Supreme Infrastructure
Growth to continue; Buy
Key takeaways
Strong order book drives revenues. We expect Supreme Infrastructure’s
revenue in 3QFY14 to have grown 2.4% yoy (81% qoq), following strong
execution in its road and buildings projects. Its order book in Sep’13
(including L1 projects of `12.5bn) was `65bn (3.3x TTM revenue).
Conversion of L1 orders and fresh order inflows would be positive triggers
for the stock. In 1HFY14, the company bagged orders of `12.2bn.
Healthy margins to continue. For the quarter, we expect the company to
register a 15% EBITDA margin vs 15.8% in the previous quarter and 17.3%
in the year-ago quarter. Given the high interest cost, we expect it to record a
5.5% net profit margin.
Update on BOT road projects. For ten BOT road projects, the company
has an equity commitment over FY12-15 of ~`8.9bn. Of this, it has infused
`5.72bn through investment, advances and debt at the hold-co level; ~`3.1bn
is to be infused by 3i India Infra Fund (of which `2bn has already been
received), the rest will be invested over FY14-15. The last tranche from 3i has
not yet been received and is awaiting certain NHAI clearances. The
proportion of BOT projects, 23% of the order book, is now being reduced.
Our take. Considering the pickup in execution in its road projects, the
company could register 2% yoy revenue growth in 3QFY14. We expect a
15% EBITDA margin and a 5.5% net profit margin. Conversion of its L1
orders to order book, together with reduced debt, would be the key
monitorable during the quarter. Our sum-of-parts target of `360 is based on
4x PE of the FY14e construction business (`304, a 50% discount to midcap
target multiples) and 0.8x Mar’13 P/BV (`56). Risk. Rise in interest rates.
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Growth to continue; Buy
Key takeaways
Strong order book drives revenues. We expect Supreme Infrastructure’s
revenue in 3QFY14 to have grown 2.4% yoy (81% qoq), following strong
execution in its road and buildings projects. Its order book in Sep’13
(including L1 projects of `12.5bn) was `65bn (3.3x TTM revenue).
Conversion of L1 orders and fresh order inflows would be positive triggers
for the stock. In 1HFY14, the company bagged orders of `12.2bn.
Healthy margins to continue. For the quarter, we expect the company to
register a 15% EBITDA margin vs 15.8% in the previous quarter and 17.3%
in the year-ago quarter. Given the high interest cost, we expect it to record a
5.5% net profit margin.
Update on BOT road projects. For ten BOT road projects, the company
has an equity commitment over FY12-15 of ~`8.9bn. Of this, it has infused
`5.72bn through investment, advances and debt at the hold-co level; ~`3.1bn
is to be infused by 3i India Infra Fund (of which `2bn has already been
received), the rest will be invested over FY14-15. The last tranche from 3i has
not yet been received and is awaiting certain NHAI clearances. The
proportion of BOT projects, 23% of the order book, is now being reduced.
Our take. Considering the pickup in execution in its road projects, the
company could register 2% yoy revenue growth in 3QFY14. We expect a
15% EBITDA margin and a 5.5% net profit margin. Conversion of its L1
orders to order book, together with reduced debt, would be the key
monitorable during the quarter. Our sum-of-parts target of `360 is based on
4x PE of the FY14e construction business (`304, a 50% discount to midcap
target multiples) and 0.8x Mar’13 P/BV (`56). Risk. Rise in interest rates.
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