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Strong performance

G R Infraprojects (GRIL) reported strong earnings in Q1FY22. PAT grew sharply by 187% YoY to Rs2.04bn, albeit on a low base. Revenue grew by 74% YoY to Rs21.3bn (down 19% QoQ due to Covid impact and seasonality). EBITDA grew 124% YoY to Rs3.45bn while EBITDA margin expanded 370bp YoY to 16.2%, led by better absorption of fixed costs (up 60bpQoQ). Interest costs grew 17% YoY to Rs388m (up 3% QoQ) led by higher debt. GRIL’s order backlog of Rs151bn (~Rs175bn after including L1 orders; 2.3x TTM EPC revenue). We expect 17% EPS CAGR over FY21-23, with OCF funding 77% of capex and equity commitments. Maintain ADD with an SOTP-based target price of Rs1,845.

To strengthen order backlog with targeted new order wins

GRIL’s order backlog stands at ~Rs175bn (2.3x TTM EPC revenue; including L1 of ~Rs24bn in EPC value terms), giving moderate growth visibility. GRIL has won orders of Rs22.4bn (2 HAM projects with BPC of Rs18.8bn and 1 metro project of Rs3.7bn) in YTD FY22 and it targets to strengthen order backlog to ~2.5x revenue. GRIL’s current bid pipeline is Rs250bn, implying order inflows of ~Rs100bn in FY22.

Growth to remain low in FY22, but to pick up materially in FY23, with better margins

Presently, appointed dates are pending for projects with EPC value of Rs65bn. These are likely to be received in 2-3 months with land acquisition at advance stages (75-90%). With large part of the backlog to be under execution in H2FY22, GRIL is confident of meeting FY21 revenue (Rs72.4bn) and rather aims to show some growth over that (our FY22 revenue estimate is Rs77.3bn, up 6.7% YoY). While GRIL did not give any specific margin guidance, it appeared confident of maintaining/improving them (Q1FY22 margin was 16.2% vs FY21 ex-bonus margin of 15.7%; we factor EBITDA margin of 17%).

Leverage to remain in control with OCF funding ~77% of capex/equity requirement

Standalone gross debt increased from Rs13.5bn in Mar-21 to Rs14.4bn in June-21 while NWC improved from 73 days in Mar-21 to 68 days in June-21 (as reported by the company). GRIL released Rs1.75bn equity by refinancing Varanasi-Handia HAM and targets to do the same for 4 more HAMs that have received COD/PCOD with potential to free up Rs3-4bn equity. Of total equity requirement of Rs25bn for HAM projects, pending equity of Rs12.7bn is to be invested by FY24. We expect leverage to remain under control with Net debt (including mobilization advances)/EBITDA of 1.2x in FY23E, as OCF of Rs17.5bn will fund 77% of capex/equity requirement over FY22-23.

Proven credentials along with strong earnings visibility; maintain ADD

We estimate a robust 20%/17% revenue/EPS CAGR over FY21-23, led by a healthy order backlog and targeted new order wins. Cash generation has historically been strong and should continue to support GRIL’s capital commitments. GRIL’s credentials compare well with its peer set among highway developers, which justify its relatively premium valuations (15.1x FY23E EPS without adjusting for value of BOT/HAM assets). We value GRIL’s EPC business at 16x FY23E core EPS (ex-interest income from SPVs) and value equity invested in HAMs at 0.8-1x. Maintain ADD, with an SOTP-based TP of Rs1,845.

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