we expect the impact of the same to be reflected in the company’s performance in the years to come. It is well placed to see growth on account of strong economic developments in the country in terms of increase in exports, setting up of new ports, expansion of existing ports, etc.
We expect DCI’s net profit to grow at a CAGR of ~28% during FY15-FY17E. The RoCE and RoE are expected to improve to 4.6% and 5.3% by FY17E. At the current market price (CMP) of Rs. 410, the stock trades at a P/E of 17.9x FY16E and 13.6x FY17E. We assign a forward P/E of 16x for FY17E and recommend ‘BUY’ with a target price of Rs.480, which implies a potential upside of ~17% to the CMP from 12 months perspective.
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