Initiating Coverage report on Madhucon Projects: Keynote

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Initiating Coverage report on Madhucon Projects Ltd., an ideal play on construction, road and power.

Madhucon Project Ltd (MPL), a mid-sized domestic infrastructure construction company, engaged in execution of projects in roads and expressways, power, water & property development. With an order book of Rs4900Cr as on Q1FY11, MPL enjoys sustainable revenue visibility. Additionally, the company is aggressively expanding in road BOT projects, the power generation space and three coal mines in Indonesia, which would unlock value in the long-term.

Executive Summary

Infra vertical in FY11 - the threshold for project completion

Madhucon Projects Ltd’s (MPL) Phase I power project provides a healthy business proposition with ROE of 24.7%. The coal mining business will start contributing to profits FY11 onwards on external sales, as MPL's power capacities go on stream FY13 onwards. Road toll revenue has also begun and would touch Rs170Cr by FY12. Hence, FY11 would be an inflection point where MPL builds threshold infrastructure vertical capacity that would be important for its re-rating.

Operational BOT projects clocked Rs13Cr revenue

The toll collection from two operational BOT projects touched Rs1.3Cr for the quarter, Agra-Jaipur Expressway has collected Rs0.7Cr whereas Dindigul-Karur has collected Rs0.6Cr. Madurai-Tuticorin is awaiting final notification for its commencement and is likely to be operational from end of October 2010, and Trichy-Thanjavur is likely to commence operation from November 2010.

Commencement of BOT projects in power & roads to boost revenue

Two BOT road projects and 300MW power project is expected to be operational by end of this fiscal year. Per day revenue on Trichy-Thavendur is expected to be Rs12.8 lakhs and in Madurai-Tuticorn would be around Rs20 lakhs. As far the power project, the company has already tied up with PTC and Reliance Infra with annual turnover of around Rs40Cr in current fiscal year.

Valuation:

We expect the company’s revenues to grow at 25% and 47% for FY11E & FY12E respectively. Based on the SOTP valuation, we recommend ‘buy’ with the target price of Rs188/- per share.