Equity Share Capital - 11.00 Cr
No. of equity shares – 1,11,04,761
Promoter holding – 54%
General Public – 12.77%
Market Cap – Rs.466 Cr
Book Value – Rs.195
Reserves – Rs.205 Cr
EPS (Rs) – Rs.41
52 week high/low – Rs.472.10/Rs. 70.50
CMP – Rs.420
Company Profile:
GPL specialises in road and irrigation projects and has a pan-India presence. Three new divisions—urban infrastructure, water and industrial construction—were added recently as part of its plan to expand into other verticals of infrastructure and de-risk its business. The company has displayed extensive execution capabilities in the past and has completed several projects in diverse segments like irrigation, dams, railways, highways, water treatment plants, airport runways, port projects, industrial structures and onshore projects.
Strong growth visibility:
Gayatri Projects Ltd (GPL) has an impressive order book of Rs.6,250 Cr—more than 6x its FY2009 revenues. Besides, the company is the lowest bidder (L1) for projects worth Rs.2,250 Cr which include a highway built-operate-transfer (BOT) project of Rs.2,000 Cr and a road construction project of Rs.250 Cr. Currently, irrigation projects dominate the order book with a 61% share while road projects account for 35%. To de-risk its business model GPL is strategically venturing into newer segments: urban infrastructure, water division and industrial construction.
BOT deals add to the value:
At present GPL have six BOT road projects out of which four are on annuity basis and two are toll-based projects. Of these, five projects are expected to start generating revenue from FY2011. Two of its projects are completing ahead of schedule and hence would receive bonus of Rs.70 Cr.
Power project—financial closure near-term trigger:
As a strategy to expand vertically, GPL (under its subsidiary Gayatri Energy Ventures Ltd [GEVL]) is developing a 1,320MW (2X660MW) thermal power plant at Krishnapatnam, Andhra Pradesh (AP). About 70% of the debt for the project has already been tied up and the project is expected to achieve financial closure by May 2010. Moreover, GPL is expected to rope in a strategic partner in GEVL by diluting 49% stake at a substantial premium. We believe that positive developments related to the financial closure of the project and unlocking of value through the induction of a strategic partner in GEVL are the near-term triggers for the stock. GEVL can be valued at a 50% discount to its book value currently.
Strong growth despite issues in AP:
Despite the fact that some of GPL’s irrigation projects could get delayed in AP due to political issues, we expect the revenues and earnings to grow at CAGR of 26.4% and 35.4% respectively during FY2009-12. The EPS are expected to grow at a CAGR of 17.4% on the fully diluted equity base.
Attractive valuations:
Currently the stock is trading at 7.3x and 5.9x its FY2011E and FY2012E earnings respectively and the valuations are attractive given GPL’s growth plans. To discount for its AP focus, we have valued the core business at Rs463 which is 7x (as against 8x for the other mid-cap infrastructure companies in our coverage) FY2012 earnings. The SOTP based price target also includes Rs.37.8 for its six BOT projects (based on the NPV method) and Rs.48.4 for its power project (0.5x of its Rs.150 core investment in GEVL). Thus, we initiate coverage on the stock with a Buy recommendation and price target of Rs.549.
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