G R Infraprojects Limited is a 25 year old company, incorporated in the year 1995. It is a key player in infrastructure space with exposure to integrated road engineering, procurement and construction, or EPC as it is better known. GR Infraprojects operates across over 15 states in India in a plethora of construction of various roads and highway projects. It also handles large construction contracts for the Indian Railways, which is in the midst of a massive capital expansion plan.
The business model of GR Infraprojects can be divided along 3 verticals.
- Civil construction activities, including the provision of EPC services
- Development of roads and highways on a BOT or HAM (Hybrid Annuity Model)
- Manufacturing and processing of bitumen, thermoplastics, road marking paint etc
Key terms of GR Infraprojects IPO
G R Infraprojects is coming out with an IPO of 1.15 crore shares with an issue size of Rs.963.28 crore. The issue is priced in the price band of Rs.828 to Rs.837 and the above issue size is assuming the top end of the price band for GR Infraprojects.
Data Source: IPO Filings
A quick take on GR Infraprojects business specs
As of date, the company has an order book of over Rs.19,000 crore which consists of 16 EPC (Erection, procurement and construction) contracts, 10 HAM (Hybrid Annuity Model) contracts plus two projects awarded to them by the Indian Railways. GR Infraprojects has executed over 100 road projects till date. Out of the 14 road projects executed by the company under the HAM model, 5 are already operational, 4 are under construction and another 5 projects are yet to commence.
Key takeaways from the GR Infraprojects IPO offering
The company has been a key player in the key road development segment and here are some key investment takeaways for the company.
- The entire issue will be an offer for sale so there is no dilution of capital and also there is no fresh funds coming in, although promoter stake will reduce.
- In terms of revenues for FY21, 68% revenues came from EPC contracts, 30% from BOT projects and the remaining 2% from other miscellaneous projects.
- Its largest order issuer is the NHAI and statutory bodies account for nearly 98% of their total order book. This normally creates problems in working capital management.
- The company has a strong track record in terms of completion of project execution ahead of schedule.
- There is no question of utilization of funds since it is an offer for sale and no fresh funds coming into the company.
Should you be investing in the GR Infraprojects IPO?
At the outset, it is a decision you must take in consultation with your financial advisor since the issue is not just about being a solid issue but also fitting into your financial plan. However, the company has some positives to begin with. It has established a track record of timely completion and its order book shows a robust position. With the government committed to expanding infrastructure in a big way through fiscal support, the order book will hardly be an issue for the company.
Revenues from operations increased from Rs.5,283 crore in FY19 to Rs.7,844 crore in FY21, despite the COVID disruption. During the same period, the net profits also improved from Rs.717 crore to Rs.953 crore. Operating income of GR Infraprojects grew at a CAGR of 47% over last 5 years, one of the best performances by an EPC company. However, borrowings at close to Rs.4,500 crore could be a challenge.
To sum it up, GR Infraprojects enjoys 32% ROCE and 28% ROE, both the best among peer group. The stock does look like a good play on the high growth infrastructure projects and its financials are also stable. While the P/E at less than 10 does look enticing, you get most of the road building companies at under 15 P/E. The issue can be a good proxy for India infrastructure for investors with a higher risk appetite.