MBL Infrastructure, Apollo Tyres, GPPL, Unity Infra Projects

MBL Infrastructure, Apollo Tyres, GPPL, Unity Infra Projects

MBL Infrastructure, Havells India, Lanco Infratech

MBL Infrastructure, Havells India, Lanco Infratech

MBL Infrastructures

Investors with a high-risk appetite and with a two-three year perspective may add the stock of construction contractor MBL Infrastructures.

At Rs 273, the stock is 11 times its trailing four-quarter earnings and 9 times estimated FY11 earnings. Peers such as KNR Constructions and PBA Infrastructure trade at similar valuations. Backward integration leading to strong operating profit margins, a healthy order book, secure client base, graduation to a road developer and wide geographic presence bode well for this construction contractor.

MBL Infrastructure to list on 11 January 2010

The IPO was priced at Rs 180 per share

Construction firm MBL Infrastructure will debut on the stock exchanges on Monday, 11 January 2010. The company had fixed the issue price at the top end of the Rs 165 to Rs 180 per share price band.

The issue price of Rs 180, discounts the the company's year ended March 2009, consolidated EPS of Rs 15.70, by a PE multiple of 11.46.

MBL's initial public offer (IPO) closed on 1 December 2009, with total bids for 95.77 lakh shares as against 48.6 lakh shares on offer. The qualified institutional buyers category was subscribed 3.34 times, non-institutional investors category was subscribed 2.64 times, retail individual investors category was subscribed 0.39 times and employee reservation category was subscribed 0.13 times.

Out of the total issue size of 57 lakh shares, 8.4 lakh shares were allotted to anchor investors, which includes 4.2 lakh shares allotted to Reliance Capital Trustee Company's Reliance Infrastructure Fund and 4.2 lakh shares were allotted to The GMO Emerging Illiquid Mauritius Fund at Rs 182 per share.

MBL Infrastructures is engaged in the business of construction and maintenance of roads and highways, industrial infrastructure projects and other civil engineering projects for various government bodies and other clients. It is also engaged in steel trading and waste management at major steel plants.

The company intends to use the issue proceeds to meet capital expenditure on procurement of construction equipments, funding working capital requirements and meeting general corporate requirements.

As per company's consolidated result, net profit rose 76.2% to Rs 27.4 crore on 74.72% rise in sales to Rs 513.64 crore in the year ended March 2009 over the year ended March 2008.

MBL Infrastructures IPO subscribed 1.97 times

Receives bids for 95.77 lakh shares as against 48.6 lakh shares on offer.

Construction firm MBL Infrastructures' initial public offering (IPO) was subscribed 1.97 times, NSE data showed. The IPO received bids for 95.77 lakh shares as against 48.6 lakh shares on offer. The price band for the IPO has been fixed at Rs 165 to Rs 180 per share.

The qualified institutional buyers category was subscribed 3.34 times, non-institutional investors category was subscribed 2.64 times, retail individual investors category was subscribed 0.39 times and employee reservation category was subscribed 0.13 times.

Out of the total issue of 57 lakh shares, 8.4 lakh shares have been kept aside for anchor investors. Out of the total 8.4 lakh shares available for anchor investors, 4.2 lakh shares were allotted to Reliance Capital Trustee Company, Reliance Infrastructure Fund and 4.2 lakh shares were allotted to The GMO Emerging Illiquid Mauritius Fund at Rs 182 per share.

Based on the price band of Rs 165-Rs 180 per share, the company will raise between Rs 94 - Rs 103 crore.

The company intends to use the issue proceeds to meet capital expenditure on procurement of construction equipments, funding working capital requirements and meeting general corporate requirements.

Rating agency ICRA has assigned an IPO grade of 2 out of 5 to the MBL Infrastructures IPO.

MBL Infrastructures is engaged in the business of construction and maintenance of roads and highways, industrial infrastructure projects and other civil engineering projects for various government bodies and other clients. It is also engaged in steel trading and waste management at major steel plants.

As per company's consolidated result, the net profit rose 76.2% to Rs 27.4 crore on 74.72% rise in sales to Rs 513.64 crore in the year ended March 2009 over the year ended March 2008.

Grey Market - MBL Infrastructures, Cox and Kings, JSW Energy

Company Name	Offer Price (Rs.)	Premium (Rs.)
Cox & Kings India	330	4 to 5
MBL Infra	165 to 180	5 to 5.50
JSW Energy Ltd.	--	2.50 to 3.00

Analysis - MBL Infrastructures IPO

Analysis - MBL Infrastructures IPO

MBL Infrastructures IPO Review

Investors with a high risk appetite and a two-year perspective can subscribe to the initial public offer of MBL Infrastructures Ltd (MBL), a player in the road segment. A healthy order-book, sound clientele, backward integration and steady margins are key positives for this construction contractor. While MBL does not possess any unique selling proposition, a steady business model, sustained earnings growth combined with attractive valuations buttress this offer. The company small size, competition and concentrated business model remain risks attached to similar businesses.

In the price band of Rs 165-180, the stock is valued at about 5.8 to 6.3 times its expected earnings for FY-10 on an expanded equity base. This valuation places it at a slight discount to similar sized peers such as KNR Construction and Tantia Constructions.

Background

MBL's project portfolio comprises road construction and maintenance contracts. Clientele is primarily made up of the Public Works Department and municipal corporations of various cities and states such as Mumbai, Delhi, Haryana and West Bengal. Projects are also funded by the World Bank and the Asian Development Bank. MBL, thus, has the credibility to secure repeat orders, especially in road maintenance contracts. The client base is likely to ensure a steady stream of contracts as public works is seldom affected by economic slowdown. MBL has also not seen project cancellations or payment delays thus far.

Having used joint ventures in project execution before, MBL plans to use such alliances to boost eligibility to bid for larger-sized build-operate-transfer contracts. It has completed a one-road BOT project. However, it has neither bid for nor won contracts since then. While small companies have ramped up operations to jointly bid and win BOT projects, MBL's current status can be said to be that of a contractor.

Given the competition and presence of large players in the BOT space, it may be challenging for the company to successfully venture into this space. However, even if it does not, we believe that as a contractor, it is positioned to secure ample business opportunities. Apart from local municipal works, the company is likely to get its pie of business from large road developers, which may subcontract the projects bagged by them.

Geographically, the company's projects cover a majority of the north and mark a presence in the south. Unexecuted order book stands at Rs 815.3 crore, about 2.2 times revenues for FY 09. Slated to be completed over a period of 18 - 24 months the order book provides medium-term earnings visibility. MBL has plans to increase contribution from industrial and urban infrastructure, but does not have any definite orders in hand, resulting in a heavy dependence on the road sector posing concentration risk.

About a third of MBL's revenues is sourced from waste management of steel plants such as SAIL. But with an operating margin of merely 1 per cent, it hardly aids overall profitability. This revenue stream is set to cease by the end of the current financial year; such a move could be positive as this business is unlikely to integrate with the primary road business and may act as a drag on resources.

Issue objects

The company plans to raise about Rs 100 crore through this issue. About Rs 55 crore is marked for acquisition of equipment and machinery. Funds raised will also be used to finance working capital.

Equipment ownership, though requiring higher capex in the short term, will ensure timely availability of key equipment, mobility between projects besides helping to reduce costs. MBL also operates its own ready mix concrete and bitumen divisions that serve captive consumption. It takes stone quarries on lease, mines and produces stone aggregates to meet raw material requirement.

It is, perhaps, this backward integration that has resulted in operating profit margin (OPM) jump to 14.5 per cent in FY-09, compared with the 10 per cent levels in FY-06. The profits margin achieved in FY-09 is commendable, given the raw material pressures faced by most infrastructure players. At 15.6 per cent, OPMs have been maintained in the June 09 quarter as well. Price escalation clauses built into most contracts would further protect margins.

Sales growth

MBL clocked health revenue and net profit growth of 46 and 48 per cent respectively, compounded annually over the last three years. The growth, while superior to many other players, comes from a small base. A repeat performance in future years may be a tough task. Further, debt taken to fund working capital, and depreciation on equipment have dented net profit margins. Comfort, though, may be derived from the fact that interest as a percentage of sales has remained around 4 to 5 per cent.

Offer details

The offer is open from November 27 to December 1. Motilal Oswal Investment Advisors is the book running lead manager. Given its risk factors, investors may consider setting target returns and exit the stock on meeting the same.

via BL

MBL Infrastructures IPO

MBL Infrastructures IPO

MBL Infrastructures IPO Analysis

MBL Infrastructures (MBLIL), promoted by Ram Gopal Maheshwari, Anjanee Kumar Lakhotia and Maruti Maheshwari, is a construction company focused on construction of highways, road maintenance, industrial infrastructure projects and other civil engineering projects. Not limiting itself to job contracts, the company moved up the value chain and has developed build-operate-transfer (BOT) road project through its wholly owned subsidiary APP Infrastructure. The company is also engaged in steel trading and waste management (ferrous scrap and slag recycling) at major steel plants. Contribution of this low margin waste management and trading business was 29% of the consolidated revenue in fiscal ending March 2009 (FY 2009), with the balance from construction and project development business.

Incorporated in 1995 as Maheshwari Brothers, the name was changed to the current MBL Infrastructures in July 2006. Initially, MBL was engaged in the business of recycling ferrous scrap and slag at steel plants and in steel trading, but subsequently diversified into infrastructure development (primarily road projects), serving government clients like the the Public Works Department of various state governments and the National Highways Authority of India (NHAI).

MBLIL is an integrated player with its own ready mix concrete (RMC) and bitumen plants and stone quarries/ mining. Apart from catering to captive needs, the RMC and quarry divisions of the company supplies surplus production to third parties.

In 2002, it was awarded the development of the 114-km Seoni-Balaghat-Rajegaon road project on BOT basis by Madhya Pradesh Road Development Corporation (MPRDC), with concession period of 5,440 days (or 15 years). All phases of this BOT project was fully completed in FY 2008 and are currently operational.

MBLIL was among the first batch of contractors to be awarded the contracts of the prestigious North-South-East-West Corridor by the NHAI and was the first to complete the project. It was also the first to be awarded the comprehensive maintenance of Ring Road and outer Ring Road, which are the most important corridors of Delhi. MBLIL also has early mover advantage for maintenance and operation of National Highways.

The company intends to use the issue proceeds to meet capital expenditure on procurement of construction equipments, funding working capital requirements and meeting general corporate requirements.

Strengths

Total order book end June 30, 2009 was Rs 872.12 crore excluding the share of other joint venture (JV) partners in projects bagged in JV. The share of orders bagged solely by the company amounts to Rs 585.12 crore. Of the total order book of Rs 872.12 crore, the unexecuted order backlog end June 2009 was Rs 612.47 crore. Post June 30, 2009, the company has received contracts worth Rs 202.82 crore.

The operational BOT project provides steady cash flow to the company. The toll revenue for the fiscal ended March 2009 was Rs 7.80 crore and in August 2009 the monthly revenue stood around Rs 66.72 lakh. The annual rate increase in toll rates is 7% as per the concession agreement.

The outlook is buoyant for the construction industry and more specifically the road construction, with the NHAI being more active in tendering and awarding more road projects after the UPA government came back to power in May 2009. The road sector is expected to be on a high growth path. The government of India has created a conducive environment conducive for private investments. The NHAI has set a target of 135 projects covering 13,394 km with an investment of Rs 1000 billion to be awarded by June 2010. Out of these, the NHAI plans to award 70 projects covering 7968 km with an investment close to Rs 616 billion over the next two quarters.

Having bagged the contract for comprehensive maintenance of ring road and outer ring road from the National Capital Territory Delhi on global tenders, the company enjoys early mover advantage as far as comprehensive maintenance of metro city roads. This segment offers good potential.

Weaknesses

The company has limited expertise in handling large road projects from the NHAI. So far the expertise/ experience of the company has been in small to medium size road projects from the NHAI.

On back of integrated operations with RMC and stone quarries as well as operational BOT road project, the company's consolidated operating margin at 14.4% for FY 2009 was better than that of a typical road constructor. This is despite the fact that 29% of the revenue came from low margin trading and waste management business in FY 2009. With increase in competition and expansion of project portfolio, the ability of the company to sustain this going forward has to be seen.

The top five projects account for 61% and the top three projects account for a whopping 47% of its current order book. Given this high concentration, any delay in these five projects could cripple the revenues of the company. About 96% of the current order book is made up of road projects with little exposure to other sectors.

MSP Infrastructures, a group company and promoted by promoters of MBLIL, has objects similar to that of MBLIL. As a result, there could be conflict of interest between MSP Infrastructures and MBLIL.

Two criminal proceedings/cases pertaining to dishonour of cheques were pending against the company in courts.

Valuation

Consolidated income from operation of the company for the fiscal ended March 2009 was up by 75% to Rs 513.64 crore. OPM expanding by 70 bps facilitated an 83% jump in operating profit to Rs 73.93 crore. Net profit was higher by 76% to Rs 27.40 crore. The consolidated EPS for the fiscal ended March 2009 works out to Rs 15.7 on post IPO equity.

At the offer price band of Rs 165-Rs 180, the PE works out to 10.5 times its FY 2009 earnings at lower price band and 11.5 times at the upper price band. In comparison, its peers such as PBA Infrastructure, MSK Projects and KNR Constructions quote at PE of 7.5 times, 9.6 times and 7.5 times, respectively, of their FY 2009 earning. Only J Kumar Infrastructure quotes at a higher PE at 13.7 times of its FY 2009 earning.