MAN Infraconstruction Ltd. - Nirmal Bang

Company Overview

Man Infraconstruction Ltd. (MIL) is an infrastructure construction company headquartered in Mumbai. It has undertaken several projects in Maharashtra, Kerala, Gujarat, West Bengal, Goa and Tamil Nadu. MIL provides construction services for ports, residential, industrial and commercial establishments and roads. Mumbai and Pune are the Company's prime focus geographies in the residential sector.

Investment Rationale

Foray into Real Estate development through JV

MAN Infra is moving from a pure play construction player to a real estate developer. It plans to execute real estate projects by forming a SPV and the construction work will be handled by the parent company (MAN Infra). This will benefit the company in terms of getting an upside on the real estate project besides the profits generated from the construction work.

First Road BOT project bagged - LOA received in the Pune road BOT project

MAN Infra bagged its first road BOT project. The company has received LOA in the Pune road BOT project which is worth 360 cr. This project is not part of the current order book of Rs 1460 cr. MAN Infra stands to benefit from this project in terms of the construction work which will be executed by its subsidiary Manaj Infra and from the 63% stake in the SPV - Manaj Tollway Pvt Ltd. which will execute the road project on BOT basis.

Order inflows to see a strong growth in FY13

The order book of MAN Infra stands at Rs 1460 cr. Majority of this is from the residential business segment. Although the order book has shown a decline in FY12, we expect a strong closing of the order book in FY13 & FY14 on the back of strong order pipeline. The increased order inflows will provide strong earnings visibility for the company in the near future.

Strong Financials compared to peers

It is a zero debt company generating positive cash flow from operations, YoY. The company operates at high EBITDA margins in the range of 20-22%. PAT margins have been in the range of 10-12% over the years. The company has historically enjoyed high operating margins on account of lesser subcontracting, owning construction equipment, timely completion of projects and certain free raw material supply.

Valuation & Recommendation

We expect order inflow to improve in FY13 on the back of improving construction/real estate market in Mumbai, financial closure of the road project and start of the Mulund real estate project. We have not factored in the Nhava Sheva port project, if however this project does come then it will significantly improve the order book of the company and provide a trigger for the stock to move up. Strong execution skills, zero debt, positive operating cash flows and ability to operate at high margins provide a positive outlook on the company. At CMP, the stock trades at 12.5x its FY13E EPS. We value the construction business at 10x FY13E EPS and the investments in land, TDR and real estate at book value to come to a target price of 219. We recommend Hold rating on the company.

Source : Equity Bulls

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