>MARG LIMITED (SPARK CAPITAL)

MARG is a multi-asset play on infrastructure and real estate through a port; SEZ; airport; and
commercial/ residential real estate. The listed entity has the EPC business, mostly captive (80%), and has now commenced executing external orders. With a growing external order book of Rs.1.8bn, coupled with a captive order book of Rs. 16bn, we expect this business to log an earnings CAGR of 27% between FY09-FY11E. On the back of completion of its Phase I (5.2 Mtpa) of its Karaikal Port (100% subsidiary) port is expected to record an earnings of Rs. 2mn in FY10E & Rs. 409mn in FY11E from Phase I. Port capacity is set to increase to 21 Mtpa on completion of Phase IIA expansion. In addition, it owns land parcels of 1,800 acres across its SEZ, Mall & real estate projects which are under various stages of development. We initiate coverage with a BUY and have a 12 month target price of Rs. 280, an upside of 54%

Why we like MARG
■ Growing EPC business with faster execution (delivered Phase I of the port six months ahead of schedule) and conscious diversification into third party EPC contract

■ Karaikal Port, an east coast private sector port, having an early mover advantage has started serving hinterland customers of central Tamil Nadu who import coal (for thermal, cement & paper plants),sugar and edible oil; and export cement. Port also offers OSV (Off-shore support services) for vessels at Cauvery basin. We expect the port to clock a traffic of 2.8 Mtpa and 5.2 Mtpa for FY10E and FY11E.

■ The government-notified SEZ, located ~ 88 km south of Chennai connecting Chennai and Pondicherry, has 600 acres under development. Further it is in the process of constructing an integrated mall with a hotel, multiplex and office complex in Chennai. We expect its SEZ, Mall and other real estate projects to take-off gradually, given project size, sizeable capital requirement and lower off-take from end customers

Key risks
■ Any adverse changes in government regulation
■ Any cost overrun in case of delay in Phase IIA; Long-run competition from the newer ports
■ Downturn in real estate segment, which could potentially lock in capital

Valuation & View
■ Our 12 month target price of Rs. 280/- is arrived based on sum-of-the-parts methodology. We ascribe a valuation of Rs. 8,663mn for port (based on DCF); Rs. 4,076 mn (6x of one-year forward earnings) for the EPC business; and Rs. 2,764mn for its real estate and SEZ assets (based on book value)

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