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Great going
Blockbuster quarter, results significantly ahead of estimates
MBL witnessed a bumper quarter with revenues rising by a whopping
63.5% YoY to ~INR2.7bn, led by a significant work completion on road
projects in MP, Delhi and Bihar. OPMs too expanded by 164bps YoY,
majorly owing to a decline in construction expenses by 182bps YoY.
Flourishing on a heightened operational efficiency, aided by stable
interest and depreciation charges, net profits for the period leaped by
125.8% YoY to INR228mn (vs our expectation of INR145mn).
Backward integration enables better OPMs, return ratios
With a view to induce operational efficiency and cost control, MBL
forayed into the RMC and quarrying and mining businesses ensuring
adequate and timely supply of high quality raw materials. In addition,
an ownership of the critical equipment base and a bunch of 400
technically qualified and skilled personnel have not only aided in rapid
mobilization, serving multi-locational requirements, but also imparted a
competitive edge against peers. These factors have lent a support to
deliver an enhanced business volume while maintaining a better
operating profitability as demonstrated by MBL’s five year average
OPMs, RoCE and RoNW of 12.7%, 25.3% and 28% respectively.
Revise FY11 earnings upwards by ~16%, maintain Buy
We revise our FY11 earnings upwards by ~16%, factoring in better
than expected performance on both the execution and operational
efficiency fronts. Presence of a proven integrated business model, a
professionally qualified team of employees with a quality management
make us positive on the company. With orders worth INR100bn under
various bidding stages, including four road BOT projects, we expect
the company to be in the forefront once the order awarding activity
gathers momentum. Maintain ‘Buy’ with a revised Mar’12 based price
target of INR254.
Focus on selective bidding, risk sharing
ensures asset light model
Having successfully undertaken construction works
relating to the Ring Road and Outer Ring Road projects
in Delhi in FY04-05, MBL had gained the early mover
advantage placing it among a few well equipped
contractors ready to make a foray across the road BOT
space. It completed the first phase spanning 28kms of its
operational road BOT (housed in AAP Infrastructure Ltd -
a 100% subsidiary) between Garra – Balaghat –
Rajegaon way back in Oct’05 and commenced toll
collection in Apr’06. Development of the entire stretch of
114kms, falling in two districts of MP - Seoni (45kms) and
Balaghat (69kms) - was completed eventually in Feb’08.
The stretch not only provides the shortest link for the
traffic (coming via NH7 from the North West part of the
country and moving towards the Eastern states) but also
is critical for transportation of various minerals,
agricultural and forest products.
Despite being an early entrant in the arena, MBL has
been quite selective in its bidding strategy across road
BOTs. The two fold reason for the same is the company’s
focus on scouting and bidding for strategic and highly
lucrative projects while simultaneously adhering to the
philosophy of operating an asset light business model
(by bidding in JVs and consortiums thus limiting risks
and large equity commitments). In line with this
philosophy, the company bagged its second road BOT
project in Apr’10 through a 51:49 JV with SREI
Infrastructure Finance in the prime iron ore mining belt
in Orissa. While the bidding with a financial partner
would limit MBL’s risks and equity commitments, benefits
from being an integrated player would mean that the
entire execution contract can be completed in-house.
Backlog to bill ratio at 1.8x, strong
bidding pipeline worth INR100bn
MBL’s order backlog has witnessed a steep CAGR of
49.3% over the past five years, enabling revenue CAGR
of 41.2% during the same period. Though the present
order book of ~INR17bn seems slightly suppressed at
1.8x FY11E revenues, the company has already
participated or is in the process of bidding for orders
worth INR100bn, clarity on which should emerge in
subsequent quarters. While it has demonstrated >33%
success rate in winning bids historically, going forward,
we forecast the success ratio to decline to 22-25% owing
to the enhanced competition. Nevertheless, MBL is
expected to clock robust order inflows and closing
backlog CAGR of 64.7% and 23% respectively for FY11-
13E.
In terms of client wise segmentation, ~45% of contracts
in the existing order backlog emanate from road works
pertaining to NHAI. The remaining chunk is divided
between projects funded by either institutions such as
Asian Development Bank and the World Bank or by
various state PWDs. In terms of geography, while the
Eastern region is a major contributor at ~59%, significant
job volumes emanate from the Northern States (~25%)
as well.
Valuation & Recommendation
Revise earnings estimates: We revise upwards our FY11
revenues and earnings forecasts by 6.4% and 16.5%
respectively factoring in better than expected
performance on both execution and operational
efficiency front in the first three quarters of the fiscal.
Earnings record to temper, still ~14%
CAGR for FY11-13 seen
The revenue visibility, originating from the existing order
backlog, coupled with the achievement of executing
INR2bn in quarterly run rate over the past three quarters
give us confidence of MBL keeping pace (albeit
moderation owing to higher base) with its five year
revenue CAGR of 41.2% going forward (estimate ~27%
revenue CAGR over FY11-13E). The same should witness
its revenues inflating from INR9.8bn in FY11 to
INR15.8bn by FY13. Presence of an in-house RMC,
quarrying and mining divisions and a state of the art
equipment bank have lent notable support to the
company in registering three and five year average
OPMs at 13.2% and 12.7% respectively - considerably
better then peers.
Over the next couple of years, we do not foresee any
significant threat to exhibited OPMs as ample jobs on
offer would impart an opportunity to selectively pick and
execute projects, presenting a better profitability. A
comforting net debt to equity (1.1x for FY11E) and a
major chunk of capex (INR700mn in FY11) being funded
through the IPO raised in FY10, are expected to
percolate into ~14% net profits CAGR over FY11-13. The
same should facilitate net profits of INR815mn in FY13
from INR629mn in FY11.
Valuations not reflecting true
potential, maintain Buy
We have valued MBL’s core contracting business using
three different valuation methodologies namely the P/E
multiple, P/BV and EV/EBIDTA. Valuing by the P/E and
EV/EBIDTA basis, we assign a 6x FY12E earnings and 4x
FY12E EV/EBIDTA multiple to the company. On a P/BV
basis, we assign a 1.2x multiple to MBL’s FY12E book
value. However, this is despite offering higher return
ratios than most of the mentioned industry peers. We
expect the company to deliver an average RoCE and
RoNW of 22.5% and 22.9% respectively over the period
FY11-13.
We have used the DCF model for valuing MBL’s 114kms
operational road BOT in Maharashtra, placed in its 100%
subsidiary, AAP Infrastructure Ltd. We have assumed the
cost of equity at 12% and the cost of long term debt at
11.5%. With regards to the Rimuli – Roxy - Rajamunda
BOT project in Orissa (since the project has just achieved
financial closure and has considerable risks involved
during the construction phase), we prefer to value the
same at 1x FY11 book value of investments made in the
SPV by the company.
At the CMP of INR195, MBL trades at an adjusted P/E of
3.4x and EV/EBIDTA of 4.5x its FY12 earnings estimates.
Our SOTP valuation yields INR254 as fair value per share,
offering 30% upside from the present levels. Presence of
a proven integrated business model, a professionally
qualified team of employees with a visionary
management at the helm and a continuous
enhancement in bid capacity by successfully forging
strategic JVs and consortiums enabling bidding for
larger and complex projects make us positive on the
company. With orders worth INR100bn under various
bidding stages, including four road BOT projects, we
expect the company to be in the forefront once the
order awarding activity gathers momentum. Maintain
‘Buy’ with Mar’12 based revised price target of INR254.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Great going
Blockbuster quarter, results significantly ahead of estimates
MBL witnessed a bumper quarter with revenues rising by a whopping
63.5% YoY to ~INR2.7bn, led by a significant work completion on road
projects in MP, Delhi and Bihar. OPMs too expanded by 164bps YoY,
majorly owing to a decline in construction expenses by 182bps YoY.
Flourishing on a heightened operational efficiency, aided by stable
interest and depreciation charges, net profits for the period leaped by
125.8% YoY to INR228mn (vs our expectation of INR145mn).
Backward integration enables better OPMs, return ratios
With a view to induce operational efficiency and cost control, MBL
forayed into the RMC and quarrying and mining businesses ensuring
adequate and timely supply of high quality raw materials. In addition,
an ownership of the critical equipment base and a bunch of 400
technically qualified and skilled personnel have not only aided in rapid
mobilization, serving multi-locational requirements, but also imparted a
competitive edge against peers. These factors have lent a support to
deliver an enhanced business volume while maintaining a better
operating profitability as demonstrated by MBL’s five year average
OPMs, RoCE and RoNW of 12.7%, 25.3% and 28% respectively.
Revise FY11 earnings upwards by ~16%, maintain Buy
We revise our FY11 earnings upwards by ~16%, factoring in better
than expected performance on both the execution and operational
efficiency fronts. Presence of a proven integrated business model, a
professionally qualified team of employees with a quality management
make us positive on the company. With orders worth INR100bn under
various bidding stages, including four road BOT projects, we expect
the company to be in the forefront once the order awarding activity
gathers momentum. Maintain ‘Buy’ with a revised Mar’12 based price
target of INR254.
Focus on selective bidding, risk sharing
ensures asset light model
Having successfully undertaken construction works
relating to the Ring Road and Outer Ring Road projects
in Delhi in FY04-05, MBL had gained the early mover
advantage placing it among a few well equipped
contractors ready to make a foray across the road BOT
space. It completed the first phase spanning 28kms of its
operational road BOT (housed in AAP Infrastructure Ltd -
a 100% subsidiary) between Garra – Balaghat –
Rajegaon way back in Oct’05 and commenced toll
collection in Apr’06. Development of the entire stretch of
114kms, falling in two districts of MP - Seoni (45kms) and
Balaghat (69kms) - was completed eventually in Feb’08.
The stretch not only provides the shortest link for the
traffic (coming via NH7 from the North West part of the
country and moving towards the Eastern states) but also
is critical for transportation of various minerals,
agricultural and forest products.
Despite being an early entrant in the arena, MBL has
been quite selective in its bidding strategy across road
BOTs. The two fold reason for the same is the company’s
focus on scouting and bidding for strategic and highly
lucrative projects while simultaneously adhering to the
philosophy of operating an asset light business model
(by bidding in JVs and consortiums thus limiting risks
and large equity commitments). In line with this
philosophy, the company bagged its second road BOT
project in Apr’10 through a 51:49 JV with SREI
Infrastructure Finance in the prime iron ore mining belt
in Orissa. While the bidding with a financial partner
would limit MBL’s risks and equity commitments, benefits
from being an integrated player would mean that the
entire execution contract can be completed in-house.
Backlog to bill ratio at 1.8x, strong
bidding pipeline worth INR100bn
MBL’s order backlog has witnessed a steep CAGR of
49.3% over the past five years, enabling revenue CAGR
of 41.2% during the same period. Though the present
order book of ~INR17bn seems slightly suppressed at
1.8x FY11E revenues, the company has already
participated or is in the process of bidding for orders
worth INR100bn, clarity on which should emerge in
subsequent quarters. While it has demonstrated >33%
success rate in winning bids historically, going forward,
we forecast the success ratio to decline to 22-25% owing
to the enhanced competition. Nevertheless, MBL is
expected to clock robust order inflows and closing
backlog CAGR of 64.7% and 23% respectively for FY11-
13E.
In terms of client wise segmentation, ~45% of contracts
in the existing order backlog emanate from road works
pertaining to NHAI. The remaining chunk is divided
between projects funded by either institutions such as
Asian Development Bank and the World Bank or by
various state PWDs. In terms of geography, while the
Eastern region is a major contributor at ~59%, significant
job volumes emanate from the Northern States (~25%)
as well.
Valuation & Recommendation
Revise earnings estimates: We revise upwards our FY11
revenues and earnings forecasts by 6.4% and 16.5%
respectively factoring in better than expected
performance on both execution and operational
efficiency front in the first three quarters of the fiscal.
Earnings record to temper, still ~14%
CAGR for FY11-13 seen
The revenue visibility, originating from the existing order
backlog, coupled with the achievement of executing
INR2bn in quarterly run rate over the past three quarters
give us confidence of MBL keeping pace (albeit
moderation owing to higher base) with its five year
revenue CAGR of 41.2% going forward (estimate ~27%
revenue CAGR over FY11-13E). The same should witness
its revenues inflating from INR9.8bn in FY11 to
INR15.8bn by FY13. Presence of an in-house RMC,
quarrying and mining divisions and a state of the art
equipment bank have lent notable support to the
company in registering three and five year average
OPMs at 13.2% and 12.7% respectively - considerably
better then peers.
Over the next couple of years, we do not foresee any
significant threat to exhibited OPMs as ample jobs on
offer would impart an opportunity to selectively pick and
execute projects, presenting a better profitability. A
comforting net debt to equity (1.1x for FY11E) and a
major chunk of capex (INR700mn in FY11) being funded
through the IPO raised in FY10, are expected to
percolate into ~14% net profits CAGR over FY11-13. The
same should facilitate net profits of INR815mn in FY13
from INR629mn in FY11.
Valuations not reflecting true
potential, maintain Buy
We have valued MBL’s core contracting business using
three different valuation methodologies namely the P/E
multiple, P/BV and EV/EBIDTA. Valuing by the P/E and
EV/EBIDTA basis, we assign a 6x FY12E earnings and 4x
FY12E EV/EBIDTA multiple to the company. On a P/BV
basis, we assign a 1.2x multiple to MBL’s FY12E book
value. However, this is despite offering higher return
ratios than most of the mentioned industry peers. We
expect the company to deliver an average RoCE and
RoNW of 22.5% and 22.9% respectively over the period
FY11-13.
We have used the DCF model for valuing MBL’s 114kms
operational road BOT in Maharashtra, placed in its 100%
subsidiary, AAP Infrastructure Ltd. We have assumed the
cost of equity at 12% and the cost of long term debt at
11.5%. With regards to the Rimuli – Roxy - Rajamunda
BOT project in Orissa (since the project has just achieved
financial closure and has considerable risks involved
during the construction phase), we prefer to value the
same at 1x FY11 book value of investments made in the
SPV by the company.
At the CMP of INR195, MBL trades at an adjusted P/E of
3.4x and EV/EBIDTA of 4.5x its FY12 earnings estimates.
Our SOTP valuation yields INR254 as fair value per share,
offering 30% upside from the present levels. Presence of
a proven integrated business model, a professionally
qualified team of employees with a visionary
management at the helm and a continuous
enhancement in bid capacity by successfully forging
strategic JVs and consortiums enabling bidding for
larger and complex projects make us positive on the
company. With orders worth INR100bn under various
bidding stages, including four road BOT projects, we
expect the company to be in the forefront once the
order awarding activity gathers momentum. Maintain
‘Buy’ with Mar’12 based revised price target of INR254.
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