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Research
BUY MEP Infrastructure: AnandRathi Institutional Research
Posted On : 2016-02-13 11:10:04( TIMEZONE : IST )
MEP Infrastructure - Assisted by claims bookings, beats estimates; Buy with a target price of Rs 58.
MEP Infra could come out with better-than-anticipated revenue largely due to claim bookings. Earnings,helped by in line non-operating expenses, also came in better-than-anticipated. Due to its proven execution capabilities in toll-collection and operation-maintenance-transfer projects (OMT), it seems set to benefit from potential business opportunities from increased awards in EPC and a healthy pipeline of hybrid-annuity projects (from toll collection and ownership perspective). Toll-Operate-Transfer (TOT) opportunities also are a growth opportunity for MEP. We maintain a Buy due to better operations and visible opportunities.
Claims booked at Madurai-Kanyakumari: During Q3 FY16, MEP booked a claim of ~Rs. 158m toward revenue loss due to the Chennai floods. To ease rescue, relief and rehab operations, the toll was suspended on orders from the Ministry of Road Transportation and Highways. Overall, revenue (including claims) was up ~7% qoq, boosted by better short-term toll collection (up 28%), Kini-Tasawade (11%) and Madurai-Kanyakumari (17%).
Margins dip on change in mix…. Earnings flat: The greater contribution from lower-margin short-term toll-collection projects meant margins compress ~91bps. Despite the better revenue, compressed margins and higher finance costs and tax charge resulted in a flat bottom-line.
Earnings revision: In Jan, the Supreme Court of India accorded honourable exit to the consortium operating the Delhi Entry points project. Commercial non-viability led to the foreclosure as traffic had shrunk due to the levy of an-environment compensation charge to curb pollution in Delhi. Hence, FY16/F17/FY18 earnings were 14%/18%/25% lowered.
Valuation: The stock trades at PBV of 3.3x FY18e. Our revised target (to factor in project foreclosure) of Rs. 58 would imply an exit PBV of 4.8x. Risk. Failure to exercise financial prudence, as eyeing capital intensive TOT and hybrid annuity opportunities.
