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Tuesday
Tuesday, 6 July 2021
CM RATING 49/100


G R Infraprojects

Building road to growth

Healthy order book and strong track record of execution within timelines provides strong revenue visibility

G R Infraprojects (GRIL) is an integrated road engineering, procurement and construction (EPC) company largely focused on road sector. It executes road projects as EPC contractors, construction services providers as well as through PPP model on a BOT basis, with a focus on HAM projects. The company have also recently diversified into projects in the railway sector.

The company has, since 2006, designed and constructed over 100 road projects across 15 states in India. The principal business operations are broadly divided into three categories: (i) civil construction activities, under which it provides EPC services; (ii) development of roads, highways on a BOT basis, including under annuity and HAM; and (iii) manufacturing activities, under which the company process bitumen, manufacture thermoplastic road-marking paint, electric poles and road signage and fabricate and galvanize metal crash barriers. It has strong track record in constructing state and national highways, bridges, culverts, flyovers, airport runways, tunnels and rail over-bridges.

In FY2019, 2020, and 2021, the revenue from civil construction (which comprises civil construction, civil maintenance and laying of optical fiber cables) was 92.08%, 93.08% and 90.91% of its revenue from operations.

The PPP road portfolio of it comprises one operational BOT (annuity) road project and 14 HAM road projects. Of the 14 HAM projects five are currently operational, four projects are under construction and 5 projects for which construction is yet to commence.

Construction business of the company is an integrated operations as it has developed key competencies and resources in-house to deliver a project from conceptualization until completion. Its in-house integrated model includes a design and engineering team, manufacturing facilities for processing of bitumen, thermoplastic road-marking paint and road signage, fabrication and galvanization unit for manufacture of metal crash barriers, owned construction equipment and a fleet of transportation vehicles.

Manufacturing facilities of the company for processing of bitumen located in Udaipur (Rajasthan), Sandila (Uttar Pradesh) and Guwahati (Assam). While the fabrication and galvanization unit for manufacturing metal crash barriers and electric poles is located at Ahmedabad in Gujarat, the thermoplastic road-marking paint and road signage manufacturing unit is located at Udaipur in the state of Rajasthan. Its own fleet of construction equipment enabled it to be less dependent on third party equipment providers and efficiently manage its project execution schedules.

As of March 31, 2021, the equipment base of the company comprised over 7,000 construction equipment and vehicles. It has also set up a workshop in Udaipur, Rajasthan where it undertakes major repair and maintenance of its construction equipment and vehicles that ensures reduced downtime of construction equipment of the company. It also owns specialized construction equipment such as hot mix plants, soil stabilizers, mobile cold recycling mixing plants and cement spreaders. As at March 31, 2021, the aggregate gross block value of the company’s property, plant and equipment was Rs 1999.923 crore.

Integrated in-house construction model of the company ensure the company to be less dependent on third party for supply of key raw materials and equipment as well as ensure quality construction and timely completion of projects.

The promoters of the company are Vinod Kumar Agarwal, Ajendra Kumar Agarwal, Purushottam Agarwal and Lokesh Builders (LBPL). The promoters of LBPL are Vinod Kumar Agarwal, Purshottam Agarwal and Mahendra Kumar Agarwal.

The offer will be a complete offer for sale of up to 115,08,704 Equity Shares. The offer includes an employee reservation portion of 225000 equity shares as well. The offer for sale comprises up to 11,42,400 Equity Shares by Lokesh Builders, up to 127,000 Equity Shares by Jasamrit Premises, up to 80,000 Equity Shares by Jasamrit Fashions, up to 56,000 Equity Shares by Jasamrit Creations, up to 44,000 Equity Shares by Jasamrit Construction, up to 64,14,029 Equity Shares by India Business Excellence Fund 1 and up to 31,59,149 Equity Shares by India Business Excellence Fund, and up to 486,126 Equity Shares by Pradeep Kumar Agarwal.

The offer being only an OFS and thus the company will not receive any proceeds from the offer.

Post OFS, the promoters and promoter group will hold 86.54% of total shareholding thereby leaving little free float. However, the stake of investor selling shareholder, i.e., Indian Business Excellence Fund will become zero from 9.90% pre-IPO. The stake of Pradeep Kumar Agarwal, the other selling shareholder will come down to 0.01% from about 0.52% pre-IPO.

Consolidated Debt-equity ratio of the company for FY2021 stood at 1.1.

Strength

Order book of the company as end of March 31, 2021, stood at Rs 19025.805 crore comprising of 16 road EPC projects, 10 HAM projects and three other projects. The order book which is 2.4 times of its FY2021 revenue offers strong revenue visibility. Over the next few years, the company will continue to focus on construction of its existing projects while seeking opportunities to expand its portfolio of road projects. The company continue to maintain and strengthen its market position of EPC business in India.

Track record of completing projects prior to or by the scheduled timelines. In the last 3 FYs, the company has completed all its projects either by or prior to the scheduled timelines. In FY2019, FY2020 and FY2021 of the total projects completed by the company, about 80%, 50% and 50% are completed ahead of scheduled completion date.

The company have consistently secured 3-6% of national highway construction contracts (in terms of km) awarded by NHAI from fiscal 2018 to fiscal 2020. Moreover, the company has a bid win percentage of 5.21%, 6.12% and 15.48% in FY2021, FY2020 and FY2019, respectively.

The company has gradually increased its execution capabilities in terms of the size of projects that it has bid for and executed. For example, one of the first road projects that the company executed was with a bid project cost of Rs 2.65 crore for the Rajasthan Public Works Department in 1997. In comparison the project awarded by NHAI (the Vadodara Mumbai Expressway, a HAM project) in 2020 involves a bid project cost of Rs 2747 crore.

The five operational HAM projects during the period of operation provides annuity payments; interest payments and operation andmaintenance payments collectively called HAM payments to the company. Thus, the five operational HAM projects as well as one operational BOT projects offers strong monetisation opportunities, and the funds can be used to meet equity commitments for non-operational HAM projects in the portfolio or future projects.

Consolidated net profit margin of the company stands over 12% in the last three FYs, partly facilitated by its integrated operations model of the company.

Weakness

EPC contracts though of less risk it is highly competitive market. Especially for less complex road projects the competition is intense often driving down margin. On the other hand,the BOT projects are fraught with lot of risks right from financing, land acquisition to execution as well as operational. However, the company while continue to focus on road EPC projects is also intends to diversify into related space such as railway sector projects including earth work, construction of bridges and supply of materials, track linking and OFC laying etc. leveraging its EPC expertise in road sector. Though diversify into new verticals expands addressable opportunity it also hit the margin in the short-medium term as new entrant, the company needs to trade off margin for gaining business or acquisition of prequalification in case of orders in new verticals.

Business growth of the company depends significantly on its ability to bid for and booking orders including EPC as well as BOT projects, wherein the company undertakes the EPC component of the project. So, in the event of any adverse change in budgetary allocations for infrastructure development or a downturn in available work in the road infrastructure sector or resulting from any change in government policies or priorities, the business prospects and financial performance of the company, may be adversely affected. The contracts with government entities may be subject to extensive internal processes, policy changes, govern.

In case of five HAM projects for which construction is yet to commence, the appointed date is yet to be issued by NHAI despite the company has achieved financial closure for four projects and one project financial closure is yet to be achieved by the company.

About 44.17% of the orders book of the company is accounted by four HAM projects and one EPC road project any delay in execution of these projects will impact the performance of the company. While the company carry on business in various states of India, its project portfolio has historically been concentrated in the northern States of India. As of March 31, 2021, its ongoing projects in northern part of India, comprising Uttar Pradesh, Madhya Pradesh, Rajasthan, and Himachal Pradesh, constitute about 46.17% of its current order book. Further NHAI 87.16% of the order book leading to higher concentration of order book.

Contingent liabilities (on consolidated basis) that have not been provided stood at Rs 1486.125 crore as end of March 31, 2021.

The company conducts a portion of its operations through joint ventures over which it may have limited control.

The company has experienced negative cash flows from operating activities in the past and may continue to do so in the future. It would adversely affect its cash flow requirements, which may adversely affect its ability to operate business and implement growth plans, thereby affecting its financial condition.

Company has in the past not complied with certain terms and conditions of the Debt Listing Agreement, SEBI Listing Regulations and SEBI ICDR Regulations.

Certain of Subsidiaries and Group Companies have incurred losses in the past and may incur losses in the future which may have an adverse effect on its reputation and business.

The company’s contracts to provide EPC services are mostly based on fixed price or a lump sum for the project, which may not always include escalation clauses covering any increased costs the company may incur.

Valuation

Consolidated sales for FY2021 was up 23% to Rs 7844.13 crore. With operating profit margin contracted by 130 bps to 23.6% and the operating profit was up 17% to Rs 1849.73 crore. The other income was up 23% to Rs 62.81 crore and the PBIDT was up 17% to Rs 1912.54 crore. The interest cost was up 23% to Rs 361.70 crore and depreciation was up 20% to Rs 226.21 crore. Thus, the PBT was up 15% to Rs1324.64 crore. With taxation stand higher by 5% to Rs 371.42 crore, PAT was up 19% to Rs 953.22 crore.

The consolidated EPS for FY2021 was Rs 98.6 and thus on consolidated FY21 EPS the PE works out to about 8.5 times. In comparison the AshokaBuildcon, PNC Infratech, KNR Construction, HG Infra and IRB Infrastructure Developers quotes at a PE of 11.3 times, 11.4 times, 20.1 times, 9.5 times and 35.2 times of their FY21 consolidated EPS respectively. DilipBuildcon quotes at a PE of 24.5 times of its consolidated FY2021 EPS.

GR Infraprojects: Issue Highlights

 
Sector Construction
Fresh Issue (in Rs. Crore) 0.00
Offer for sale (in Rs. Crore)  
in Upper price band 963.3
in Lower Price Band 952.9
Price band (Rs.)*  
Upper 837
Lower 828
Post-issue equity (Rs crore) 48.34
Post-issue promoter (including promoter group) stake (%) 86.54
Minimum Bid (in nos.) 17
Issue Open Date 07-07-2021
Issue Close Date 09-07-2021
Listing BSE, NSE
Rating 49 /100
* employee discount of Rs 42/share  

 

GR Infraprojects: Consolidated Financials      
  1903 (12) 2003 (12) 2103 (12)
Sales 5282.58 6372.70 7844.13
OPM (%) 24.3 24.9 23.6
OP 1283.36 1586.08 1849.73
Other income 42.95 51.01 62.81
PBIDT 1326.31 1637.08 1912.54
Interest 169.63 294.48 361.70
PBDT 1156.68 1342.61 1550.85
Depreciation 148.99 188.52 226.21
PBT 1007.69 1154.08 1324.64
Share of profit from Associates (SoPA) 0.00 0.00 0.00
PBT before EO & After SoPA 1007.69 1154.08 1324.64
EO Exp 0.00 0.00 0.00
PBT after EO 1007.69 1154.08 1324.64
Tax 291.05 353.25 371.42
PAT 716.64 800.83 953.22
Minority Interest 0.00 0.00 0.00
Net profit 716.64 800.83 953.22
EPS (Rs)** 74.1 82.8 98.6
** on post issue equity of Rs 48.34 crore. Face Value: Rs 5