Strong order book provides revenue visibility
With first project in road sector worth Rs 2.65 crores from PWD (Rajasthan) in FY’97,
the company has come a long way. One of the recent projects won from NHAI on Vadodara-Mumbai
expressways stands at a bid project cost of ~Rs 2747 crores. With proven track record
in execution projects across diverse geographic location in India and rising ability
to successfully bid and win new projects, the company has been successful in capitalizing
on enhanced awarding momentum in road sector since last 5-6 years, visible from
the growth in order inflows from ~Rs 1100 crores in FY14 to over Rs 11000 crores
in FY21. Order book grew from a meagre Rs 1700 crores in FY14 to a massive Rs 19000
crores as at FY21, translating to an order-book-to-sales ratio of ~2.4x TTM revenues,
giving strong revenue visibility over next 2-3 years.
Robust track record of project implementation within scheduled times
The company have an experience of over 25 years in executing EPC projects of roads
sector. The company executed projects in construction and development of state and
national highways, bridges, culverts, flyovers, airport runways, tunnels and rail
over-bridges. Since 2006, the company executed more than 100 road construction projects
and has an established track-record of timely completion of projects. The superior
project efficiency is a result of involving trained and skilled manpower, efficient
deployment of equipment and an in-house integrated model. The company enters into
long term agreements to ensure timely supply of essential construction materials
like steel, cement, bitumen and aggregates, thereby keeping inventory at an optimal
level. Further, it has built in-house manufacturing facilities for processing of
bitumen, thermoplastic road-marking paint and road signage and a fabrication and
galvanization unit for metal crash barriers, for timely supply of these ancillary
materials to their project sites across India. The above attributes have led the
company to complete projects prior to scheduled date of completion. The company
has received early completion bonus to the tune of ~Rs 280 crores in its projects.
Geographically diversified project portfolio coupled with expansion in new business
segments
The company has executed projects in 15 states across India in the past two decades
and has built a very well geographically diversified project portfolio thereby reducing
reliance on particular states. It has also capitalized on different growth trends
in various states of India. High growth states of Uttar Pradesh, Madhya Pradesh,
Maharashtra and Gujarat make up ~67% of the order book as at Mar’21. The company
predominantly has been operating in road construction space (97% of revenue). With
rising opportunities in allied sectors, it intends to diversify into railways, urban
transport and High Speed Rail (HSR). The company would be targeting projects that
include earthwork, construction of bridges and supply of materials and track linking
and laying of optical fibre cables. The said expansion into new functional areas
will diversify order book (de-risking the same in times of down-cycles in roads
sector) and effectively leverage its experience in executing EPC projects. The company
successfully bagged few projects in railways sector which currently forms ~3% of
the order book as at Mar’21. Going forward, it targets 10-15% of the order
book & revenue mix from these segments.
Robust Infra-push specifically focusing on roads sector
In April’20, National Infrastructure Plan (NIP) laid a prominent plan for
spending Rs 111 trillion capital outlay till FY25 across infrastructure sector,
resulting in increased capital outlay over next 4-5 years. Road sector accounts
for second highest allocation in NIP with projects worth Rs 20.3 trillion (~18%).
Other major sector allocations include Energy (24%), Urban Infrastructure (17%)
and Railways (12%). NHAI awarding has been rising since FY15. Over FY15-21, NHAI
awarded projects of over 29,000 km and enhanced awarding momentum will likely continue
with annual awarding of 4,000-4,500 km in coming 5 years. The sustained awarding
momentum would translate into massive opportunities for strong players in road sector.
Monetization of assets shall aid in improving balance sheet strength
Asset monetization remains a key point of consideration to enable sustainable private
investment in road sector over the long run. Two drivers of rising asset sales in
the roads sector include: a) rationalization of financial position to improve balance
sheet strength and b) utilization of monetization proceeds to participate in upcoming
projects (asset churning). The erstwhile major BOT players are selling off assets
(both BOT and HAM) to reduce their debt burden and free up equity, which can be
infused in under-execution projects. Some players are also in process of selling
under-construction projects to financial investors with projects being executed
by the same player (thereby converting HAM projects into EPC) without facing the
cut-throat competition currently in the EPC mode leading to retention of margins.
Strong balance sheet with comfortable leverage
Gross debt at consolidated level stands at ~Rs 4500 crores and Debt: Equity is comfortable
at 1.1x as at FY21. On the standalone levels, Gross Debt: Equity stands at 0.82x
while Net Debt: Equity stands low at 0.33x as at FY21. The company enjoys low cost
of debt in the range of 7-8% led by credit rating of AA (stable outlook) by CRISIL.
The company’s subsidiaries maintain relatively good financial health and are
not a drag on its consolidated financials.
Peer comparison
FY21 (Rs in crores) | Revenues | EBITDA | PAT | Net D/E | ROE (%) | EV/EBITDA |
---|---|---|---|---|---|---|
GR Infra | 7844.00 | 1850.00 | 953.00 | 0.90 | 27.20 | 6.30 |
Ashoka Buildcon | 4992.00 | 1536.00 | 274.00 | 8.90 | 52.90 | 5.10 |
HG Infra | 2602.00 | 476.00 | 237.00 | 0.50 | 25.10 | 7.10 |
PNC Infratech | 4925.00 | 673.00 | 362.00 | -0.20 | 13.30 | 6.90 |
Change in government policies on roads would largely impact future prospects
The company’s business is primarily dependent on road projects in India -
undertaken or awarded by governmental authorities and other entities funded by the
Central or State governments. A significant reduction in awarding momentum could
adversely affect the business with subdued topline. Suboptimal margins or losses
on one or more large contracts could further deteriorate the financial performance.
Rising competition in roads sector could impact order inflows and margins going
ahead:
Some of the competitors may have greater industry experience, and substantial financial,
technical and other resources which enables them to undertake larger projects or
obtain better financing arrangements. Increased competition may cause the company
to accept lower margins to sustain required order inflows.
High working capital requirements
Construction of roads, like other infrastructure segments, requires a significant
amount of working capital which is based on certain assumptions, and any change
in such assumptions could result in sizeable changes to the working capital requirements.
A significant amount of working capital is required to finance the purchase or manufacturing
of materials, mobilization of resources and other work on projects before payments
are received from clients.
Incorporated in Dec 1995, G R Infraprojects Limited (GRIL) is an integrated Road Engineering, Procurement and Construction (EPC) company proficient in designing and constructing various road and highway projects across 15 states in India. It has recently diversified into railway projects. Since 2006, GRIL has executed over 100 road construction projects. As of April 2021 the company has project portfolio comprising of 1 operational BOT road project and 14 HAM road projects of which five projects are currently operational, four are under construction and the remaining five constructions is yet to commence. The company also has experience in constructing state and national highways, bridges, culverts, flyovers, airport runways, tunnels and rail over-bridges.
We believe the company shall capitalize on growth opportunities supported by i) robust order pipeline with overall infra-push in the economy ii) superior execution skills with majority projects getting completed before/within stipulated time iii) healthy order book iv) geographical diversification across India and v) controlled debt levels, respectively. At upper end of the price band, this issue is valued at a EV/EBITDA of 6.3x FY21 consolidated earnings and we recommend SUBSCRIBE to this issue.
Use of Proceeds:
The issue constitutes Offer for sale of 11.5 million shares (11.9% of equity share
capital). The proceeds of the offer for sale will be received by the selling shareholder
only; GR Infra will not receive any proceeds. The main objective is to provide liquidity
to the company's existing shareholders and to enhance the visibility and brand
of the company.
Book running lead managers:
HDFC Bank, ICICI Securities, Kotak Mahindra Capital, Motilal Oswal Invt Advisors,
SBI Capital Markets, Equirus Capital
Management:
Vinod Kumar Agrawal: Being one of the promoters, he has over 25 years of experience
in the road construction industry. He looks after the strategy and policy formulation
for the Company and liaises with various departments of the Government and also
overlooks processes in the Company which includes, bidding, tendering and planning.
He is also the president of the National Highways Builders Federation. Ajendra Kumar
Agrawal: Being one of the promoters, he holds a bachelor’s degree in civil engineering
and has experience of over 25 years in the road construction industry. He is responsible
for overseeing the overall functioning of the Company, especially the operational
and technical aspects. He heads the in-house design team and is actively involved
in continuous value engineering using the latest specifications and methodologies.
Vikas Agrawal: He holds a bachelor’s degree in commerce. He has been associated
with the Company since April-06 and has over 15 years of experience in the road
construction industry. He is responsible for overseeing the functioning of running
projects of the Company, as allocated by management from time to time.
Yr End March (Rs Cr) | FY18 | FY19 | FY20 | FY21 |
---|---|---|---|---|
Net Sales | 3292.00 | 5283.00 | 6373.00 | 7844.00 |
Materials cost consumed | 2451.00 | 3575.00 | 4258.00 | 5425.00 |
Employee expenses | 182.00 | 350.00 | 449.00 | 458.00 |
Other Expenses | 35.00 | 74.00 | 80.00 | 112.00 |
EBITDA | 624.00 | 1283.00 | 1586.00 | 1850.00 |
EBITDA Margin | 19.00% | 24.00% | 25.00% | 24.00% |
Depreciation & Amortization | 86.00 | 149.00 | 189.00 | 226.00 |
EBIT | 538.00 | 1134.00 | 1398.00 | 1624.00 |
Other Income | 40.00 | 43.00 | 51.00 | 63.00 |
Interest & Finance Charges | 68.00 | 170.00 | 295.00 | 362.00 |
Profit Before Tax | 511.00 | 1008.00 | 1154.00 | 1325.00 |
Tax Expense | 98.00 | 291.00 | 353.00 | 371.00 |
Effective Tax rate | 19.00% | 29.00% | 31.00% | 28.00% |
Net Profit | 413.00 | 717.00 | 801.00 | 954.00 |
Net Profit Margin | 13.00% | 14.00% | 13.00% | 12.00% |