A road EPC player at heart, the management realises the downsides of a single-segment-dominated business.
A road EPC player at heart, the management realises the downsides of a single-segment-dominated business. Consequently, diversification is in the works already through a recent build-up of the mining-order backlog, two recent metro-rail orders and, on completing the Zuari bridge in Goa, its further strengthened marine capabilities and flyover/bridge abilities.
The order book is good to deliver for a year and a half, though growth beyond would need management delivering on inflows in the near term. Debt has risen, but, with pending mobilisation advances from yet-not-appointed projects, improvement is not ruled out. We retain ‘hold’ rating.
Management expects orders of Rs 1 lakh crore in the roads segment after the general elections, largely EPC (70%; to bid for 80% of this). Nevertheless, management aims to diversify into other segments such as mining and metro-rail. Besides, the completion of the Zuari bridge project would afford it a better qualification to look also at marine projects as an opportunity.
Driven by site mobilisation at yet-not-appointed projects, net debt was up Rs 700 crore to Rs 3,500 crore over 9M FY19. With all appointed dates expected by Q2 FY20, and Rs 19.4bn in mobilisation advances yet to materialise, management is hopeful of a better leverage position.
It targets 0.8x net D/E by end-FY20. The visit yet again reinforces our belief in the company’s execution capabilities.
Management opened its remarks by highlighting major changes in the company from the time of listing and deliveries on promises, including geographic diversification, lessening its Madhya Pradesh concentration, and strong growth in operations.