Verdict: GR = Good fundamentals + Reasonable valuation

Rs 963 cr IPO: entirely OFS (no fresh issue) by PE investor (83% of OFS) and promoter (13%)

IPO Date: Wed 7^th Jul to Fri 9^th Jul 2021

Price band: Rs. 828-837 per share

MCap (at upper band): Rs. 8,093 cr, 12% dilution

Listing Date: 19^th July 2021

Road EPC Player, with presence in 15 States

G R Infraprojects undertakes road projects in UP, Bihar, Madhya Pradesh, Maharashtra, Rajasthan, Gujarat on engineering, procurement and construction (EPC) and hybrid annuity model (HAM) basis, with a Rs. 19,000 cr order book (31.3.21), representing 2.4x FY21 revenue of Rs. 7,844 cr. FY21 revenue grew 23% YoY, the highest growth among all listed road EPC companies, with Rs. 7,800 cr revenue, being second only to Dilip Buildcon’s Rs. 10,200 cr. Between FY18-21, company’s revenue clocked 34% CAGR growth, with PAT growing at 32% CAGR during the 3 years.

Margins Superior to Peers

With net debt of Rs. 3,600 cr, company’s debt-equity ratio is contained below 1 time i.e. 0.9:1 along with healthy AA credit rating, making it one of the two companies (KNR Construction being the other) to clock double digit net margin. FY21 PAT rose 19% YoY to Rs. 953 cr, resulting in 12.1% PAT margin and EPS of Rs. 98.3, on a small equity of Rs. 48.3 cr (FV Rs. 5 each). Company’s working capital management is strong, with debtor days below 1 month, resulting in a superior RoE of 24% vis-à-vis 13-21% for peers such as Dilip, PNC Infra, KNR Construction and Ashoka Buildcon. 

Low Dilution of 12%

Promoter holding of 88.0% will drop to 86.5% post IPO. PE investor Motilal Oswal is making a complete exit, being handsomely rewarded at 32% CAGR on the 10 year investment. Interestingly, Motilal Oswal is one of the bankers to the IPO, but no disclosure is made to highlight the conflict of interest.

Under-Valuated over Peers

At Rs. 837, company’s mcap will be Rs. 8,093 cr and enterprise value will be of Rs. 11,650 cr. This discounts FY21 earnings by EV/EBITDA and PE multiples of 6x and 8.5x respectively, which are undemanding for the size, historic growth and margin profile.

Highly leveraged peers like Dilip Buildcon, IRB Infra, Ashoka Buildcon, with debt equity ratio over 2x, are ruling in double digit PE multiples, whereas PNC Infra and KNR Construction with similar debt equity and margins are ruling at PE multiples of 15-16x, making GR Infra’s offer of 8.5x nearly half of its fair value. Thus, enough money has been left on the table for prospective investors.

Conclusion:

Strong Fundamentals, backed with Reasonable Valuations, lead to high probability of listing gains and also keep outlook healthy over the longer term. Hence, we recommend a ‘subscribe’ to the IPO.

Grey Market Premium (GMP) of G R Infra: Grey Market Premium of GR Infraprojects is an unofficial figure, against guidelines of SEBI and we are strongly against it. To know how it operates, read our article ‘grey market premium’.