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G R Infraprojects’ (GRIL) 1QFY24 results were weak but in line with estimate. PY financials include bonus of INR 1.3bn and impacts YoY comparison. PAT at INR 2.1bn (down 35% YoY) came in line with estimate of INR 2.05bn (consensus: INR 2.56bn). Revenue/EBITDA declined by 13%/35% YoY to INR 21.5bn/ INR 3.15bn. EBITDA margin declined by 50bps YoY on PY adjusted base to 14.6%. Order backlog including L1 orders stood at INR 253bn (3.2x TTM revenue) as on June-23. However, bid validity for 2 ropeway projects (GR was L1) with EPC value of c.INR 32bn has expired and are at elevated risk of cancellation. As a result we lower our FY25 EPS by 4.3%. While near term growth outlook remains constrained, GRIL’s efforts at diversification should bear fruits and drive improved order intake in FY24/FY25. Bid pipeline remains robust at INR 900bn. The balance sheet is strong and the company has adequate access to growth capital. Maintain BUY with revised price target of INR 1530

* Earnings weak but in-line with estimates: Revenue/EBITDA declined by 13%/35% YoY to INR 21.5bn/INR 3.15bn (in-line). Adjusted for bonus in PY, revenue declined by 8% YoY due to lower executable backlog (back-ended awarding in FY23). Interest cost was flat YoY at INR 266mn (estimate: INR 275mn). Gross debt reduced by INR 1.7bn YoY to INR

* Order backlog to weaken due to likely cancellation of ropeway projects: Bid validity for 2 ropeway projects with estimated EPC value of INR 32.5bn (L1 since Feb-23) expired on 12th Aug-23 and are now at elevated risk of cancellation. Current backlog of INR 253bn (3.2x TTM revenue) will moderate as a result. Also, only 43% of total backlog is under execution. GRIL expects to receive AD for new HAM projects in 3Q/4Q. For NHPC project, LoA is expected in 2 months. So, entire backlog is likely to be executable by Mar-24.

* Targets inflows of INR 200bn; InVIT to be launched by Sept-end: GRIL has a robust bid pipeline of INR 900bn (Highways: INR 750bn, Railways: INR 100bn, Power: INR 50bn). Also, it has submitted bids of INR 120bn (results awaited for bids of INR 76bn). GRIL has maintained inflow guidance of INR 200bn for FY24 as it expects highways bid pipeline to start getting awarded by Oct-23. It guided for revenue growth of 5-10% (could exceed 10% based on inflow mix) and EBITDA margins of 14-15%. Balance equity requirement for its asset portfolio stands at INR 23.8bn which is expected to be invested over FY24- 26E. Launch of InVIT has been delayed to Sept-end due to delay in approvals from NHAI.

* Maintain BUY with price target of INR 1530: We have cut our FY25 EPS estimate by 4.3% due to likely cancellation of ropeway projects. Hence, we estimate moderate revenue/core EPS CAGR of 9%/10% over FY23-25E for GRIL on standalone basis. While near term growth is constrained, GRIL’s diversification efforts should drive improved order inflows in FY24/FY25. The bid pipeline at INR 900bn remains strong and is likely to be awarded by Dec-23. We like GRIL given its strong balance sheet and access to capital (equity raise to comply with public listing norms and InvIT). Valuations are reasonable at 13.4x FY25E EPS and have room for upside led by improved order wins. We value GRIL’s EPC business at 14x FY25 core EPS (w/o interest income from subs) and its asset portfolio at INR 360/share to arrive at revised price target of INR 1,530. Maintain Buy.

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