Bharat Road Network Ltd - IPO Note - Angel Broking

Views of Mr. Siddharth Purohit (Sr. Equity Research Analyst, Angel Broking):

Bharat Road Network Ltd (BRNL), is a BOT company, which is focused on development, implementation, operation and maintenance of roads and highway projects. The company manages over Rs. 6,685cr of road assets including five operating projects and one under construction project aggregating to 2,095 lane km, with average residual life of approximately 18 years and 6 months.

Portfolio of roads across India: BRNL has a project each in Kerela, Madhya Pradesh, Haryana, UP and Odisha and one more project is under implementations in Maharashtra. While all the five of the six projects are operational, only two of them are under final CoD, and the balance three are under provisional CoD. With final CoD coming for the other projects the revenue visibility could improve to some extent.

Weak reported financials: Only two of BRNL's projects are under final CoD, 3 are under provisional CoD, however, on receiving the final CoD it is likely that the revenue growth of the company would accelerate. Though, we acknowledge the fact that there are enough levers for revenue growth in the future, the reported numbers of the operational projects look weak with revenue of Rs. 14.9cr and EBITDA of Rs. 6.8cr. At the net level, the company reported a loss of Rs. 73.9cr.

All the SPVs/ Subsidiaries have made losses in the last two years: Post the commencement of the commercial operations the subsidiaries and SPVs of BRNL have not been making adequate cash flows and in the last two years all of them have been making losses. The combined losses of all of them at SPV level stood at Rs. 149.7cr for FY2017. While there is a possibility of financials improving with higher traffic growth, continuous losses can put further pressure on the financials of BRNL.

Outlook Valuation: BRNL is present only in the BOT project segment and lack of presence in the EPC segment makes its highly dependent on the traffic growth and price increase for improving its profitability. Though BRNL's projects are spread across India, the past track record of the numbers doesn't give enough confidence about sharp improvement in the near term. At the issue price band of Rs. 195-205, the stock is offered at 2.6x its Pre Issue BV and 1.5x-1.6x its Diluted BV. Even established players like IRB, with strong portfolios are trading at similar valuations and hence, we believe the issue price leaves limited scope for further appreciation. Hence, we have a NEUTRAL rating on the issue.

Source : Equity Bulls

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