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Supreme Infrastructure (India) Ltd
We initiate coverage on Supreme Infrastructure (India) Ltd (SIIL)
with FY12 end target price of Rs 343 per share i.e. 38% upside
from the current market price. Our SOTP based target price
incorporates Rs 319 per share value of the core EPC business
where it enjoys higher than industry operating margins of around
17%, Rs 20.4 per share from its Manor Wada Bhiwandi road BOT
project which is expected to be benefitted from the commercial
/ industrial belt along the highway and Rs 3.8 per share value
from its Kasheli Bridge BOT project where it is sharing 10% of
the total revenue.
Solid Top-line Growth Expected Owing to Strong Order Book
Supreme Infra has registered phenomenal top line growth over the past
3 years -90% CAGR between FY07-FY10 - on the back of a solid 82%
CAGR in the Order Book over the same period. The current order book
of the company at Rs 2343 Cr is 4.4 times its FY10 sales providing
strong revenue visibility. This coupled with impressive execution track
record of the company, makes us believe that the top line will grow at
35% CAGR over FY10E-FY13E.
Benefiting From Backward Linkages of Key Construction Inputs
The company owns and operates a number of crushers, Asphalt, RMC
and Wet Mix plants for captive consumption. Due to the ready availability
of key raw materials, the company has been able to shorten the project
cycle owing to assured and un-interrupted supply. The in house production
differentiates SIIL from other construction players and results in better
than average industry margins of around 18%.
Looking out for New verticals for Diversification
In order to benefit from the bigger Infrastructure scenario prevailing in
the country, Supreme Infra has recently forayed into Power, Sewerage
and Irrigation related work while continuing to firm up its presence further
in roads and buildings. We believe that SIIL is well placed to capitalize
on planned Investment in Infrastructure in the country.
From mere being an EPC player the company has forayed into BOT space
and has already bagged 3 BOT projects and is also L1 in one more
project. Apart from providing a steady revenue stream from a different
business vertical (toll), the BOT projects also contribute significantly to
the EPC order book of the company.
Valuation
We are bullish on SIIL due to its high margin profile, growth prospects and
relatively lower valuation. We believe that Infrastructure industry is to
witness many folds investment over the next few years and SIIL is well
positioned to benefit from this as it already has exposure to most of the
Infrastructure verticals.
Our SOTP based FY12 end target price for the stock is Rs 343 implying 38%
upside. We have valued EPC business of SIIL at Rs 319 based on DCF and
the two BOT projects at Rs 24 based on NAV. At the target value of Rs 319,
the EPC business will trade at 9.4 times and 7.1 times FY11E and FY12E
earnings respectively.
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