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G R Infraprojects’ (GRIL) 3QFY24 adjusted PAT at INR 1.49bn missed JMFe of INR 1.63bn (consensus: INR 1.69bn) due to lower revenue/margins. Reported PAT at INR 1.55bn includes gain of INR 66mn (post tax) on sale of 21% stake in Nagaur HAM project. Order inflows have been muted at INR 22bn in YTD moderating the backlog to INR 193bn (2.6x TTM revenue). Executability remains low at only 52%. Given the weaker inflows and delay in ADs for HAM projects, GRIL has cut inflow guidance from INR 100bn to INR 70bn and revenue guidance from 0-5% growth to 0-5% decline in FY24. Given the lower execution, it expects margins to remain in 13-14% range before improving in FY26. For FY25, it expects inflows to improve to INR 150bn but execution would remain weak and expects 0-5% revenue decline. So, we have cut FY24/25 EPS by 9%/16%. GRIL targets to launch InVIT in Mar-24. While near term growth remains constrained, GRIL is well capitalised to capture opportunities ahead which would drive 15%/22% YoY revenue/EPS growth in FY26E. The coverage stands transferred to Vaibhav Shah. Maintain BUY with revised price target of INR 1445.

* Earnings missed estimates due to lower revenue/margins: Revenue declined by 5% YoY to INR 18bn (JMFe: INR 19bn) due to lower executable backlog. EBITDA margin declined by 180bps YoY on adjusted base to 12.6% (JMFe: 13.7%). Adjusted PAT declined by 15% YoY to INR 1.49bn (JMFe: INR 1.63bn) due to lower revenue/margins. Gross debt increased marginally from INR 8.6bn in Sept-23 to INR 9bn in Dec-23.

* Order backlog moderates due to muted order wins; bid pipeline remains robust: GRIL’s order inflows at INR 22bn in YTD were muted, moderating its order backlog to INR 193bn (2.6x TTM revenue). Also, 13 projects worth c.INR 92bn await ADs of which AD for 5-6 projects are expected in 4QFY24 while for remainder in FY25. GRIL has abid pipeline of INR 2tn (Highways: INR 1.8tn, Power: INR 100-150bn). It has also submitted bids for projects pf INR 55bn where results are awaited.

* Lowers guidance on all fronts: GRIL has lowered order inflow guidance from INR 100bn to INR 70bn for FY24 given the weaker YTD inflows. It has lowered revenue guidance from 0-5% growth to 0-5% decline in FY24 given the delay in receipt of ADs for 10 HAM projects. Currently, only 52% of the backlog of INR 193bn is executable. Given the lower execution, it expects EBITDA margins in range of 13-14% which can improve in FY26. For FY25, GRIL expects inflows of INR 150bn (50% BOT, 25% HAM & 25% non-Highways). Pending equity requirement for its PPP portfolio stands at INR 21bn.

* Maintain BUY with revised price target of INR 1445: We have cut our FY24/25 EPS estimate by 9%/16% due to muted YTD inflows and lower executable order backlog. While the near term growth outlook remains constrained, GRIL is well capitalised to capture opportunities ahead which would drive 15%/22% YoY revenue/EPS growth in FY26E. 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 10.6x FY26E core EPS (w/o interest income from subs) after adjusting for value of assets. We value GRIL’s EPC business at 14x FY26 core EPS and its asset portfolio at INR 429/share to arrive at revised price target of INR 1,445. Maintain Buy

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