IPO Analysis: GR Infraprojects Ltd

IPO rating- Invest for listing gains   

 About the issue:  

GR Infraprojects, which is an integrated EPC player focussed on road & highway construction projects, is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 each. The public issue comprises an offer-for-sale (OFS) of 1,15,08,704 equity shares with a face value of Rs 5 each, aggregating up to Rs 953.28 crore. The price band of the issue has been fixed at Rs 828 to Rs 837 per equity share. The IPO open date is July 07, 2021, while it will close on July 09, 2021. The issue will be listed on July 19, 2021. The IPO market lot size is 17 shares. A retail-individual investor can apply for up to 14 lots (238 shares or Rs 1,99,206). The objective of the offer is to achieve the share listing benefits on BSE & NSE as well as reducing the stake of the promoters from 88.04 per cent to 86.54 per cent post issue.   

GR Infraprojects’ IPO details 

About the company:  

GR Infraprojects is an integrated road engineering, procurement & construction (EPC) company with experience in designing and construction activities along with road/highway projects mostly in North India. It mainly undertakes civil construction projects under the EPC and build-operate-transfer (BOT) basis in the road sector but also diversify into manufacturing activities of thermoplastic road-making paints, electric poles, road signs, and fabricating metal crash barriers.   

The company was incorporated in December 1995 and has gradually increased its execution capabilities in terms of the size of projects it has bid and executed for. Till April 2021, it has completed more than 100 road construction projects successfully while currently, four BOT projects are still under construction. The company owns three manufacturing facilities in Udaipur (Rajasthan), Guwahati (Assam), and Sandila (Uttar Pradesh) as well as a fabricating and galvanisation unit at Ahmedabad (Gujarat). The names of the company promoters include Vinod Kumar Agarwal, Ajendra Kumar Agarwal, Purshottam Agarwal, and Lokesh Builders Private Limited. 

As of March 31, 2021, the company had an order book of Rs 19,025.81 crore, comprising 16 road EPC projects, 10 hybrid annuity model (HAM) projects, and three other projects. As of December 31, 2020, its equipment base comprised over 6,500 construction equipment and vehicles with more than 15,200 permanent employees.   

Competitive strengths:  

Expertise in road projects i.e. state & national highways, culverts, flyovers, airport runways, tunnels, etc.  

Established track record of timely execution.   

In-house integration model.  

Robust financial performance track record.  

Experienced promoters and managers team 

Financials:  

The company’s revenue from operations has been at a CAGR of 39.06 per cent from FY18 to FY20 while its EBIDTA grew at a CAGR of 46 per cent for the same period. The profit after tax (PAT) also grew at a healthy rate of 39.16 per cent on a CAGR basis during FY18-FY20. According to CRISIL report, its recent nine-month performance ending December 2020 ranked second among the key EPC players. The company has received a credit rating of CRISIL AA/stable for long-term borrowings.  

Recommendation:  

GR Infraprojects Limited executes road projects as EPC contractors, construction service providers as well as via the PPP model on a BOT basis, with a major focus on HAM projects. The company believes that it has been able to maintain its growth due to in-house integrated model, efficient project execution, and prudent bidding strategy. It strives to maintain a robust financial position with an emphasis on having a strong balance sheet. Its strong balance sheet, coupled with low levels of debt, enables it to fund its strategic initiatives, pursue opportunities for growth, and better manage unanticipated cash flow variations. The financial strength of the company enables it to access bank guarantees and letters of credit at reasonable terms. Its employee resources and fleet of equipment along with engineering skills and capabilities, has been key in enabling them to execute a range of road construction projects involving varying degrees of complexity.   

Apart from its strong operational aspects, the company has a strong order book of more than Rs 19,000 crore, which gives us strong visibility in terms of revenue. It also enjoys the diversification benefits as it operates in almost 15 states. The government’s impetus to infrastructure development in the country is benefiting the infrastructure players. The Government of India aims to construct 65,000 km of highways at a cost of 5.35 lakh crore by 2022. The road sector is to account for 18 per cent of capital expenditure over FY 19-25. Looking at the above positives, we believe that the company will keep growing its business at a healthy rate, and hence, you can invest for a listing gain.