GR Infraprojects IPO: An Attractive Valuations Play?

By: Tavaga Research

Mr. GR Agarwal laid the foundation for GR Infraprojects in Rajasthan in 1965, and the company is all set to launch the IPO. This is the third time the company has filed for its IPO application with SEBI.

IPO Snapshot

How GR Infraprojects laid its foundation?

In the 1960s, GR Agarwal lived in the arid regions of Rajasthan. Because there were no roads, the grain merchant found it difficult to get to work in nearby villages and towns. 

At that time, GR Agarwal believed the government was not focused on constructing roads in such areas. He took on the task himself in 1965 and established a road-building company. His small partnership firm, which began with an infrastructure project near Jaisalmer, served as the foundation for GR Infraprojects.

Shareholding pattern of GR Infraprojects

Motilal Oswal is exiting their investment completely. They invested in 2011 and exited in 2021 with 16.5x on their investment.

Previous IPO Plans

The company has filed for its IPO for the third time. The first attempt was in 2016 and the second attempt was in 2018. In 2018, GR Infra considered going public and exiting Motilal Oswal but later changed its mind due to the IL&FS crisis and a weak market.

Objectives of the issue

The basic objective of the issue is repayment of outstanding borrowings of the company. The remaining funds will be used to deal with general corporate matters.

Industry Overview

Roads, power, railways, urban infrastructure, and irrigation are all part of the infrastructure sector. Significant policy reforms were implemented by the government to increase foreign direct investment (FDI) inflows and improve infrastructure in the country. 

Over the fiscal years 2015-19, the road sector accounted for 49 percent of total infrastructure investments. Public-private partnerships accounted for 12-15 percent of state road investment. Compared to the previous five years, CRISIL Research forecasts a 2x increase in private construction investments in national highways from fiscal 2021-2025.

Company Overview

G R Infraprojects is a full-service road EPC (engineering, procurement, and construction) firm with extensive experience in designing and building road and highway projects. 

It primarily works on civil construction projects in the road sector under the EPC and BOT (Build Operate Transfer) models, but it has also expanded into the manufacturing of thermoplastic road-marking paints, metal crash barriers, electric poles, and road signage.

It has successfully completed 100+ road construction projects and currently, four BOT projects are under construction. They have three manufacturing facilities and have a galvanization and fabricating unit in Ahmedabad. 

Financials

The company has been generating good revenue from operations with a CAGR of 32.59%. But the cash flows aren’t good, there are no free cash flows as well.

Peer Comparison

The major competitors for the company are Ashoka Buildcon, Dilip Buildcon, KNR Constructions, and PNC Infra. The valuation of the company is pretty cheap when compared to its peers.

Company	Total Income (in Rs. Million)	EPS (Earnings per share)	P/E (Price Earnings)	Industry P/E
Ashoka Buildcon	51,218.72	9.84	10.61	12
Dilip Buildcon	1,02,104.96	31.92	17.42	12
GR Infra Projects	79,069.43	98.31	8.5	12
KNR Constructions	29,552.56	14.49	15.20	12
PNC Infra	58,988.93	19.37	12.90	12

The Balancing Act

Positives

Negatives

• Contracts awarded by governmental authorities accounted for 99.63 percent of the Order Book. If the government does not continue to provide further projects it will affect their business and operations.
• The rate of attrition of employees was 21.21%, 22.99%, and 22.27%, in Fiscals 2021, 2020, and 2019, respectively. This is pretty high even though this is common in the industry. Labour laws might affect their operations.

• While they do business in several states across India, their project portfolio has been concentrated in the northern states.

• The business requires a significant amount of working capital which is required before receiving payment from clients to finance the purchase or manufacture of materials, mobilization of resources, etc. Non-payment by the clients will cause huge disruption to the operations.

• Certain terms and conditions of the SEBI Listing Regulations and SEBI ICDR Regulations were not met in the past.

• They have taken huge borrowings since its capital intensive business because of which their debt-equity ratio is high.

Grey Market Premium

As per news reports, GR Infraprojects was trading at a massive 42 percent grey market premium. The price per share was Rs. 1192, which is a premium of Rs. 355. 

What can investors expect?

The infrastructure in India has a great future. In Budget 2021, FM gave a huge boost to the infrastructure sector by increased funding for the National Investment and Infrastructure Fund (NIIF) as well as the establishment of a new development finance institution (DFI). These will supplement infrastructure financing options and may pave the way for increased private participation, thereby solidifying overall infrastructure investment.

The company has an experienced set of directors and board members with 25 years of experience in the road sector. The company is known for on-time completion of projects and also repair of roads. They have been frequently getting projects from governments but they are also restricted to only government projects. Their revenues looks great but the biggest drawbacks are negative cash from the operation and high debt to equity ratio. 

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