GR Infraprojects filed DRHP (Draft RED Herring Prospectus) with capital market regulator SEBI in April 2021 and received IPO approval in June 2021. The company is an integrated road engineering procurement and construction (EPC) player with experience in the design and construction of various road projects across 15 different states in India. Through GR Infraprojects IPO analysis, we try to understand if it makes sense to invest in this infra player. Here are vital details about the IPO:
GR Infraprojects IPO Details
| Subscription Dates | 7 – 9 July 2021 |
| Price Band | INR828 – 837 per share (employee discount – INR42 per share) |
| Fresh issue | Nill |
| Offer For Sale | 11,508,704 shares |
| Total IPO size | 11,508,704 shares |
| Minimum bid (lot size) | 17 shares |
| Face Value | INR5 per share |
| Retail Allocation | 35% |
| Listing On | NSE, BSE |
GR Infraprojects IPO Review: Business Operations
As mentioned above, GR Infraprojects is an integrated road EPC player. The company is in the business of civil construction activities such as roads/highways on a Build Operate Transfer (BOT) basis and Hybrid Annuity Model (HAM) basis. Now, it has entered into railway projects as well. The company has three manufacturing facilities at Udaipur (Rajasthan), Guwahati (Assam), and Sandila (Uttar Pradesh) and also operates a fabricating and galvanization plant at Ahmedabad (Gujarat).
GR Infraprojects also processes bitumen, manufactures thermoplastic road-marking paints, electric poles and road signage and fabricates and galvanizes metal crash barriers. GR Infraprojects was incorporated in December 1995 and executed its first project for the Public Works Department, Rajasthan in 1997 with a Bid Project Cost of INR2.65 crore. From its humble beginnings, the company has come a long way and it can be gauged from the fact that its latest win in the form of the Vadodara Mumbai Expressway project has a Bid Project Cost of INR2,747 crore.
In India, road construction is regulated by NHAI. It works in three modes i.e. EPC, BOT, and HAM. Let’s understand these in detail.
- Engineering Procurement and Construction: In EPC mode, NHAI announces tender for road or highway construction. Companies like GR Infraprojects bid on that and complete those projects on time. NHAI pays for the project.
- Built operate and Transfer: SinceEPC model requires upfront costs for agencies like NHAI, BOT models are often preferred by the commissioning agency. In simple terms, infrastructure players build the project, gain the capital back and transfer the project to the government. In BOT mode, NHAI announces the tender. Companies bid for that and complete those projects. However, NHAI does not pay the company directly and the costs are recovered through toll collection over 15-20 years.
As one can imagine, companies have a serious issue with this system. If a company constructs a route where traffic is not enough for toll collection, it is not able to recover its costs within the stipulated timeframe.
- Hybrid Annuity Model: TheHAM model is a combination of BOT and EPC. In this mode, the government pays 40% of the projects bid and the rest of the capital is collected through the toll. This is a win-win for both NHAI and infrastructure developers. NHAI has to pay only 40% of project costs and companies to secure 40% capital upfront.
GR Infraprojects IPO Analysis: Order book
GR Infraprojects works in BOT and HAM modes. It has one operational road project which has been constructed and developed on a BOT model. In addition, 14 road projects have been awarded to the company under HAM, out of which five projects are currently operational, four projects are under construction and construction is yet to commence on five of these projects.
The company’s order book primarily comprises EPC and HAM projects in the road sector across several states including Uttar Pradesh, Madhya Pradesh, Maharashtra, Gujarat, Chhattisgarh, Rajasthan, Andhra Pradesh, Bihar, Manipur, Odisha and Himachal Pradesh. In all, the company’s order book stood at INR19,025.8 crore as of 31 March 2021.
GR Infraprojects also works in railway projects in Andhra Pradesh and Madhya Pradesh and an optical fibre project spread across the states of Bihar, Odisha, West Bengal, Andaman and Nicobar Islands, Jharkhand and Sikkim.
GR Infra Financial Performance (in INR crore)
| FY2018 | FY2019 | FY2020 | FY2021 | |
| Revenue | 3,335.6 | 5,325.3 | 6,423.7 | 7,906.9 |
| Expenses | 2,824.9 | 4,317.8 | 6,269.6 | 6,582.3 |
| Net Income | 417.7 | 715.1 | 797.5 | 953.6 |
| Margin(%) | 12.5 | 13.4 | 12.4 | 13.6 |
GR Infraprojects’ revenue growth is visibly impressive with the top-line expanding from INR3335.6 crore in FY2018 to INR7,906.9 crore in the latest financial year. This translates into a CAGR of 24%. Also, operating profit margins are very stable near 24% and net profit margins are stable near 13% to 14% from FY2019 to FY2021. The company’s profit after tax increased from INR417.7 crore in FY2018 to INR953.6 crore in FY2021.
Supporting this growth is a lean balance sheet with debt-to-equity ratio of 0.97 in FY2021. Another positive aspect is a strong order book. Its order book of INR19,025.8 crore offers revenue visibility of nearly 2.4 years. This compares favourably with Ashoka Buildcon (2.3x), Dilip Buildcon (0.8x), Hindustan Construction Company (4.6x), KNR Constructions (3.5x), and PNC Infra (1.9x).
Valuation-wise, the offer appears attractively priced at a P/E ratio of 8.5 at the upper end. Again, this compares favourably with KNR Constructions (15.2), PNC Infratech (12.9), Infra Engineering (10.6), Dilip Buildcon (17.4), Ashoka Buildcon (10.6), and IRB Infrastructure (48.7). Its Return on Net Worth (RONW) of nearly 24% is also quite robust with only Ashoka Buildcon (44.6%) and Sadbhav Engineering (49.5%) posting better numbers.
The company is a well-established player in the road construction field and its reputation of completing projects ahead of the schedule is well-established. In fiscal 2019, the company completed a state HAM project 13 months ahead of schedule and received an early completion bonus in October 2020.
All in all, GR Infraprojects IPO analysis tells us the story of a well-established player which has most of the things going in its favour, including valuations.
