>MBL INFRASTRUCTURE LIMITED: EPC & BOT BUSINESS

Results Highlights
⇒ The topline of the company stood at Rs. 3,397 mn a growth of 26.9% yoy. Second half of the year being strong in term of execution which is being reflected in the topline of Q3FY12 and we expect the same run rate to continue. We saw good execution on the EPC front especially road segments. Management has informed that substantial construction work has commenced on newly procured road BOT projects.


⇒ EBIDTA margins stood at 15.3% a decline of 46 bps yoy, primarily due to higher operating expenses as a percentage of sales by 66 bps yoy. Management has guided to maintain its margins between 13% to 14%.


⇒ Adjusted net profit margins stands at 6.6% a decline of 208 bps yoy. High cost of borrowings, rise in depreciation and higher tax outgo resulted in reduction of margins. Interest cost as a percentage of sales stands at 4.6% a rise of 85 bps yoy. Average cost of borrowings for the company stands at 13% and we expect steady margins for the next few quarters.


Other Highlights
⇒ Order book of the company stands at ~Rs. 22.2 bn constituting 21 projects and the major order flow constitutes from govertment organization. The order book to bill ratio stands at 2.2x FY11 sales which gives us the revenue visibility for next two years. The fresh order inflow for last four months stood at ~Rs 11 bn while year to date fresh order inflow stood at ~Rs. 14 bn. Outstanding bids for various projects as on date stands at ~120 bn. We expect order inflow to improve which was not the case nine moths back which saw aggressive biddings. Now we see upward correction cycle in the industry which would increase the fresh order book inflow and we have estimated fresh order inflow of ~Rs. 30 bn in FY13.


⇒ On the BOT projects front company has started booking revenue on the Rimuli Roxy Rajamunda project, Orissa (Toll) where the company has 50% stake while, the balance is with SREI infra and company has made equity investment of Rs 250 mn as on date. The other two BOT projects i.e. Seoni Katangi, MP (Toll) bagged during second quarter and Waraseoni Lalbarra, MP (Toll + Annuity) bagged last quarter has achieved financial closure and substantial construction work has started as informed by the management. The new BOT project Bikaner Suratgarh, Rajasthan (Toll) bagged in the month of Jan 2012 in 50:50 JV with SREI Infra costing ~Rs. 5 bn is expected to achieve financial closure by end of FY12.


Outlook
In view of the growing order book flow form NHAI, efficient execution of ongoing projects, backward integration and improving track record, we expect the company’s top line to grow at a healthy CAGR rate of ~30% during FY11A to FY13E.The company is well poised to capitalise on the opportunities and grow faster than its peers. The company is also diversifying into dedicated freight corridor which will give company an opportunity in different line of segment. With the increase in BOT project from one to five projects which will improve the cash flow of the company going forward. We maintain “Buy” on the stock with a target price of Rs 265, an upside of 50% from the present levels based on SOTP method of valuation.




Other Highlights
⇒ The toll collection at Seoni Balaghat Rajegaon operational BOT project for 9m FY12 stood at ~Rs. 103.2 mn and the management expects to achieve toll collection of ~Rs. 120 mn by end of FY12.


⇒ Recently the company has recommended as interim dividend of 15% which comes to Rs 1.5 per share on paid value of Rs. 10 per share.




Valuation
The fair value of the company stands at Rs.265 per share using the SOTP method. We have measured the EPC business on P/E basis and BOT business on DCF basis




⇒ EPC Business
We have valued the EPC business on relative valuation basis by assigning P/E multiple to its standalone business. MBL EPC Business trades at a P/E of 4.2x and 3.0x to its FY12E and FY13E EPS of Rs. 42.1 and Rs. 59.6 which we think is available at a steep discount to its peers considering its high growth rate and healthy return ratios. Going forward we expect the valuation gap to narrow in the medium term and the company will trade at valuation in comparison to its peers. We have reached at standalone target price of Rs 238 per share, which is ~4.0x FY13E EPS of Rs.59.6 per share.


⇒ BOT Business
Seoni - Balaghat - Rajegaon, BOT project which is operational has been valued using DCF basis which gives a value of Rs.27 per share.




Outlook
In view of the growing order book flow form NHAI, efficient execution of ongoing projects, backward integration and improving track record, we expect the company’s top line to grow at a healthy CAGR rate of ~30% during FY11A to FY13E.The company is well poised to capitalise on the opportunities and grow faster than its peers. The company is also diversifying into dedicated freight corridor which will give company an opportunity in different line of segment. Even addition of BOT projects form one operation project to current total of 5 projects will improve the cashflow of the company going forward.


RISH TRADER