Analysts have given a thumbs-up to the public offer of road construction company GR Infraprojects (GRIL), citing attractive valuations, strong financials, better return on equity than peers, low debt levels, experienced promoters and a strong management team, diversification of geographies, healthy orderbook and a proven track record of timely execution.
The Rs 962-crore initial public offering of the road sector engineering, procurement and construction company opened for subscription on July 7. It is a complete offer for sale by existing shareholders and the promoters’ stake will be reduced to 86.5 percent after the issue.
The offer closes on July 9. The price band has been set at Rs 828-837 per share.
“Assuming 15 percent growth in FY22/23 and lower margins, we expect the company to report a PAT of Rs 900 crore in FY23, which values its EPC business at 7x FY23 P/E at the upper price band of Rs 837 (Rs 8,100 crore market cap) – in line with most peers, which are all trading at significant discounts to their historical average (14x) due to the ongoing pandemic. We find the risk-reward profile attractive for GR Infra and recommend subscribe,” said PhillipCapital.
The global brokerage said, “GR Infraprojects has a strong execution track record, a robust orderbook and a strong balance sheet. Its internal accruals should be enough to meet the equity requirements of its existing hybrid annuity model (HAM) portfolio.
HAM is a hybrid of EPC and the build-operate-transfer (BOT) model. Under this model, the government and a private company will share the project cost in a 40:60 ratio.
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However, PhillipCapital is slightly concerned about the company’s medium-term growth potential, given its size and dependence on a single segment (roads). Nonetheless, the IPO appears attractively priced, the brokerage said.
Prabhudas Lilladher recommended a subscribe rating for the GR Infraprojects IPO, citing a strong management pedigree with excellent execution capabilities, a lean balance sheet (standalone net debt/equity: 0.3x), and robust earnings growth (45 percent CAGR over FY16-21). The company is well-placed to capitalise on huge opportunities in the infrastructure space (NIP of about Rs 111 lakh crore), it said.
GR Infraprojects is an integrated EPC company with experience in road and highway design and construction across 15 states. It recently diversified into railway projects.
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With over 25 years of experience and more than 100 road construction projects executed since 2006, the company has an established track record of efficient project management and execution involving trained and skilled manpower, efficient deployment of equipment and an in-house integrated model. These attributes have enabled the company to complete projects by their deadlines.
Currently, it has one operational road project on a BOT model and 14 road projects under HAM, of which five are operational and four are under construction while construction is yet to start for five of them.
GRIL invested Rs 1,300 crore in HAM projects and will invest Rs 1,200 crore in the next two to three years through internal accruals or through funds raised from the market.
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The company’s consolidated revenue, operating profit and net profit have grown at a CAGR of 21.9 percent, 20.1 percent, and 15.3 percent, respectively during FY19-FY21. Its orderbook stood at Rs 19,026 crore (16 EPC projects, 10 HAM projects and three other projects), which is 2.6x its FY21 standalone revenue, providing healthy revenue visibility.
“At the upper price band of Rs 837, it is valued at 8.5x P/E on FY21 EPS, which is attractive, considering its relative valuation,” said Sharekhan.
BP Equities said considering the upper price band, diluted EPS and FY21 earnings, the company is valued at 8.51x P/E, which is at a discount compared with listed industry peers (KNR Construction - 26.59x, PNC Infratech - 20.45x, HG Infra - 12.53x and Dilip Buildcon - 26.28x).
Various government initiatives and an infrastructure push may lead to further growth opportunities for the company, the brokerage said.
Hem Securities, Geojit Financial Services, Choice Broking, Ashika Stock Broking, Asit C Mehta, Marwadi Financial Services, IDBI Capital and Arihant Capital Markets have also endorsed the IPO.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.