MEP Infrastructure hopes to improve operating margins

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Mumbai | Published: August 25, 2018 3:05:27 AM

MEP Infrastructure Developers (MEPIDL) expects its operating margins to improve in the coming quarters after a 13% year-on-year contraction in the first quarter this fiscal.

highway sector, highway industryWith increasing construction activity from EPC projects, the company expects the higher margins of about 15-17% will help to mitigate the impact of any OMT projects.

MEP Infrastructure Developers (MEPIDL) expects its operating margins to improve in the coming quarters after a 13% year-on-year contraction in the first quarter this fiscal.

Ebitda margins contracted 1,397 basis points y-o-y due to a change in the revenue mix which saw a higher share from low-margin projects, primarily operate, maintain and transfer (OMT) toll projects.

At the same time, the share of high-margin engineering, procurement and construction (EPC) projects to overall revenues declined to 25% from 30% a year ago. The share of toll collection and OMT projects increased from 70% a year ago to 75% in the first quarter.

With increasing construction activity from EPC projects, the company expects the higher margins of about 15-17% will help to mitigate the impact of any OMT projects.

Jayant Mhaiskar, chairman, MEPIDL, said the company would complete about Rs 1,400-1,800 crore of EPC orders this year.

“Unlike earlier, we now have a significant presence in the EPC activity,” he said. Moreover, MEP had an EPC order backlog of `6,900 crore as of June 30 and anticipates more orders of about `2,000 crore by the end of the year. Mhaiskar said he expects a slight improvement in margins by the year-end.

Analysts said that with the company bidding aggressively for projects under the hybrid annuity model (HAM) and with work set to begin on four new HAM projects already won by the company, it could see a significant rise in EPC revenues.

MEP is also in talks with financial investors to jointly bid for the second bundle of toll, operate, transfer (TOT) projects for which the National Highways Authority of India (NHAI) has invited expressions of interest. MEP did not participate in the first bundle of projects offered by NHAI.

The company’s stock closed down 2.2% at Rs 54.45 at Bombay Stock Exchange (BSE) on Friday. It has fallen 29% this fiscal.

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