Buy MBL Infrastructures Ltd. - BP Wealth

Strong road BOT Portfolio

Results Highlights

- The topline of the company stood at Rs. 4,550 mn a growth of 18% yoy. We saw good execution on the EPC front especially road segments. Management has informed that substantial construction work has commenced on recently procured road BOT projects at Waraseoni Lalbarra & Seoni Katangi.

- During the quarter EBIDTA margins remain subdued at 9.9% a up 17 bps yoy, primarily due to higher operating expenses and employee cost. Management has guided to maintain its margins at ~12.5%.

- Adjusted net profit margins for the quarter stood at 4.4% a decline by 39 bps yoy. High cost of borrowings, rise in depreciation and higher tax outgo resulted in reduction of margins. Interest cost as a percentage of sales stood at 3.1% a rise of 152 bps yoy. Average cost of borrowings for the company stood at 12.5% and the management has guided to maintain a margin at ~5.5% .

Other Highlights

- The order book of the company stood at Rs. ~29 bn which is 2.3x FY12 revenue giving us the revenue visibility of next 24-30 months. Outstanding bids for various projects as on 31st March 2012 stands at Rs. 85 bn. Now we see upward correction cycle in the industry which would increase the fresh order book inflow going forward.

- On the BOT Projects front company has started substantial revenue booking at Waraseoni Lalbarra & Seoni Katangi. But we see a delay in construction work at Rimuli Roxy Rajamunda due to land acquisition problem (so far acquired 70% of land). So far equity investment made at Waraseoni Lalbarra, Rimuli Roxy & Seoni Katangi is Rs. 80 mn, Rs. 250 mn & Rs. 140 mn respectively. The equity requirement for next two years as identified by the management stands at Rs.900 mn each. During Q1FY13 the company had signed a concession agreement for Bikaner Suratgarh BOT (Toll) road project and is in a process of financial closure which is expected to happen in next 2-3 months.

Valuation & Outlook

We expect the company's top line to grow at a healthy CAGR rate of ~19% during FY12 to FY14E. We have valued the EPC business on relative valuation basis by assigning P/E multiple to its standalone business. The company trades at a P/E of 3.8X and 3.5X FY13E and FY14E EPS of Rs. 45 and Rs 50 per share, which we think is available at a discount to its peers considering its healthy order book, high growth rate and healthy return ratios. We maintain "Buy" and arrive at a target price of Rs.265 per share an upside of ~56% based on SOTP method. For EPC business we arrive at a price of Rs. 180 per share which discounts FY13E of Rs. 45 by 4x. For operational BOT project Seoni Balaghat which has been valued at Rs. 10 per share on DCF basis and for Seoni Katangi, Waraseoni Lalbarra & Rimuli Roxy Rajamunda BOT projects which are under construction are valued at 1x P/Bv basis based on their equity requirement which comes to Rs. 76 per share.

Source : Equity Bulls

Keywords