G R Infra IPO review (May apply)

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Review By Dilip Davda on July 1, 2021

•    GRIL is an integrated EPC contractor and engineering company.
•    It has posted growth in top and bottom lines for the last three fiscals.
•    GRIL has an order book of Rs. 19K+ crore as of March 31, 2021.
•    The issue is reasonably priced compared to industry peers.
•    Investors may consider investing with a long term perspective.

ABOUT COMPANY:
G R Infraprojects Ltd. (GRIL) is an integrated road engineering, procurement and construction ('EPC') company with experience in the design and construction of various road/highway projects across 15 states in India and has recently diversified into projects in the railway sector. The company's principal business operations are broadly divided into three categories: (i) civil construction activities, under which it 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, under which it processes bitumen, manufacture thermoplastic road-marking paint, electric poles and road signage and fabricate and galvanize metal crash barriers.

GRIL's principal business of civil construction comprises EPC and BOT projects in the road sector. It has, since 2006, executed over 100 road construction projects. As of the date of filing Red Herring Prospectus, out of BOT projects, it has one operational road project which has been constructed and developed by it on a BOT (annuity) basis and 14 road projects which have been awarded to it under the HAM, out of which five projects are currently operational, four projects are under construction and construction is yet to commence on five of these projects. The company also has experience in constructing state and national highways, bridges, culverts, flyovers, airport runways, tunnels and rail over-bridges.

As of March 31, 2021, the company's total borrowings were Rs. 4494.97 cr. while its net worth was Rs. 3980.03 cr.

As of March 31, 2021, GRIL had an Order Book of Rs. 19025.81 cr. comprising 16 EPC projects, 10 HAM projects and three other projects. As of March 31, 2021, GRIL had 16333 permanent employees.

ISSUE DETAILS/CAPITAL HISTORY:
To provide an exit to some of its stakeholders and unlock the listing benefits, GRIL is coming out with a maiden Initial Public Offer (IPO) of 11508704 equity shares having face value (FV) of Rs. 5 each, under book-building process to mobilize Rs. 963.28 cr. (at the upper price band of the offer). This is purely a secondary offer and no fresh equity is being issued. The issue opens for subscription on July 07, 2021, and will close on July 09, 2021. It has fixed a price band of Rs. 828 - Rs. 837 and minimum application is to be made for 17 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE.

The company has reserved 225000 equity shares for its eligible employees and offering them a discount of Rs. 42 per share. From the residual portion, it has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors. The issue constitutes 11.90% of the post issue paid-up equity capital of the company.

Joint Book Running Lead Managers (BRLMs) for this issue are HDFC Bank Ltd., ICICI Securities Ltd., Kotak Mahindra Capital Co. Ltd., Motilal Oswal Investment Advisors Ltd., SBI Capital Markets Ltd. and Equirus Capital Pvt. Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.

Having raised initial equity at par, the company raised further equity in the price range of Rs. 32.50 to Rs. 177.73 (based on Rs. 5 FV) between September 2010 to August 2011. It has also issued bonus shares in the ratio of 1 for 1 in June 2016. The average cost of acquisition of shares by the promotes/selling stakeholders is Rs. 2.50, Rs. 5.44, Rs. 5.50, Rs. 6.48, Rs. 22.12, Rs. 50.78 and Rs. 130.80 per share.

Post issue, GRIL's paid-up equity capital will remain the same at Rs. 48.34 cr. as this being a secondary offer. Based on the upper cap of IPO pricing, GRIL is looking for a market cap of Rs. 8092.87 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, GRIL has (on a consolidated basis) posted turnover/ net profits of Rs. 5325.53 cr. / Rs. 716.64 cr. (FY19), Rs. 6423.71 cr. / Rs. 800.83 cr. (FY20) and Rs. 7906.94 cr. / Rs. 953.22 cr. (FY21). Though it has posted growth in top and bottom lines, pressure on margins is evident from the financial data. The rise in finance cost, depreciation and tax provisioning have attributed to lower margins, as clarified by the management.  For these periods, GRIL has posted a CAGR of 21.85% in income and 15.33% in profits.

For the last three fiscals, GRIL has (on a consolidated basis) posted an average EPS of 89.00 and an average RoNW of 26.15%. The issue is priced at a P/BV of 2.03 based on its NAV of Rs. 411.63 per share as of March 31, 2021.

Based on its EPS of Rs. 98.31 for FY21, the issue is priced at a P/E of 8.51 (at the upper price band), which augurs well against the industry average P/E of 16.73.

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown KNR Const., PNC Infratech, HG Infra, Dilip Buildcon, Ashoka Buildcon, IRB Infra and Sadbhav Engg as its listed peers. They are currently trading at a P/E of around 26.59, 20.45, 12.53, 26.28, 7.62 and 00 (as of July 01, 2021).  However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
The company has not paid any dividend for the financial period referred into the offer documents. It will follow a prudent dividend policy post listing on the basis of its financial performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
The six BRLMs associated with the offer have handled 30 public offers in the last three fiscals (including the ongoing one), out of which 9 offers closed below the offer price on the listing date.

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