GR Infraprojects IPO: What Brokerages Have To Say
Workers talk on mobile phones at a road construction site in Bhopal District, Madhya Pradesh, India. (Photographer: Anindito Mukherjee/Bloomberg)

GR Infraprojects IPO: What Brokerages Have To Say

Brokerages recommend investors to subscribe to the initial public offering of GR Infraprojects Ltd., citing lean balance sheet, strong order book, and better track record, among others.

The roads and highway developer aims to raise Rs 904 crore through the IPO—an offer-for-sale of 1.15 crore shares by promoters and private equity arm of Motilal Oswal group, according to its red herring prospectus. The price band is fixed at Rs 828-837 apiece.

The three-day maiden issue, opened on July 7, was subscribed 2.28 times on the first day, led by demand from the retail investors as they bid for 3.25 times more than the shares on offer.

The brokerages, however, also cited certain risks such as the continued impact of the Covid-19 pandemic on business and operation, change in government policies on roads and increase in competition, among others.

Here's what brokerages have to say about the IPO...

Anand Rathi

  • Recommends ‘subscribe’.

  • The company has experience in design and construction of various road/highway projects across 15 states. It also recently diversified into projects in the railway sector.

  • GR Infraprojects is poised to deliver healthy growth on the top line as well as the bottom line front on the back of its strong order book (FY2021 order book/sales ratio stands at 2.4x).

  • The company reported a RoE of 24.0% in FY2021, among the best in the industry.

  • The company has 25 years of experience in executing EPC projects in the road sector comprising construction and development of state and national highways, bridges, culverts, flyovers, airport runways, tunnels and rail over-bridges.

  • Its revenue from operations increased from Rs 5,282.58 crore in fiscal 2019 to Rs 7,844.13 crore in fiscal 2021 at a CAGR of 21.86%, while its profit for the year increased from Rs 716.64 crore in fiscal 2019 to Rs 953.221 crore in fiscal 2021 at a CAGR of 15.33%.

Key Risks

  • Increases in prices of construction materials, fuel, labour and equipment could have an adverse effect on the business.

  • Impact of Covid-19 pandemic on business and operations.

  • Inability to provide bank guarantees can impact cash flows and financial condition.

IDBI Capital

  • Recommends ‘subscribe’.

  • Revenue growth has been better than its peers and so is the Ebitda margin trajectory.

  • At upper band it is priced at 10x FY21 standalone EPS and 8.5x FY21 consolidated EPS. Valuation is at discount to its peers that are trading at average two years forward valuation of 11x PER (standalone).

  • The company has good completion track record and has received bonus of Rs 280 crore till date for completing projects before the stipulated time.

  • In the last five years it has increased its revenue at CAGR of 47% and now boast with an order book of Rs 19,000 crore (3x TTM revenue).

  • The company has in-house material supply chain with own equipment and commercial vehicle which provides certainty of delivery.

Key risk

  • Concentration of revenue: The company’s 98% of order book is to construct road. In short to mid term, there is a pipeline of road tenders by the Ministry of Road Transport and Highways but relaxation of biding norms is inviting competition which could impact margins.

Prabhudas Lilladhar

  • Recommends ‘subscribe’ because of strong pedigree management with excellent execution capabilities, lean balance sheet (standalone net debt/equity: 0.3x), robust earnings growth (45% CAGR over FY16-21), among other reasons.

  • The company’s promoters and seasoned management team have an established track record of timely executing over 100 road construction projects since 2006.

  • GR Infraprojects’ order book has grown to Rs 19,000 crore as at FY21 (from Rs 1,700 crore in FY14) with order book-to-sales at 2.4x TTM revenue.

  • It has has a strong portfolio of one operational BOT and 14 HAM projects (five operational) with equity commitment of Rs 2,500 crore (Rs 1,300 crore invested).

Key Risks

  • Change in government policies on roads would largely impact future prospects.

  • Rising competition in roads sector could impact order inflows and margins.

  • Delays in collection from clients.

Reliance Securities

  • Recommends ‘subscribe’ considering attractive valuation, strong balance sheet and healthy return ratio.

  • Its order book comprises 16 EPC projects, 10 HAM projects and three other projects.

  • Currently, the company has one operational road project, which has been constructed and developed on a BOT (annuity) model.

  • The company has also 14 road projects (HAM), out of which five are currently operational, four are under construction and construction is yet to commence on another five.

  • Its balance sheet has been comfortable, as its consolidated debt/equity and debt/Ebitda ratio stood at 0.92x and 1.92x, respectively, in FY21 despite addition of 15 developmental projects.

  • Working capital cycle remained comfortable in the range of 60 days in FY21.

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