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B.R. Goyal Infrastructure

• B.R. Goyal Infrastructure is coming out with an initial public offering (IPO) of 63,12,000 equity shares in a price band Rs 128-135 per equity share.
• The issue will open on January 7, 2025 and will close on January 9, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 12.80 times of its face value on the lower side and 13.50 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisor.
• Compliance Officer for the issue is Ritika Jhala.

Profile of the company

B.R. Goyal Infrastructure is engaged in the construction and development of infrastructure projects such as roads, highways, bridges and buildings since inception and has ongoing projects in the state of Madhya Pradesh, Maharashtra, Gujarat, Haryana, Uttar Pradesh, Mizoram and Manipur. The company carries out EPC services for third parties (majorly for government departments), primarily in the roads & highways, commercial complex, industrial parks, housing projects and HAM (Hybrid Annuity Mode) Projects. The company is also engaged in wind power generation, manufacturing of Ready-Mix Concrete (RMC) and Toll Collection Contract (TCC).

Over the years, it has developed an established EPC and construction business and have gradually added facilities to support and supplement its EPC and construction business. As part of its in-house integrated model, the company has developed in-house resources with key competencies to deliver a project from conceptualization to completion that includes its design and engineering team and RMC manufacturing unit with an installed capacity of 1.80 lakh cubic meters per annum at Indore in 2008. In addition, as of September 30, 2024, its equipment base comprised over 199 construction equipment, machinery and vehicles. Its integrated business model facilitates execution of projects within scheduled timelines.

The company has also forayed in the business of wind energy/Power Generation by installing a 1.25 MW Wind Power Turbine at Jaisalmer (Rajasthan) which was commissioned in 2005. The company has entered into Power Purchase Agreement with Ajmer Vidyut Vitran Nigam Limited for a period of 20 years commencing from March 2005 at a pre-determined tariff. The company seeks growth by investing in a variety of systematically identified businesses, making it a well- diversified conglomerate with interest in a range of projects such as asphaltic road construction, concrete road construction, buildings, bridges & culverts and all other civil works related to development of infrastructure.

Proceed is being used for:

• Funding capital expenditure requirement
• Funding working capital requirement
• Funding expenditure for inorganic growth through acquisitions & other strategic initiatives and general corporate purposes

Industry Overview

India’s high growth imperative in 2023 and beyond will significantly be driven by major strides in key sectors with infrastructure development being a critical force aiding the progress. Infrastructure is a key enabler in helping India become a $26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors. The government’s focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The $1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway. The infrastructure sector is a key driver of the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure the time-bound creation of worldclass infrastructure in the country.

In Interim Budget 2024-25, capital investment outlay for infrastructure has been increased by 11.1% to Rs. 11.11 lakh crore ($133.86 billion), which would be 3.4 % of GDP. As per the Interim Budget 2023-24, a capital outlay of Rs. 2.55 lakh crore ($30.72 billion) has been made for the Railways, an increase of 5.8% over the previous year. Starting with 6,835 projects, the NIP project count now stands at 9,142 covering 34 sub-sectors, as per news reports. Under the initiative, 2476 projects are under the development phase with an estimated investment of US$ 1.9 trillion. Nearly half of the underdevelopment projects are in the transportation sector, and 3,906 are in the roads and bridges sub-sector. The Indian Railways expects to complete total revenue of Rs. 2,64,500 crore ($31.81 billion) by the end of 2023-24. India’s logistics market is estimated to be $317.26 billion in 2024 and is expected to reach $484.43 billion by 2029, growing at a CAGR of 8.8%. India intends to raise its ranking in the Logistics Performance Index to 25 and bring down the logistics cost from 14% to 8% of GDP, leading to a reduction of approximately 40%, within the next five years.

With a 37% increase in the current fiscal year, capital expenditures (capex) are on the rise, which bolsters ongoing infrastructure development and fits with 2027 goals for India's economic growth to become a $5 trillion economy. In order to anticipate private sector investment and to address employment and consumption in rural India, the budget places a strong emphasis on the development of roads, shipping, and railways. Global investment and partnerships in infrastructure, such as the India-Japan forum for development in the Northeast are also indicative of more investments. These initiatives come at a momentous juncture as the country aims for self-reliance in future-ready and sustainable critical infrastructure. India, it is estimated, needs to invest $840 billion over the next 15 years into urban infrastructure to meet the needs of its fast-growing population. This investment will only be rational as well as sustainable, if it additionally focuss on long-term maintenance and strength of its buildings, bridges, ports, and airports.

Pros and strengths

Established roads and highways sector focused construction developer: The company is an established construction, development and maintenance service company, with a track record of over 20 years of experience and expertise in execution of various road focused EPC projects. It provides EPC services on a lump sum basis as well as on an item rate basis, primarily in the road sector including bridges and highways, and building and other civil construction projects. Its primary focus on providing EPC services on the roads and highways projects has helped it in gaining technical expertise in undertaking projects of different sizes and involving varying degree of complexity while simultaneously helping it to also develop quality control systems, acquire a fleet of modern construction equipment and employ manpower to supplement the growth of its operations.

Efficient business model: The company’s growth is largely attributable to its efficient business model which involves careful identification of its projects and cost optimization which is a result of executing its projects with careful planning and strategy. This model has facilitated it in maximizing its efficiency and increasing its profit margins. Additionally, its fleet of modern construction equipment ensures better control over execution and timely completion of projects.

Strong order book with growing project portfolio: In the infrastructure industry, an order book is considered an indicator of future performance since it represents a portion of anticipated future revenue. The company’s order book as on a particular date consists of an estimated revenue from unexecuted or uncompleted portions of its ongoing projects, i.e., the total contract value of such ongoing projects as reduced by the value of construction work billed until such date. As on September 30, 2024, the company has 26 ongoing projects in the roads, bridges, building and TCC sector which includes construction, improving, widening, strengthening, upgradation and rehabilitation of two, four and six lane highways construction of high-level bridge and construction of road network and an unexecuted order Book of Rs 87,339.70 lakh that comprises 24 EPC (road & building) projects and 2 toll projects.

Risks and concerns  

Maximum revenue comes from limited customers: The company derives a significant portion of its revenues from a limited number of customers. Its top ten customers have contributed 77.32%, 82.42%, 81.44% and 70.61% of its revenues for the period ended July 31, 2024, March 31, 2024, March 31, 2023 and March 31, 2022 respectively. In the event any one or more customers cease to continue doing business with it, its business may be adversely affected. There may be factors other than its performance, which may not be predictable, which could cause loss of customers. Further, any significant reduction in demand for its projects from its key customers, any requirement to lower the price offered by these customers, or any loss or financial difficulties caused to these customers, change in relationship with the customers could have a material adverse effect on its business, result of operations, financial condition and cash flow. 

Business is subject to seasonal fluctuations: The company’s business and operations may be affected by seasonal factors which may restrict its ability to carry on activities related to its projects and fully utilize its resources. Heavy or sustained rainfalls or other extreme weather conditions such as cyclones could result in delays or disruptions to its operations during the critical periods of its projects and cause severe damages to its premises and equipment. This may result in delays in execution of projects and also reduce its productivity. During periods of curtailed activity due to adverse weather conditions, it may continue to incur operating expenses and its project related activities may be delayed or reduced. Adverse seasonal developments may also require the evacuation of personnel, suspension or curtailment of operations, resulting in damage to construction sites or delays in the delivery of materials. Any such fluctuations may adversely affect its total income, cash flows, results of operations and financial conditions.

Geographical constrain: The company’s project portfolio has historically been concentrated in projects in the state of Madhya Pradesh & Maharashtra. As of September 30, 2024, 17 projects in Madhya Pradesh & Maharashtra accounted for around 76.39% of its outstanding order value. While it strives to diversify across states and reduce its concentration risk, there is no guarantee that the above factors associated with Madhya Pradesh & Maharashtra will not continue to have a significant impact on its business. If it is not able to mitigate this concentration risk, it may not be able to develop its business as it planned and its business, financial condition and results of operations could be materially and adversely affected. 

Outlook

B.R. Goyal Infrastructure is engaged in the business of construction of infrastructure projects such as roads, highways, bridges and buildings. The company is established roads and highways sector focused construction developer. It has strong order book with growing project portfolio and strong technology enabled project management capabilities. On the concern side, the company’s business is substantially dependent on its key customers from whom it derives a significant portion of its revenues. The loss of any significant clients may have a material and adverse effect on its business and results of operations. Moreover, the company’s business is subject to seasonal and other fluctuations that may affect its cash flows and business operations.

The company is coming out with a maiden IPO of 63,12,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 128-135 per equity share. The aggregate size of the offer is around Rs 80.79 crore to Rs 85.21 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations had increased by 67.63% from Rs 34,529.78 lakh in Fiscal 2023 to Rs 57,880.62 lakh in Fiscal 2024. The major reason for increase in revenue from operation is owing to increase in execution of EPC projects and further receipts from Toll Collection as the company entered into this new segment in Fiscal 2024. Moreover, the company reported a net profit of Rs 2,186.79 lakh in Fiscal 2024 as compared to a net profit of Rs 1,618.15 lakh in Fiscal 2023.

The company intends to continue to focus on efficient project execution by adopting efficient practices and advanced technologies to deliver quality projects to the satisfaction of its clients. It intends to continue to invest in modern construction equipment to ensure continuous and timely availability of equipment critical to its business, which will help it in exercising better control over the execution of its projects. It seeks to attract, train and retain qualified personnel and skilled labours and further strengthen its workforce through more comprehensive training and provide adequate and skilled manpower to its clients. It also seeks to offer engineering and technical wide range of work experience, in-house training and learning opportunities by providing them with an opportunity to work on a variety of large, complex construction projects.