GR Infraprojects Ltd.
Incorporated in December 1995, G R Infraprojects Ltd (GRIL) is an integrated road engineering, procurement and construction (EPC) company with experience in design and construction of various road/highway projects across 15 States in India and having recently diversified into projects in the railway sector. Its principal business operations are broadly divided into three categories: (i) civil construction activities, under which the company provides EPC services; (ii) development of roads, highways on a Build Operate Transfer (BOT) basis, including under annuity and Hybrid Annuity Model (HAM); and (iii) manufacturing activities, wherein it processes bitumen, manufacture thermoplastic road-marking paint, electric poles and road signage and fabricate and galvanize metal crash barriers.
In March 2010, GRIL has commissioned a wind energy based power plant at Jaisalmer, Rajasthan with an installed capacity of 1.25 MW under the ‘Policy for Promoting Generation of Electricity through Non-Conventional Energy Sources – 2004’. The company has also commenced constructing a group housing project comprising row houses and other residential units at Udaipur, Rajasthan.
Order book position
As of March 31, 2021, GRIL’s order book stands at 19,025.8 crore and comprised 16 EPC projects, 10 HAM projects and 3 other projects as follows:
Exhibit 1: Order book details
Source: ICICI Direct Research, RHP; * * Includes projects which were awarded to Subsidiaries and where the EPC portion of the project is being executed by the Company; ** Includes projects which were awarded to the Joint Ventures, and where a part of the project is being executed by the Company.
Further, as per the summary of the financial bid information that is made publicly available on the central public procurement portal website of the Central Government, GRIL had made the lowest bid of | 592.2 crore for the proposed project relating to the ‘Construction of the elevated viaduct from end of the ramp at IDPL complex to start of ramp at Rajiv Chowk and three nos. of elevated stations viz. Udyog Vihar, Sector 17 and Rajiv Chowk (excluding architectural finishing and pre-engineered steel roof structure of stations) of Delhi – SNB Regional Rapid Transit System Corridor’.
Description of the business
EPC services primarily represents GRIL’s civil construction business and has gained significant experience in construction of road projects. Road infrastructure projects include various activities, including construction, widening, strengthening, improvement, lane-related construction, maintenance, as well as development activities. Additionally, the company has executed two airport related infrastructure projects wherein the work included runway-related construction such as extension, strengthening and resurfacing.
BOT Road Projects
BOT (Annuity) road project
GRIL have one operational BOT road project which is on an annuity basis and has commenced revenue generation and is operated by its Subsidiary, Reengus Sikar Expressway Limited (RSEL).
Hybrid Annuity Model Road Projects
GRIL has five operational HAM road projects which have commenced revenue generation on an annuity basis and 4 road projects under construction under the HAM model. In addition, GRIL hs been awarded five HAM projects for which it has entered into concession agreements.
Focused EPC player with road projects focus
The GRIL has over 25 years of experience in executing EPC projects which have been in the road sector comprising construction and development of state and national highways, bridges, culverts, flyovers, airport runways, tunnels and rail over-bridges. Since 2006, the company has executed more than 100 road construction projects and accordingly have established credentials as an EPC player capable of executing a range of construction projects that involve varying degrees of complexity. The company believes that the focused approach is likely to enable them to benefit from future market opportunities and expand into new markets. Consequently, in March and May 2018, the company has been awarded two projects for the railways sector which include earthwork, construction of bridges and supply of materials and track linking and civil engineering works.
As of March 31, 2021, GRIL’s order book primarily comprised of EPC and HAM projects in the road sector across the states of Uttar Pradesh, Madhya Pradesh, Maharashtra, Gujarat, Chhattisgarh, Rajasthan, Andhra Pradesh, Bihar, Manipur, Odisha and Himachal Pradesh. In addition, its order book includes railway projects in Andhra Pradesh and Madhya Pradesh and an optical fibre project spread across the states of Bihar, Odisha, West Bengal, Andaman and Nicobar Islands, Jharkhand and Sikkim. In the past, the company has also executed projects in Haryana, Punjab, Jharkhand and Meghalaya. The company believes that the consistent growth in order book has resulted from continued focus on road projects and its ability to successfully bid and win new projects. Also, its experience in execution of road projects, technical capabilities, timely performance, reputation for quality, financial strength as well as the price competitiveness of bids have enabled them to successfully bid for and win projects.
Established track record of timely execution
With experience of over 25 years and more than 100 road construction projects executed since 2006, the company believes that it has developed an established track record of efficient project management and execution experience, involving trained and skilled manpower, efficient deployment of equipment and an in-house integrated model. These attributes have enabled company to compete projects prior to or by scheduled timelines. Its in-house materials supply chain management ensures that key construction materials are timely delivered to manufacturing facilities and construction sites, thereby enabling it to manage processes effectively and maintain key raw material inventory in an optimal manner. Project management team, working in conjunction with the design and engineering team, ensures operational efficiencies through overall supervision of the manufacturing and project execution process.
In addition, in Fiscals 2021, 2020, and 2019, of the total projects completed, 50%, 50% and 80% of such projects were completed before the scheduled completion date.
In-house integrated model
GRIL undertakes construction business in an integrated manner with development of key competencies and resources in-house to deliver a project from conceptualization until completion. Its in-house integrated model includes a design and engineering team, manufacturing facilities for processing of bitumen, thermoplastic road-marking paint and road signage, fabrication and galvanization unit for manufacture of metal crash barriers, owned construction equipment and a fleet of transportation vehicles. Its manufacturing facilities help reduce dependence on third party suppliers for key materials i.e., bitumen emulsion, as well as other products required for completion of roads such as signages, overhead structures and toll canopies. Also, its in-house integrated model is facilitated by the timely transportation of key raw materials such as bitumen and diesel to project sites by tankers owned by the company that are fitted with GPS tracking devices, which reduces pilferage and adulteration. As of March 31, 2021, equipment base comprised over 7,000 construction equipment and vehicles. The company have also set up a workshop in Udaipur, Rajasthan wherein it undertakes major repair and maintenance of construction equipment and vehicles. As at March 31, 2021, the aggregate gross block value of Company’s property, plant and equipment was |1,999.9 crore. Its integrated model ensures that products and services required for development and construction of a project meet quality standards and are delivered in a timely manner thereby reducing contractual risks involved with third party suppliers of products and services. Its in-house integrated model provides with a competitive advantage over other infrastructure development and construction companies that outsource their construction activities to external agencies.
Strong financial performance and credit rating
The significant growth of its business in the last three fiscal years has contributed significantly to the financial strength. The revenue from operations increased from | 5282.6 crore in Fiscal 2019 to | 7844.1 crore in Fiscal 2021 at a CAGR of 21.9% while profit for the year increased from | 716.6 crore in Fiscal 2019 to | 953.2 crore in Fiscal 2021 at a CAGR of 15.3%. GRIL’s credit rating and relationship with its lenders enables them to raise financing in a timely manner, which helps in maintaining the requisite leverage from the operations. As of March 31, 2021, company’s total borrowings were | 4,495.0 crore. The company’s long term rating from CRISIL is AA/Stable.
Key risks and concerns
Business highly dependent on road projects
GRIL’s business is primarily dependent on road projects in India undertaken or awarded by governmental authorities and other entities funded by the Government of India or state governments. Currently, the company derives majority of revenues from contracts with a limited number of government entities, including NHAI and MoRTH. As of March 31, 2021, 99.63% of company’s overall order book was attributable to contracts awarded by government authorities and other entities funded by central or state governments. Such concentration of business on a few projects or clients may have an adverse effect on results of operations and result in a significant reduction in the award of contracts.
Delays in the completion of projects may lead to termination of concession and other EPC agreements or cost overruns
GRIL’s projects are required to achieve commercial operation no later than the scheduled commercial operation dates specified under the relevant concession and EPC agreements, or by the end of the extension period, if any is granted by the concessioning authority or an employer in case of EPC projects. The company provides performance securities for completion of the construction of projects within a specified timeframe. Subject to certain customary exceptions such as (i) occurrence and continuance of force majeure events that are not within the control of the concessionaire, or (ii) delays that are caused due to reasons solely attributable to the concessioning authority or the EPC employer, failure to adhere to contractually agreed timelines or extended timelines could require company to pay liquidated damages as stipulated in the concession and other EPC agreements or lead to encashment and appropriation of the bank guarantee or performance security. The concessioning authority or the client may also be entitled to terminate the concession or EPC agreement in the event of delay in completion of the work if the delay is not on account of any of the agreed exceptions.
Effect of the COVID-19 pandemic is highly uncertain and cannot be predicted
The COVID-19 has spread throughout the world causing governments, companies and various jurisdictions to impose restrictions, such as lock-downs, quarantines, closures, cancellations and travel restrictions. While the effects of these restrictions are expected to be temporary, the duration of the business disruptions in India and internationally, and related financial impact cannot be reasonably estimated at present. Additionally, the impact of the COVID-19 pandemic on GRIL’s business continues to depend on a range of factors which includes a) ability of the various parties such as contractors, manpower, equipment suppliers, raw material suppliers, consultants, independent engineers, lenders, independent engineers, authorities to carry out their work effectively in a timely manner, b) abilities of the state governments to be able to contain the spread of the pandemic, c) ability to bill GRIL’s clients on a timely basis due to the inability or delay in the independent verification of completion of works, d) ability to carry out construction work on the similar scale, e) ability to recover any losses in revenue during the period for which the lockdown was implemented in the country and f) temporary shutdown of manufacturing facilities due to government restrictions.
Priced at 8.5x FY21 P/E on upper band
At Rs. 837(upper band), the stock is priced at 8.5x FY21 consolidated EPS.