highway infra construction Archives

G R Infraprojects will be one of the first companies to kick off the IPO frenzy in July. They have launched a three-day initial public offering (IPO) today— July 7. It is a company in a sector that is showing huge promise for future growth. So let us take a closer look into G R Infra and learn more about its IPO.

Company Profile – G R Infraprojects Limited

G R Infraprojects Limited (GRIL) is an integrated road engineering, procurement, and construction (EPC) company. It was established in 1996 and is headquartered in Gurugram. The company is engaged in the design and construction of roads/highways across 15 states in India. They primarily undertake civil construction projects under the EPC and Build Operate Transfer (BOT) basis.

Since 2006, G R Infra has completed more than 100 road construction projects. This includes state and national highways, flyovers, airport runways, and tunnels. Currently, there are 4 BOT projects under construction. The company’s order book stood at ~Rs 19,025.81 crore at the end of March 31, 2021 (FY21). A major portion of their orders come from the National Highways Authority of India (NHAI) and various state governments.

GRIL has strategically diversified into the manufacturing of thermoplastic road marking paints, electric poles, road signages, bitumen, and metal crash barriers. It owns and operates three manufacturing facilities in Udaipur (Rajasthan), Guwahati (Assam), and Sandila (Uttar Pradesh). They also operate a fabrication and galvanizing unit in Ahmedabad. These facilities provide integral support to the company’s road construction business.

G R Infra has more than 25 years of experience in executing large-scale road projects. It has established a good track record for the timely completion of projects. GRIL recently diversified into projects in the railway sector as well.

About the IPO

In June 2021, G R Infraprojects received approval from the Securities and Exchange Board of India (SEBI) to float its initial public offering (IPO). The public issue opens on July 7 and closes on July 9. The offer for sale (OFS) of up to 1.15 crore equity shares from existing shareholders aggregates to Rs 963.28 crore. The price band for the IPO has been fixed at Rs 828-837 per equity share.

Individual investors can bid for a minimum of 17 equity shares (1 lot) and in multiples of 17 shares thereafter. You will need a minimum of Rs 14,229 to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 238 equity shares (14 lots). However, if you are planning to apply for more than 1 lot, keep in mind that your capital may get blocked for no reason if the IPO is oversubscribed.

The primary objective of the IPO is to provide an exit strategy (or liquidity) to G R Infra’s promoters and early investors. Thus, the company is not raising any funds through the public issue. It aims to achieve the benefits of listing on the NSE and BSE. After the successful completion of the IPO, the total promoter holding in the company will reduce from 88.04% to 86.54%.

Financial Overview

G R Infraprojects has posted a consistent rise in revenues and profits over the last three financial years. The Covid-19 pandemic has not caused a severe impact on its operations. In fact, many such firms were able to ramp up construction activities during the strict lockdowns imposed across India. During FY19-FY21, GRIL’s total income grew at a CAGR of 21.85%. Net profit grew at a CAGR of 15.33% during the same period. However, the company has revealed that a rise in finance costs and higher provisioning for depreciation and tax has caused a dent in its margins.

The company has a healthy balance sheet. Its total borrowings at the end of FY21 stood at Rs 4,494.97 crore, while net worth stood at Rs 3,980.03. GRIL has also maintained healthy cash flows, which is very essential for firms engaged in construction activities. They require a strong cash flow for making payments on debt obligations and working capital requirements. The average Earnings Per Share (EPS) over the last three financial years stood at Rs 89.

Risk Factors

G R Infra has stated that the continuing impact of the Covid-19 pandemic on its operations is highly uncertain and unpredictable. Over the past year, their manufacturing units were forced to shut down temporarily amidst strict lockdowns. If the situation persists, they may not be able to complete pending orders or commence new projects as per schedule. This could adversely impact its overall financial performance.
The company’s projects are capital intensive, and they are required to hold significant amounts of long-term loans to settle expenses. The inability to meet debt obligations or conditions imposed by financial agreements could severely affect its business performance.
A major portion of GRIL’s revenue is derived from civil construction projects. The failure to secure large projects from government entities (such as NHAI) could harm its operations and financial performance. G R Infra is also prone to sudden termination of a particular project.
The company may face an unprecedented rise in costs of construction materials, fuel, labor, or other inputs.
There are outstanding legal proceedings against G R Infraprojects, its Directors, promoters, and subsidiaries.

IPO Details in a Nutshell

HDFC Bank, ICICI Securities, Kotak Mahindra Capital, Motilal Oswal Investment Advisor, SBI Capital Markets, and Enquiries Capital have been appointed as the book-running lead managers to this public issue. G R Infraprojects Ltd had filed draft papers for its IPO in April 2021. You can read it here.

Ahead of the IPO, GRIL raised Rs 283 crore from 22 anchor investors. This includes prominent names such as Blackrock, Allianz Global, Fidelity, Aditya Birla Sunlife, etc.

Conclusion

India has always focused on the development of a strong transportation network. It is one of the most vital aspects that contributes to the growth of our economy. Thus, companies involved in the construction and maintenance of roads/highways will continue to receive large orders from the government. In the recent Union Budget announcement, the Finance Ministry proposed a significant boost for highway infrastructure projects. G R Infra has established itself as a leading player in this sector. The company is likely to secure more projects from the NHAI due to its strong project execution capabilities. This indicates that one could invest in the firm based on its future growth prospects.

Once it gets listed, G R Infraprojects Ltd will be directly competing with major players such as KNR Construction, Ashoka Buildcon, IRB Infrastructure Developers, Dilip Buildcon, PNC Infratech, and many more. You can check out our recent analysis on some of the prominent highway-infra construction firms here. As always, consider the risks associated with this company and come to your own conclusion.

Before applying, we will wait to see if the portion reserved for institutional investors gets oversubscribed. What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.

As we know, the infrastructure sector has received a significant boost through the provisions of the Union Budget 2021-22. The Finance Ministry has allocated a whopping Rs 1.18 lakh crore towards the Ministry of Road Transport and Highways. This fund would be utilised for the launch of mega national highway projects across the states of Tamil Nadu, West Bengal, Assam, and Kerala. This would strengthen the existing transportation networks in India and ensure more connectivity.

This is clearly great news for large infrastructure companies that constantly receive contracts from the National Highways Authority of India (NHAI). Over the years, these firms have built and maintained some of the best roads and highways in our country. Let us take a closer look at some of the prominent companies that excel in the construction of highways in India.

Larsen & Toubro

Larsen & Toubro (L&T) Limited is engaged in engineering, construction, and manufacturing operations worldwide. The company’s infrastructure segment constructs buildings and factories, transportation infrastructure, heavy civil infrastructure, power transmission and distribution, etc. L&T Infrastructure Development Projects Limited (L&T IDPL) is a pioneer of the Public-Private-Partnership (PPP) model of development in India. IDPL’s portfolio of road projects includes some of the most economically significant and high-traffic corridors connecting key industrial cities and ports. The company’s total portfolio consists of 17 projects, comprising 7,800 lane kilometers of roads and highways.

L&T has invested heavily in research and development (R&D) activities to improve efficiency and accuracy. Thus, they have been able to complete and deliver projects within the stipulated time.

Financial Performance:

L&T’s revenues and profits have shown consistent growth over the years. This is primarily due to the large number of contracts they receive from Central and state government agencies. The company reported a 4.8% year-on-year (YoY) increase in net profit to Rs 2,446.7 crore for the quarter ended December (Q3). L&T’s revenue from operations declined 1.78% YoY to Rs 35,596 crore during the same period. The company’s order inflow in Q3 was the highest-ever in any quarter. It received fresh orders worth a new record of Rs 73,233 crore.

Over the last 5 years, L&T’s revenue has grown at a yearly rate of 9.71%, whereas the industry average stood at 5.44%. The company has continued to show its dominance in the infrastructure sector by securing a large number of “significant contracts” over the past year. It has been able to obtain a market share of 50.04%. L&T offers very attractive dividends as well.

The share price of L&T has surged by more than 82% since April 2020.

Dilip Buildcon

Dilip Buildcon Limited (DBL) is one of the leading infrastructure companies that is engaged in the construction of roads, bridges, dams, and commercial & residential buildings. It operates in two segments- EPC Projects and Toll Operations. The company undertakes state and national highway projects, city road projects, and bridge operation and maintenance projects. The company also develops irrigation projects, urban development projects, dams, canals, metro rail viaducts, and much more. It is involved in the maintenance of road infrastructure facilities and toll operations. DBL has established its presence in more than 19 states.

Dilip Buildcon’s revenue has grown at a yearly rate of 28.85% over the past 5 years, whereas the industry average stood at 5.44%. The company posted a 107% YoY jump in consolidated net profit to Rs 181.91 crore for the quarter ended December (Q3). Revenue had increased by 7.1% YoY to Rs 2,746.19 crore in Q3. These are strong figures indeed. It has been able to secure a market share of 3.31%.

Since April 2020, the shares of Dilip Buildcon have rallied by more than 187%.

IRB Infrastructure Developers

IRB Infrastructure Developers Limited is engaged in the construction, development, and maintenance of roads and highways on a build-operate-transfer (BOT) basis. The company operates in two segments- Toll Operate & Transfer Projects and Construction. IRB is also involved in real estate development, generation and sale of electricity through windmills, and airport infrastructure activities. The company has 21 projects with 12,317 lane kilometers of roads and highways.

Recently, the company emerged as the successful bidder for the construction of eight lanes of the Gandeva-Ena stretch of the upcoming Vadodara-Mumbai Expressway in Gujarat. The length of the stretch is 27.5 kilometers. The cost of the project is Rs.1,755 crore.

Financial Performance:

IRB Infra Developers have shown a consistent increase in profits and revenues over the years. The company reported a 56% YoY decline in net profit to Rs 69.48 crore for the quarter ended December (Q3). Its total revenue fell to Rs 1,594.80 crore in Q3, compared to Rs 1,790 crore during the July-September quarter (Q2). However, the company said its construction segment has seen a robust recovery and continues to strengthen further.

Over the past 5 years, the revenue of IRB Infrastructure Developers has grown at a yearly rate of 12.39%, whereas the industry average stood at 5.44%. The company has been able to obtain a market share of 2.39%.

The stock price of IRB Infrastructure Developers has surged by 116% since April 2020.

PNC Infratech

PNC Infratech Limited is a construction, development, and management company based in Agra. The company undertakes various infrastructure projects, including highways, bridges, flyovers, power transmission lines, airport runways and pavements, and track construction. It also provides end-to-end infrastructure implementation solutions such as engineering, procurement, and construction services (EPC) on a fixed-sum turnkey basis.

Recently, the company’s subsidiary -PNC Unnao Highways- received an order worth Rs 1,602 crore from the NHAI. The project consists of four-laning of the Unnao-Lalganj section of NH 232-A in Uttar Pradesh. Two of its other subsidiaries have won orders aggregating to ~Rs 3,500 crore in Uttar Pradesh.

Financial Performance:

The revenues and profits of PNC Infratech have seen a sharp uptrend over the years. The company reported a 163% YoY jump in consolidated net profit to Rs 176.14 crore for the quarter ended December (Q3). Its revenue from operations increased by 13.78% YoY to Rs 1,582.02 crore during the same period. The company recorded substantial growth in both bottom-line and top-line segments in Q3.

Over the last 5 years, PNC Infratech’s revenue has grown at a yearly rate of 25.3%, whereas the industry average stood at 5.44%. The company has been able to secure a market share of 1.95%.

The shares of PNC Infratech have surged by 154% since April 2020.

KNR Constructions Limited

KNR Constructions Limited operates as an infrastructure development company in India. It provides engineering, procurement, and construction (EPC) services for roads and highways, irrigation, and urban water infrastructure management sectors. It undertakes various infrastructure projects, such as expressways, national highways, flyovers, bridges and viaducts, irrigation projects, and much more.

Several financial analysts suggest that KNR Constructions’ strong balance sheet gives it a key competitive advantage over its peers in bidding for newer projects. It has time and again completed and executed projects ahead of schedule. Over the last 5 years, KNR Constructions’ revenue has grown at a yearly rate of 21.76%, whereas the industry average stood at 5.44%. However, the company has been only able to obtain a market share of 0.85%.

The share price of KNR Constructions has surged by 109% since April 2020.

Conclusion

We have only mentioned five major companies that could benefit from the new highway projects announced by the Finance Minister. Other listed firms involved in the construction and maintenance of highways include HG Infra Engineering, Bharat Road Network, Ashoka Buildcon, Sadbhav Engineering, MEP Infrastructure, etc.

The development of a strong transportation network plays an important role in the overall economic growth of our country. These companies have time and again contributed their expertise and resources to the construction of our national highways and city roads. They are likely to receive more orders from the NHAI in the months to come. The National Bank for Financing Infrastructure and a Development Finance Institution (DFI) will be set up in our country to provide an extra and essential boost to the sector. Due to positive sentiments surrounding their financial results, fresh orders from NHAI, and provisions of the Budget, we could see a further rally in the shares of these infrastructure firms.