Rajasthan-based GR Infraprojects Limited’s (GRIL’s) three-day initial public offer (IPO) opened on Wednesday with a price band of Rs 828-837 per share. At the higher end of the band, the roads and highways construction major aims to mop up Rs 962 crore via offer for sale.
A day ahead of the IPO, the company allocated 3.38 million shares at Rs 837 per share to 22 anchor investors and successfully raised Rs 283.3 crore.
Of these, eight were Foreign Portfolio Investors (FPIs), including Small Cap World Fund, ADIA, and Blackrock, and 14 were domestic investors such as ICICI Prudential Asset Management, Nippon MF, SBI MF, HDFC MF, Franklin Templeton MF, DSP MF, and Sundaram MF.
About the company
G R Infra was incorporated in December 1995 and is an integrated road engineering, procurement and construction (EPC) company with experience in design and construction of various road/highway projects across 15 states in India. It recently diversified into projects in the railway sector.
Their primary business operations are broadly divided into three categories: (i) civil construction activities, providing EPC services; (ii) development of roads and highways on a BOT basis; and (iii) manufacturing activities, processing bitumen, manufacturing thermoplastic road-marking paint and road signage and fabricating and galvanizing metal crash barriers.
Financial performance
As of March 31, 2021, the company had an Order Book of Rs 19,025.81 crore which comprised 16 EPC projects, 10 HAM projects and three other projects. Besides, it total income stood at Rs 7,906.94 crore in FY21; Rs 6,423.71 crore (FY20); and Rs 5,325.53 crore (FY19). The company also clocked profit of Rs 953.22 crore, Rs 800.83 crore and Rs 716.64 crore in FY21, FY20, and FY19, respectively.
Thus, the total income and profit for the year grew at a CAGR of 21.85 per cent and 15.33 per cent, respectively, between FY19 and FY21, it said in its red herring prospectus.
Operationally, GRIL saw highest increase in EBITDA over a period of 5-years from FY15 to FY20 at a CAGR of 63 per cent among key EPC players and enjoys EBITDA margin of 23.6 per cent, led by superior execution capabilities and backward integration. Its PAT margin was 12.2 per cent in FY21 along with standalone debt of Rs 1,350 crore. Therefore, its debt to equity ratio of 0.3x while consolidated D/E is at 1.2x.
Brokerage take
Geojit Financial Services | Subscribe
At the upper price band of Rs.837, GRIL is available at PE of 8.5x (FY21) which appears reasonably priced compared to peers. We assign a Subscribe rating, with a long term perspective as growth in order book, pick up in execution, diversification to other sectors like railways provides visibility for future growth.
Prabhudas Lilladher | Subscribe
We are positive on the company given it’s comfortable order book, robust bid pipeline with overall infra-push in the economy, stellar execution pace with most projects getting completed before/within stipulated time, geographical diversification, strong EBITDA & PAT margins, and controlled debt levels.
That apart, GRIL has a strong portfolio of 1 operational BOT and 14 HAM projects (5 operational) with equity commitment of Rs 2,500 crore (Rs 1,300 crore invested). Considering growing asset monetization deals and rising attractiveness of InvITs for institutional investors, GRIL is well placed to monetize its operational assets and free up invested capital for future growth and capital infusion in newer projects.
IDBI Capital | Subscribe
From a humble beginning in 1995 of executing order of few million to executing billion plus orders, GR has established itself as a key road sector contractor in India. In the last 5 years, it has increased its revenue at CAGR of 47 per cent and now stands with an order book of Rs 19,000 crore.
GR has in-house material supply chain with own equipment and commercial vehicle which provides certainty of delivery. Execution of HAM project has enabled it to garner average EBITDA margin of 18 per cent in the last 5 years.
That said, GRIL’s business outlook is on road sector capex as company’s 98 per cent of order book is to construct road. In short to mid-term, there is pipeline of road tenders by the Road and Highway Ministry but relaxation of biding norms is inviting competition which could impact margins.
Phillip Capital | Subscribe
The company is looking to list as a mid-cap construction company, focused on the roads segment. At the upper price band of Rs 837, GR Infra is seeking a market cap of Rs 8,100 crore. Adjusting this for Rs 2500 crore of equity to be invested in HAM projects (valued at a conservative 0.7x P/BV), it seeks a valuation of Rs 64,00 crore for its EPC business, which translates into 7x FY23 PE (assuming 15% revenue CAGR and 18% EBITDA margins over FY22-23) – in line with most peers, which are all trading at significant discounts to their historical average (15x) due to the ongoing pandemic.
We find the risk-reward profile attractive for GR Infra and recommend SUBSCRIBE.
Choice Broking | Subscribe for Long Term
Considering the government’s focus on enhancing infrastructure assets in the country, primarily the road construction space will continue to attract private capital. GR Infra with its efficient operations is well placed to benefit from the growth in the sector. However, with concerns on the sustainability of the EPC profitability in the near term, we assign a “Subscribe for Long Term” rating for the issue.
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