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http://content.icicidirect.com/mailimages/ICICIdirect_SupremeInfrastructure_InitiatingCoverage.pdf
’ S u p r e m e ’ v a l u e p o t e n t i a l …
Supreme Infrastructure (Supreme) is a Mumbai based mid-sized
construction company with a presence primarily across roads, bridges,
and buildings. With a strong order book of | 3772 crore as on Q3FY12,
2.8x book to bill on a TTM basis, we expect Supreme’s revenues to grow
at 30% CAGR during FY11-14E. It enjoys superior margins vis-à-vis its
peers through access to quarries and own RMC, asphalt and crushing
plants, which lends it comparative advantage in terms of cost of
aggregates. Supreme also has a portfolio of nine BOT projects, the equity
of which is largely tied up, providing us comfort over funding of the
projects. We are initiating coverage on the stock with a BUY rating.
EPC division – strong order book with superior margins
Supreme, which has access to quarry mines, owns crusher plants, asphalt
plants and RMC plants across various locations (refer Exhibit 6 for details).
It enjoys superior margins vis-à-vis its peers due to its backward
integration model. The aggregates, which constitute ~25-35% of the
material cost, are sourced internally leading to savings in costs and, thus,
lending additional margin advantage of ~3-4%. With a strong order book
of | 3772 crore as on Q3FY12, 2.8x book to bill on a TTM basis, and
further orders of | 619 crore (incl. L1 orders of | 274 crore in Q4FY12), we
expect Supreme’s revenues to grow at 30% CAGR during FY11-14E.
BOT projects – equity largely funded, upside possibility, going ahead
Supreme has a BOT portfolio of nine projects (including the Kasheli
bridge ropeway project where it has ~10% stake) out of which two are
operational. Equity funding for all projects has largely been tied up as 3i
India Infrastructure Fund has agreed to invest US$61 million (| 306 crore)
for a minority stake in four road projects, at an implied P/BV of 1.3x. We
highlight that we have only incorporated operational projects at 1x P/BV
in our valuation. However, as and when the projects become operational
and ramp up is seen, the value derived from BOT projects would provide
significant upside potential (refer page 13 for details).
Valuations
At the CMP, the stock is trading at 4x FY13E adjusted P/E and 0.9x FY13E
P/BV multiples. Given superior margins, a robust order book and strong
revenue growth (30% CAGR during FY11-14E) in the EPC business and
largely funded BOT projects, we initiate coverage on Supreme with a BUY
recommendation. We have valued the stock on an SOTP basis with a
price target of | 316/share (Construction business - | 292/share (4x
EV/EBITDA) and BOT of | 24/share (1x P/BV for operational projects)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_SupremeInfrastructure_InitiatingCoverage.pdf
’ S u p r e m e ’ v a l u e p o t e n t i a l …
Supreme Infrastructure (Supreme) is a Mumbai based mid-sized
construction company with a presence primarily across roads, bridges,
and buildings. With a strong order book of | 3772 crore as on Q3FY12,
2.8x book to bill on a TTM basis, we expect Supreme’s revenues to grow
at 30% CAGR during FY11-14E. It enjoys superior margins vis-à-vis its
peers through access to quarries and own RMC, asphalt and crushing
plants, which lends it comparative advantage in terms of cost of
aggregates. Supreme also has a portfolio of nine BOT projects, the equity
of which is largely tied up, providing us comfort over funding of the
projects. We are initiating coverage on the stock with a BUY rating.
EPC division – strong order book with superior margins
Supreme, which has access to quarry mines, owns crusher plants, asphalt
plants and RMC plants across various locations (refer Exhibit 6 for details).
It enjoys superior margins vis-à-vis its peers due to its backward
integration model. The aggregates, which constitute ~25-35% of the
material cost, are sourced internally leading to savings in costs and, thus,
lending additional margin advantage of ~3-4%. With a strong order book
of | 3772 crore as on Q3FY12, 2.8x book to bill on a TTM basis, and
further orders of | 619 crore (incl. L1 orders of | 274 crore in Q4FY12), we
expect Supreme’s revenues to grow at 30% CAGR during FY11-14E.
BOT projects – equity largely funded, upside possibility, going ahead
Supreme has a BOT portfolio of nine projects (including the Kasheli
bridge ropeway project where it has ~10% stake) out of which two are
operational. Equity funding for all projects has largely been tied up as 3i
India Infrastructure Fund has agreed to invest US$61 million (| 306 crore)
for a minority stake in four road projects, at an implied P/BV of 1.3x. We
highlight that we have only incorporated operational projects at 1x P/BV
in our valuation. However, as and when the projects become operational
and ramp up is seen, the value derived from BOT projects would provide
significant upside potential (refer page 13 for details).
Valuations
At the CMP, the stock is trading at 4x FY13E adjusted P/E and 0.9x FY13E
P/BV multiples. Given superior margins, a robust order book and strong
revenue growth (30% CAGR during FY11-14E) in the EPC business and
largely funded BOT projects, we initiate coverage on Supreme with a BUY
recommendation. We have valued the stock on an SOTP basis with a
price target of | 316/share (Construction business - | 292/share (4x
EV/EBITDA) and BOT of | 24/share (1x P/BV for operational projects)
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