GR InfraProject (GRIL) IPO : Detailed Analysis

 

GR Infraprojects is all set to raise Rs 963 crore via IPO (initial Public Offering), which opens on 7th July 2021. Here are few facts:

About the company:

• GR Infraprojects was commenced on December 22, 1995. It is basically an integrated road Engineering, Procurement, and Construction (EPC) company.
• The company has so much of experience in the design and construction of various highways and roads across 15 states in India. As of the end of FY21, G R Infra had an Order Book of Rs 19,025.81 cr. 
• Apart from EPC projects, GR Infraprojects also initiated projects under Build Operate Transfer (BOT) in the roads Segment, and is also diversified into manufacturing activities of electric poles, road signages, road marking paints, and fabricating metal crash barriers.
• GR Infra has three manufacturing facilities at Assam, Uttar Pradesh and Rajasthan. The company also has a fabricating and galvanization unit in Ahmedabad, Gujarat.
• The company has also entered into railway projects and in 2018 they have been awarded two railway projects as well.

Peer Comparison of GR Infraprojects :

• The listed peers of the company include KNR Constructions Ltd, PNC Infratech, Hindustan construction co, Dilip Buildcon, Ashoka Buildcon and Sadbhav Engineering.
• The company has the highest Net profit margin at 11.4%. The company was able to report higher margins due to complete integration of the project from conceptualization to completion.
• The company has the second highest Total income-to-order book ratio of 2.8 just behind Hindustan construction co. High order book is a sign of high future earnings.
• G R Infra has a debt to equity ratio of 0.4 which is lower than peer average of 0.7. This is a big positive for a construction company. The company has also reported a higher interest coverage ratio in FY20 as compared to peers. 
• The company has 98% of their order from road projects. This is higher than the majority of its peers who have an average of ~70% road projects. 
• GR Infra had the third highest RoNW (at 24%) in the previous fiscal. Sadbhav Engineering and Ashoka Buildcon have reported much higher return ratios at 50% and 45% respectively. 

Financials Of the Company :

• As of March 31, 2021, the company had an Order Book of Rs 19,618 crore comprising 10 HAM projects, 16 EPC projects, and 3 other projects.
• The company's revenue from operations has been continuously increasing since 2019. GR Infra's revenue from operations increased from Rs 5,282 crore in FY19 to Rs 7,844 crore in FY21 at a CAGR of 22%. 
• The growth in revenue can be attributed to their history of timely completion of projects, involving trained and skilled manpower, efficient deployment of equipment and an in-house integrated model.
• The company has also registered a strong growth in its EBITDA which rose from Rs 1,326 crore in FY19 to Rs 1,912 crore in FY21 at an annual growth rate of 20%. EBITDA margin has remained in the range of 24-25% over the last three years. 
• The total profit of the company grew from Rs 716 crore in FY19 to Rs 953 crore in FY21 at a CAGR of 15.3%. The net profit margin has remained stable at 12-13.5% over the last three years. 
• The RoNW has been in the range of 24-32% over the last three years. While GR Infra has posted strong growth in revenue and net profit over the last three years, the margins have remained under pressure. 
• Increase in finance cost, depreciation, and tax provisioning have resulted in lower margins, as clarified by the GR Infra’s top management. 
• The company has not paid any dividend on its equity shares during the last three fiscals. However, the company has said that it will follow a prudent dividend policy going forward. 

STRENGTH :

• Focus on road projects: About 98% of their order book comprises road projects. They have a deep understanding and experience in road projects across terrains.
• Timely execution: GR Infra has developed an established track record of efficient project management and execution experience. They deliver projects before time which results in bonus revenues. Eight of their projects were completed before time which resulted in a bonus of around Rs. 275 cr in the previous year.
• In-house integrated model: Having many years of experience, GR Infrs has developed the capability to work on an integrated model. They take care of the projects from conceptualization to completion which results in clients sticking to their services for longer.
• Financial discipline: The company intends to continue its practices of strict cost control through: 
• ownership and maintenance of modern construction equipment and centralizing procurement of major construction equipment and raw materials;
• careful selection of projects
• cautious expansion into new businesses or new geographical areas. 

Growth Expectations :

• Diversification: Although the experience with road projects is good, but it leads to concentration risk. To solve this problem, the company is getting into railways, laying optic fibre cables etc.
• Further expansion of in-house integration: Developing specialized in-house capabilities would reduce dependence on third parties resulting in lower risks and costs. 

Some Key Detail About GR Infra IPO

GR Infra IPO date: 7 July - 9 July 2021

GR Infra IPO price band: Rs 828 - 837 per share

Issue Size: Rs 963 crore (1,15,08,704 equity shares comprises a complete offer for sale by existing selling shareholders including promoter)

Reservation: QIB 50%, Retail - 35%, NII 15%.

Employee Reservation: 2.25 lakh shares. Discount of Rs 42 for employees

Bid lot: 17 shares, and in multiples of 17 shares (Minimum Investment of Rs.14,229)

TradEx Recommendation:

GR Infraprojects has reported a steady growth in topline and bottomline over the last three years. The company has gradually emerged as an integrated road EPC player. It has executed more than 100 road projects (since 2006) across 15 states with one of the fastest growth in order book (10x) over FY14-21. 

The company also has a strong balance sheet, with lower Debt/ Equity and higher interest coverage ratio as compared to peers. The company has 98% of their order from higher margin road projects,  as compared to peer average of ~70%. The high order book also provides good visibility for the company. 

At the higher end of the price band, GR Infraprojects is attractively priced at a P/E ratio of 8.5 times FY21 EPS. This is lower as compared to Hindustan Construction (14.8 times), KNR Constructions (15.2 times) , and Dilip Buidcon (17.4 times). 

Given factors such as steady growth in topline and bottomline, stable margins, robust return ratios, healthy order book, lower debt ratios, and attractive valuations, we remain positive on the prospects of this issue. But we recommend you to do your own research as well before investing.