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Efficient road developer; diversification on the cards…

About the stock: GR Infraprojects Ltd (GRIL) is a leading player in the roads and highways sector with ~6% market share in NHAI road orders

The company has delivered 30.3% revenue CAGR during FY16-21 (vis-à-vis HG Infra’s, KNR’s, PNC’s revenue CAGR of 28.8%, 24.6%, 19.8% respectively), well-complemented by 42.2% EBITDA CAGR and 49.1% PAT CAGR

Key triggers for future price performance:

GRIL is targeting a) railways: projects involving earthwork, bridge construction, track linking, and laying of optical fibre cables, b) metros: civil engineering work and c) power transmission business: to participate in tariff based competitive bidding. Overall, it is aiming at 15-20% revenue contribution from non-roads segment over the medium-to-longer term

We expect the prudent bidding discipline from GRIL to continue ahead with a) larger number and higher valued jobs coming under HAM model and b) major developers focusing on balanced EPC and HAM portfolio. Further, GRIL is targeting HAM projects with 20%+ operating margins – much better than EPC jobs having 14-15% margin, which ensures better IRRs and profitability

The balance sheet is expected to remain lean with 0.2x net D/E whereas monetisation of HAM portfolio would free up tied up-capital

What should investors do? GRIL is well placed to deliver 14.7%, 19.7% revenue, PAT CAGR, respectively, over FY22-24E. Elevated profitability with strong asset turnover is expected to result in healthy return ratios.

We initiate coverage on the stock with a BUY recommendation

Target Price and Valuation: We value GRIL at | 1780, on SOTP basis.

Alternate Stock Idea: Besides GRIL, we like KNR Constructions in the road EPC space.

Lean balance sheet, strong execution and healthy order book

BUY with a target price of | 360/share

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