Notwithstanding impressive financials, changing registered office five times, taking properties on lease from promoters’ relatives, promoters acquiring significant stake through merger and amalgamation of group entities, indulging in private placements with retail investors during the 90’s, violation of regulations with regard to Debt Listing Agreement, getting `warning letter’ from SEBI for poor compliance record, etc., etc. do not speak well of management quality.
|
G R INFRAPROJECTS OFFER AT A GLANCE |
|
|
Offer Type |
Book Built |
|
Platform |
Main Frame |
|
Fresh Issue |
Nil |
|
Offer for Sale |
11,508,704 Shares (Rs 963 cr) |
|
Face Value |
Rs 5 |
|
Price Band |
Rs 828 – 837 |
|
Mkt/Bid Lot |
17 Nos. |
|
Implied M-Cap |
Rs 8,093 Cr |
|
Equity Cap |
Rs 48.34 Cr |
|
Free Float |
13.46% |
|
Lead Manager |
HDFC Bank, ICICI Sec, Kotak Mahindra, Motilal Oswal, SBI Cap, Equirus Cap |
|
Registrar |
KFin Technologies |
|
Listing At |
BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
|
Opening : 07-Jul-2021 |
Closing : 09-Jul-2021 |
|
Allotment : 14-Jul-2021 |
Refunding : 15-Jul-2021 |
|
Demat Credit : 16-Jul-2021 |
Trading : 19-Jul-2021 |
The Offer
The Ahmedabad-registered G R Infraprojects Ltd (GRIL), which completed 25 years in December last year, is going public with an offer for sale of 11,508,704 shares valued Rs 963 cr at the cap price. The offer is being made through the book-building route with a price band of Rs 828-837 for Rs 5 paid-up share.
Applicants should bid for a minimum lot of 17 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on July 19, 2021. HDFC Bank, ICICI Securities, Kotak Mahindra Capital, Motilal Oswal Investment Advisors, SBI Capital Markets and Equirus Capital are acting as managers to the offer and KFin Technologies has been roped in as registrar to the issue. The bidding opens on Wednesday, July 7 and closes on Friday, July 9, 2021.
Lineage
Of late, the term promoter seems to have lost its sanctity. Companies keep changing the names of the promoters according to the management’s convenience! For instance, GRIL’s offer document claims that as on the date of the Red Herring Prospectus, the promoters of the company were Vinod Kumar Agarwal, Ajendra Kumar Agarwal, Purshottam Agarwal and Lokesh Builders (P) Ltd.
Of the core promoters’ holding of 46.89% Lokesh Builders alone holds more than 33%. Interestingly, when GRIL was incorporated, Lokesh Builders was not even in existence! It was actually formed six years later. Another peculiarity of GRIL is, the promoters are based in Udaipur (Rajasthan), the company’s registered office is in Ahmedabad (Gujarat) and its corporate office is located at Gurugram (Haryana).
Prior to the incorporation of GRIL, the individual Promoters were associated with M/s Gumani Ram Agarwal, a partnership firm engaged in construction business. They incorporated GRIL in December 1995 as G R Agarwal Builders and Developers Ltd and the newly formed company acquired the promoters’ partnership firm in 1996. The name of the company was changed to G R Infraprojects Ltd in 2007.
There is no denying the fact that in last twenty-four years, GRIL has gradually increased its execution capabilities in terms of the size of projects that it has bid for and executed. From a just Rs 2.65 cr road project for the Public Works Department, Rajasthan, in 1997 GRIL has graduated to get a NHAI project (Vadodara-Mumbai Expressway) of Rs 2,747 cr recently.
Key Management
Senior most member of the promoter group, Vinod Kumar Agarwal (61), is the Chairman and Whole Time Director of GRIL. He is reportedly instrumental in the growth of the company and looks after the strategy and policy formulation, liaison with various departments of the Government and also overlooks the processes of bidding, tendering and planning.
The chairman’s brother, Ajendra Kumar Agarwal (57), designated as Managing Director, is responsible for the overall functioning of the company, especially the operational and technical aspects. Vikas Agarwal (40) is a Whole Time Director responsible for the functioning of ongoing projects. Another Whole Time Director, Ramesh Chandra Jain (56), was earlier associated with NHAI. He joined GRIL in 2015 and is looking after construction of roads, highways and bridges.
Stakeholders
Besides the four core promoters, who collectively hold 46.89% of the company’s equity capital of Rs 48.34 cr, fifteen other individuals, five HUFs and five private companies, who form part of the promoter group, control 41.15%. Two venture capital funds affiliated to Motilal Oswal group, who entered the company as investors in 2011, hold 9.9% at an average cost of Rs 50.78 a share.
Post-offer for sale, the promoters will have 45.71% and promoter group will hold 40.83% at nil or negative cost. As the entire holding is being offered for sale, Motilal Oswal group will have a nil stake after the public issue.
Business Track
GRIL presents itself as an integrated road EPC (engineering, procurement and construction) company with experience in design and construction of various road/highway projects across 15 States in India. It has recently diversified into projects in the railway sector too. Its principal business operations are broadly divided into three categories: (i) civil construction activities, under which it offers EPC services; (ii) development of roads, highways on a BOT (build-operate-transfer) basis; 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.
In Fiscal 2019, 2020, and 2021, the revenue from civil construction (which comprises civil construction, civil maintenance and laying of optical fiber cables) was Rs 4,864 cr, Rs 5,932 cr and Rs 7,131 cr respectively, which contributed 92%, 93% and 91% respectively of the company’s revenue.
GRIL’s business is primarily dependent on road projects in India undertaken or awarded by governmental authorities and other entities funded by the GoI or state governments. As of March 31, 2021, Rs 18,956 cr that is 99.63% of the Order Book was attributable to contracts awarded by governmental authorities and other entities funded by central or state governments. Since 2006, GRIL has reportedly executed over 100 road construction projects.
Financial Track
GRIL has put up an impressive show in last three years. From Rs 3,295 cr in fiscal 2018, the company’s top line has steadily increased to Rs 7,844 cr in fiscal 2021. Operating margin has remained intact at above 24%. The company’s bottom line, which saw a dip in fiscal 2018, has more than doubled in three years. The company’s reserves stood at Rs 3,932 cr against its capital base of Rs 48 cr.
However, the two and a half decade old company is yet to join the dividend list. Further, the company has experienced negative net cash flows from operating activities in the last three years which takes the gleam away from its impressive operating financials. Also, the company’s borrowings are bulging. From Rs 673 cr in fiscal 2018, borrowings have zoomed to over Rs 3870 cr towards fiscal 2021 end.
|
GR Infraprojects Consolidated Financials (in Cr) |
|||||
|
Year Ended |
Mar-21 |
Mar-20 |
Mar-19 |
Mar-18 |
Mar-17 |
|
Revenue |
7844 |
6373 |
5283 |
3295 |
3281 |
|
Operating Profit |
1850 |
1586 |
1283 |
624 |
750 |
|
OPM% |
23.6 |
24.9 |
24.3 |
18.9 |
22.9 |
|
Other Income |
63 |
51 |
43 |
40 |
21 |
|
EBIDTA |
1913 |
1637 |
1326 |
664 |
771 |
|
EBIDTA % |
24.2 |
25.5 |
24.9 |
19.9 |
23.4 |
|
Interest |
362 |
294 |
170 |
68 |
126 |
|
Depreciation |
226 |
189 |
149 |
86 |
69 |
|
Net Profit |
933 |
801 |
717 |
413 |
558 |
|
Equity |
48 |
48 |
48 |
48 |
48 |
|
Reserves |
3932 |
2979 |
2181 |
1467 |
1083 |
|
Borrowing |
3871 |
2768 |
1860 |
673 |
406 |
Valuation
GRIL has put a price band of Rs 828-837 for Rs 5 paid-up share. Since the promoters’ average cost of holding is very low, post offer for sale, their residual cost will become negative. Ten years ago, Motilal Oswal’s venture capital funds had invested about Rs 49 cr against which they will get over Rs 800 cr through the offer for sale. In other words, the venture capital funds will get a gain of Rs 752 cr which gives a return of 1548% in 10 years. Will GRIL facilitate such a fabulous return to the investors in its IPO?
As compared to the valuation of its industry peers, GRIL’s offer price may appear cheap. Nonetheless, the management’s track record in corporate governance would certainly advise caution.
HOW G R INFRA COMPARES WITH INDUSTRY PEERS
|
Financials |
|||||
|
(Amount in Cr) |
GR Infra |
Dilip Build |
PNC Infra |
KNR Const |
IRB Infra |
|
Market Cap |
8093 |
8366 |
7491 |
6758 |
5470 |
|
Borrowing |
3871 |
9583 |
3755 |
729 |
18085 |
|
Fixed Assets |
1369 |
5908 |
661 |
343 |
174 |
|
Revenue |
7844 |
10168 |
5788 |
2904 |
5299 |
|
Other Income |
63 |
42 |
111 |
52 |
189 |
|
EBIDTA |
1913 |
2221 |
1533 |
844 |
2536 |
|
Interest |
362 |
1173 |
426 |
134 |
1692 |
|
Net Profit |
933 |
421 |
496 |
383 |
117 |
|
Equity Cap |
48 |
146 |
51 |
56 |
351 |
|
Reserves |
3932 |
3263 |
3002 |
1903 |
6549 |
|
Stock Features |
|||||
|
Current Price (Rs) |
837 |
572 |
292 |
240 |
156 |
|
Face Value (Rs) |
5 |
10 |
2 |
2 |
10 |
|
Book Value |
412 |
233 |
119 |
70 |
196 |
|
Promoter Stake % |
86.5 |
75.0 |
56.1 |
55.0 |
57.7 |
|
Debt/Equity |
1.0 |
2.8 |
1.2 |
0.4 |
2.6 |
|
Profitability |
|||||
|
OPM % |
23.6 |
21.4 |
24.6 |
27.3 |
44.3 |
|
Net Margin % |
11.8 |
4.1 |
8.4 |
13.0 |
2.1 |
|
Cash EPS |
119.88 |
47.49 |
33.5 |
21.24 |
19.88 |
|
Earnings Per Share |
96.49 |
17.20 |
19.34 |
14.49 |
3.33 |
|
Return |
|||||
|
RONW % |
23.4 |
12.4 |
16.2 |
19.5 |
1.7 |
|
ROCE % |
21.5 |
13.7 |
17.2 |
24.3 |
7.8 |
|
Discounting |
|||||
|
Price/Earnings |
8.7 |
33.3 |
15.1 |
16.6 |
46.7 |
|
Price/Cash EPS |
7.0 |
12.1 |
8.7 |
11.3 |
7.8 |
|
Price/Book Value |
2.0 |
2.5 |
2.5 |
3.5 |
0.8 |
|
Price/EBIDTA |
4.2 |
3.8 |
4.9 |
8.0 |
2.2 |
|
Price/Revenue |
1.0 |
0.8 |
1.3 |
2.3 |
1.0 |
|
Price/Fixed Assets |
5.9 |
1.4 |
11.3 |
19.7 |
31.5 |
Concern
- GRIL has changed its registered office five times in 20 years.
- The company has taken five properties on lease from promoters’ relatives and paying a monthly rent of more than Rs 1.4 lakh.
- In the past GRIL has not complied with certain terms and conditions of the Debt Listing Agreement.
- The company had missed disclosing of two arbitration proceedings in the draft prospectus filed in April 2018 for which a warning letter was issued by SEBI.
- According to the offer document, certain corporate records and regulatory filings, including those in relation to issue and allotment of equity shares during the years 1996 and 1997, and registration of resolutions and agreements are not traceable.
Such omissions and commissions reflect poorly on the quality of management.