About the company:
GR Infraprojects Ltd is the among the newer companies to be bringing an IPO this week. The company is coming out with an offer for sale of 11,508,704 shares coming up to the tune of about Rs. 962 crore. The offer price has been set between Rs. 828 and Rs. 837 per share with the lot size of 17 shares. Post-listing, the implied market cap is expected to be between Rs. 8,006 and Rs. 8,093 crore. With the company engaged in the construction and infrastructure business, it certainly sees strong growth prospects but also faces intense competition and regulatory concerns. Overall, the company is listing at attractive valuations and investors can expect to see listing gains.
Company Overview:
GR Infraprojects Ltd is an integrated road engineering, procurement and construction company with experience in design and construction of various road/highway projects across 15 States in India and having recently diversified into projects in the railway sector. The principal business operations are broadly divided into three categories: Civil construction activities, under which they provide EPC services; Development of roads, highways on a Build Operate Transfer basis, including under annuity and Hybrid Annuity Model; and Manufacturing activities, under which they process bitumen, manufacture thermoplastic road-marking paint, electric poles and road signage and fabricate and galvanize metal crash barriers. The company has also set up a central procurement team that procures major materials and engineering items required for their projects.
The company has developed an established track record of efficient project management and execution experience, involving trained and skilled manpower, efficient deployment of equipment and an in-house integrated model. Their 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, owned construction equipment and a fleet of transportation vehicles. As of March 31, 2021, their equipment base comprised over 7,000 construction equipment and vehicles and the aggregate gross block value of company’s property, plant and equipment was Rs. 1,999.9 crore.
GR Infraprojects Ltd 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. For the projects that they deliver on an EPC and construction services basis, the scope of their services typically includes design and engineering of the project, procurement of raw materials and project execution at site with overall project management up to the commissioning of these projects. In addition, they also undertake repair and maintenance of projects in accordance with their contractual arrangements. For BOT projects, in addition to construction and development of the project, they are also required to operate and manage the project during the concession period. Company’s employee resources and fleet of equipment, together with their engineering skills and capabilities, enable them to execute a range of road construction projects involving varying degrees of complexity. Their in-house integrated model and efficient project execution capabilities have enabled them to execute projects in a timely manner, and in certain cases before the stipulated timelines, while maintaining requisite quality standards.
In March 2010, GR Infra commissioned a wind energy based power plant at Jaisalmer, Rajasthan with an installed capacity of 1.25 MW under the ‘Policy for Promoting Generation of Electricity through Non-Conventional Energy Sources - 2004’. They had also commenced constructing a group housing project comprising row houses and other residential units at Udaipur, Rajasthan.
While they execute a majority of their projects themselves, they also form project-specific joint ventures and consortiums with other infrastructure and construction companies. In particular, when a project requires them or their consortium partners to meet specific eligibility requirements in relation to certain projects, including requirements relating to specific types of experience and financial resources, they enter into such partnerships or consortiums with other infrastructure and construction companies.
As of March 31, 2021 has 16 EPC projects, 10 HAM projects and 3 other projects, bringing the order book to about Rs. 19,025.8 crore as at the end of March 31, 2021. The management highlighted that the order book will be fulfilled in about 2-3 years and aims to add about Rs. 10,000 crore worth of more orders this year as the pipeline continues to look healthy.
As of March 31, 2021, the company had 16,233 permanent employees. The attrition rate stands at about 20 percent including wage workers at the sites. Currently, all the site work is fully operational with no hindrances seen as of now.
The management also pointed that they usually seek projects offering an IRR in the range of about 15-20 percent thereby allowing them to maintain their margins across projects. The company has a bid-win rate of about 5-6 percent and expect to see healthy tendering activity this year as a lot of projects have been delayed owing to COVID-19. GR Infra aims to see a higher amount of project wins.
The company currently generates about 3 percent of total revenues from the railway segment. GR Infra is also bidding in the high-speed railway projects currently and expects to win some projects there. In 5 years, it aims to generate about 10 percent of its revenues from this segment.
Financial Performance:
GR Infraprojects Ltd has delivered consistent growth in both revenues and profits over the past 3 years. Revenues have seen a fast-paced growth at 21.6 percent CAGR while net profits grew at 15.3 percent CAGR from FY19 to FY21.
|
Particulars (in Rs
Cr)
|
FY19
|
FY20
|
FY21
|
|
Revenue from Operations
|
5282.6
|
6372.7
|
7844.1
|
|
EBITDA
|
1283.4
|
1586.1
|
1849.7
|
|
EBITDA Margin ( percent)
|
24 percent
|
25 percent
|
24 percent
|
|
Net Profit
|
716.6
|
800.8
|
953.2
|
|
Net Profit Margin ( percent)
|
14 percent
|
13 percent
|
12 percent
|
|
EPS
|
74.1
|
82.8
|
98.6
|
|
ROE
|
32
percent
|
26
percent
|
24
percent
|
|
ROCE
|
29 percent
|
24 percent
|
21 percent
|
While revenues and profits have grown, the margins have been witnessing a declining trend over the last 3 years. This can be attributed to twin effects arising out of COVID-19 as well as an unfavourable mix between EPC and HAM projects. As per the management, the HAM projects deliver better margins as compared to EPC projects, due to the inherit nature of such projects. The management stated that as more HAM projects are added to the roster, the company can start seeing improving margins. On the shareholder return front, the company has delivered strong ROE and ROCE over the past 3 years but have been on a consistent decline owing to falling margins.
On a relative basis, the company has a respectable orderbook/revenue ratio of 2.43x, which gauges the order pipeline the company has and can be used to determine revenue flows for the company. On the ROE front, despite the decline in shareholder returns the company has delivered a strong ROE at 24 percent in FY21, coming in second among its peers. Also, GR Infraprojects is listing at very attractive valuations which makes it lucrative for shareholders.
|
Particulars
|
GRIL
|
ASHOKA
|
DBL
|
PNCINFRA
|
KNRCON
|
|
Order Book / Revenue
|
2.43
|
1.64
|
2.70
|
2.00
|
2.45
|
|
Debt / Equity
|
0.97
|
9.95
|
2.82
|
1.23
|
0.37
|
|
ROE
|
24.0
percent
|
44.2
percent
|
11.3
percent
|
16.3
percent
|
19.4
percent
|
|
P/E
|
8.5
|
11.4
|
32.9
|
15.0
|
16.4
|
|
P/B
|
2.03
|
5.09
|
2.45
|
2.45
|
3.39
|
Based on the above schedule, the company is seemingly in the upper band of the industry in terms of performance.
The company has delivered seen strong cash flow generation from its projects allowing the cash balances to grow from Rs. 715.8 crore in FY19 to Rs. 830.8 crore in FY21. The cash flow from operating activities is also robust and is only impacted owing to working capital changes w.r.t. annuity receivables from projects under revenue sharing as well as net of HAM contributions and additional capex towards PP&E. As the company wins more projects at more favourable terms, the company will continue to improve its cash flows.
Positives:
Consistent Growth: GR Infraprojects has delivered consistent growth over the past 3 years with revenues growing from Rs. 5282 crore in FY19 to Rs. 7844 crore in FY21, thereby posting a 21.9 percent CAGR growth over the 3-year period. Similarly, both the EBITDA and Net Profits have posted a growth of 20.1 percent CAGR and 15.3 percent CAGR, respectively over this period, thereby delivering overall growth for shareholders.
Attractive Valuations: Based on the upper band of Rs. 837 per share the P/E comes in at 8.5x, indicating that the company is listing at very attractive valuations making it much attractive for shareholders as compared to other players in the industry. Lower valuations offer better upside and makes the stock relatively undervalued among peers.
Tailwinds from Infra Development: With a wide spectrum of measures announced towards the development of the infra sector in the 2021 budget, the centre has indicated priority towards construction. With roads forming about 49 percent of total infra spending and an expected spending towards highways of about Rs. 1,50,000 crore over the next 5 years, there is huge scope of growth for leading players in this sectors.
Diversification from Roads and Highways: With focus towards developing railways and water infrastructure across India, the segments offer further growth opportunities for companies in this space. With a strong railway network being planned by the govt, the growth opportunities are immense. GR Infra plans to expand revenue share of railways from the current 3 percent to 10 percent over the next 5 years thereby diversifying across multiple projects.
Concerns:
High Promoter and Group Stake: The company is coming out with an offer for sale but despite that, the promoter holdings are expected to remain at about 45.71 percent while the promoter and promoter group holdings will total at 86.54 percent. With such a high stake, minority shareholders will be at risk in case of any conflicts between the promoters and others.
Offer for Sale Only: The IPO is primarily providing for as an exit to current investors including Motilal Oswal which is selling its entire stake in the company. The company is not raising any funds which can be utilised towards productive growth and is serving just as an exit for current investors. This could also be seen as the current investors timing the IPO to get favourable valuations in a bull market. Accordingly, investors should maintain caution at this.
Intense Competition: The road construction industry in India is very competitive. The competition depends on various factors, such as the type of project, total contract value, potential margins, complexity, location of the project and risks relating to the revenue generation. While service quality, technical ability, performance record, experience, health and safety records and the availability of skilled personnel are key factors in client decisions among competitors, price often is the deciding factor in most tender awards. Accordingly, companies in this space need to efficiently trade-off between offering lowest price and maintaining IRRs.
Future COVID-19-led Disruptions: Any future waves of COVID-19 can delay both the tendering process as well as work on current projects being delayed. This can severely impact growth as well as returns generated by the company.
Conclusion:
GR Infraprojects Limited maintains robust financials with respectable growth in both revenues and profits. A declining margin and shareholder return trend is a cause of concern but the management remains confident that improving mix of HAM projects can turn in favour of these factors over the long term. Despite some risks on both company specific and macro front , the company is listing at attractive valuations given its ratios being in the upper end of the industry.
Accordingly, investors can subscribe to the IPO for listing gains.
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