Focus on profitable growth! November 21, 2014 Kunal Sheth kunalsheth@plindia.com +912266322257 Samir Bendre samirbendre@plindia.com +912266322256 Rating Not Rated Price Rs380 Target Price NA Implied Upside NA Sensex 28,068 Nifty 8,402 (Prices as on November 20, 2014) Trading data Market Cap. (Rs bn) 6.6 Shares o/s (m) 17.5 3M Avg. Daily value (Rs m) 26.2 Major shareholders Promoters 55.22% Foreign 2.64% Domestic Inst. 17.77% Public & Other 24.37% Stock Performance (%) 1M 6M 12M Absolute 25.9 72.0 453.1 Relative 19.7 26.8 417.1 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2015 NA 46.2 NA 2016 NA 57.4 NA Price Performance (RIC: MBLI.BO, BB: MBL IN) (Rs) 450 400 350 300 250 200 150 100 50 0 Nov13 Jan14 Source: Bloomberg Mar14 May14 Jul14 Sep14 Nov14 MBL Infrastructures (MBL IN) provides EPC services for Civil construction and Infrastructure projects, with presence across 14 states and portfolio of 5BOT road projects. MBL s strong execution capabilities and prudent management helped it deliver superior performance in difficult environment (a sales and PAT CAGR of 29% and 22% and average ROE of ~20% over FY1014). Recent MoU with Italian company Piacentini Costruzioni will help MBL addresses larger market in infrastructure arena by foraying into construction of ports, harbour & marine structures, water supply & sanitation projects, viaducts and elevated structures. With a strong balance sheet and execution track record MBL is well placed to benefit from opportunities in Road/water and Urban Infrastructure sector. Our back of envelope calculation suggests company can deliver sales and PAT CAGR of 20% and 2022% over next 3 years. The stock is trading at 6.4x FY14 core earnings looks attractive given the strong financial and healthy RoE. Strong track record and healthy financials: MBL Infra has delivered sales and PAT CAGR of 29% and 22% with an average ROE of ~20% over FY1014, despite being in a difficult operating environment. The company was able to deliver strong performance primarily due to prudent selection of orders (not getting to aggressive in bidding), efficient execution (through qualified team) and focused management. We believe with MBL s strong balance sheet and execution track record is well placed to benefit from opportunities in Road/water and Urban Infrastructure sector. Contd...2 Key financials (Y/e March) 2011 2012 2013 2014 Revenues (Rs m) 9,915 12,514 13,429 17,537 Growth (%) 57.7 26.2 7.3 30.6 EBITDA (Rs m) 1,275 1,586 1,336 1,804 PAT (Rs m) 603 708 553 751 EPS (Rs) 34.4 40.4 31.6 42.9 Growth (%) 76.6 17.4 (21.9) 35.8 Net DPS (Rs) 2.5 3.0 3.0 3.0 Profitability & Valuation 2011 2012 2013 2014 EBITDA margin (%) 12.9 12.7 1 10.3 RoE (%) 21.7 20.7 14.1 16.3 RoCE (%) 24.5 22.2 15.1 18.5 EV / sales (x) 0.9 0.8 0.8 0.6 EV / EBITDA (x) 6.7 6.2 8.2 6.2 PE (x) 11.0 9.4 12.0 8.9 P / BV (x) 2.4 1.9 1.7 1.4 Net dividend yield (%) 0.6 0.7 0.7 0.7 Source: Company Data; PL Research Company Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Building new avenues for growth: In order to expand its reach in the infrastructure sector, MBL has entered into a Memorandum of Understanding (MoU) with Piacentini Costruzioni, a prominent construction player in Italy. According to the MoU, Piacentini will transfer MBL the knowhow and the expertise to qualify for marine construction projects such as ports, harbour structures, water supply/sanitation, viaducts, bridges and elevated structures. The government has announced huge investment in water sector like Inland water ways project ( Jal Marg Vikas1 Rs 42bn) and National River linking projects (NRLP ~Rs 5tn) The JV with Piacentini Costruzioni will enable MBL to qualify and bid for smalltomidsized projects in the Waters sector. BOT Portfolio: MBL Infrastructures has a BOT road project portfolio of five road projects, of which one is operational (SeoniBalaghatGondia) and four are under construction. All four under construction projects have achieved financial closure and expected to be operational by FY16. The company had invested ~Rs2bn till date in the BOT assets as equity and pending equity investment in under construction projects is ~ Rs 1bn. MBL Infra has strategically bid for road projects that are important connections without alternative roads and located in mineralrich regions. Management is expecting healthy IRR of ~ 1518% in these projects. Outlook and valuation: We believe with MBL s strong balance sheet and execution track record is well placed to benefit from opportunities in Road/water and Urban Infrastructure sector. Our back of envelope calculation suggests company can deliver sales and PAT CAGR of 20% and 2022% over next 3 years. The stock is trading at 6.4xFY14 earnings looks attractive given the strong financial and healthy RoE. November 21, 2014 2
Company Snapshot MBL Infrastructures is a diversified civil contractorcumdeveloper which provides EPC services for Civil construction and infrastructure projects. It operates in segments like Highway construction, Road O&M, Industrial Infrastructure, Housing Infrastructure and Railway Infrastructure and operates in 14 states across India. They also owns five BOT projects with project cost worth Rs 11.1bn (430kms). Exhibit 1: Segment wise Order book break up (H1FY15)...Roads dominates Building & Housing 17.0 Railways 6.0 Exhibit 2: Geography wise order book break up (H1FY15)...Spread across 14 states Haryana 5.8 Assam 6.0 Others 11.7 Madhya Pradesh 24.9 Roads & Highways O&M 19.0 Roads & Highways Construction 58.0 New Delhi 7.2 Uttarkhand 10.7 West Bengal 11.1 Rajasthan 22.6 Exhibit 3: Client wise Order book break up (H1FY15)...Focus on Government client PWD Haryana 5.8 NHAI 6.1 Others 24.6 WBHDCL 9.5 PWD Uttarakhand 10.7 PWD Rajasthan 22.6 MPRDC 20.8 Exhibit 4: Order book trend..grown at 44% CAGR 35 30 25 (Rs bn) 20 15 10 5 FY11 FY12 FY13 FY14 Exhibit 5: November 21, 2014 3
Exhibit 6: Particulars Location/Stretch BOT projects details AAP Infrastructure Limited SeoniBalaghat Gondia MBL Highway Development Company Limited SeoniKatangi MBL(MP) Toll Road Company Limited WaraseoniLalbarra Road MBP (MP) Road Nirman Company Limited GarraWaraseoni Suratgarh Bikaner Toll Road Company Ltd BikanerSuratgarh State Madhya Pradesh Maharashtra Madhya Pradesh Madhya Pradesh Rajasthan Project Length (km) 114 75.6 18.3 46.9 172.4 Construction Period 2 Years 2 Years 2 Years 2 Years Concession Period 15years 30Years 15years 15years 16years MBL's Stake 100% 100% 100% 100% 65% Concession Agreement Date 5Mar 11Sep 11Dec 13Mar 11Dec Financial Closure Completed Completed Completed Completed Completed Project Type BOT Toll + Grant Toll + Annuity Toll + Annuity DFBOT Exhibit 7: Toll revenue collection of AAP projects (Rs m) 200 180 160 140 120 100 80 60 40 20 0 174 157 138 FY12 FY13 FY14 November 21, 2014 4
Exhibit 8: Healthy 22% CAGR in sales over last 4 years Exhibit 9: EBITDA margins..stabilizing Revenue (Rs m) YoY gr. (%) (RHS) EBITDA (Rs m) Margin (%) (RHS) 20,000 15,000 10,000 5,000 6,370 57.2 10,016 12,653 26.3 13,554 7.1 17,663 30.3 7 6 5 4 3 2 1 2,000 1,500 1,000 500 14.3 914 1,679 1,365 13.6 13.3 1,882 1,434 10.6 10.7 2 15.0 1 5.0 Exhibit 10: PAT CAGR of 29% over last 4 years Exhibit 11: industry leading RoE s PAT Margin (%) (RHS) 25.0 21.3 21.7 20.7 1,000 800 600 400 200 5.8 370 6.2 617 725 5.7 770 567 4.2 4.4 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2 15.0 1 5.0 14.1 16.3 November 21, 2014 5
Income Statement (Rs m) Net Revenue 9,915 12,514 13,429 17,537 Raw Material Expenses 5,486 9,813 9,748 13,979 Gross Profit 4,429 2,701 3,681 3,558 Employee Cost 155 170 220 262 Other Expenses 2,999 945 2,125 1,493 EBITDA 1,275 1,586 1,336 1,804 Depr. & Amortization 63 79 71 97 Net Interest 336 490 513 696 Other Income 23 18 11 39 Profit before Tax 899 1,036 742 1,007 Total Tax 296 327 188 255 Profit after Tax 603 708 553 751 ExOd items / Min. Int. Adj. PAT 603 708 553 751 Avg. Shares O/S (m) 18 18 18 18 EPS (Rs.) 34.4 40.4 31.6 42.9 Cash Flow Abstract (Rs m) C/F from Operations (114) 85 49 1,627 C/F from Investing (304) (724) (588) (1,074) C/F from Financing 174 626 551 (581) Inc. / Dec. in Cash (245) (14) 12 (28) Opening Cash 330 86 72 83 Closing Cash 86 72 83 56 FCFF (900) (871) (534) 423 FCFE (900) (871) (534) 423 Key Financial Metrics Growth Revenue (%) 57.7 26.2 7.3 30.6 EBITDA (%) 52.6 24.4 (15.8) 35.0 PAT (%) 76.6 17.4 (21.9) 35.8 EPS (%) 76.6 17.4 (21.9) 35.8 Profitability EBITDA Margin (%) 12.9 12.7 1 10.3 PAT Margin (%) 6.1 5.7 4.1 4.3 RoCE (%) 24.5 22.2 15.1 18.5 RoE (%) 21.7 20.7 14.1 16.3 Balance Sheet Net Debt : Equity 1.2 1.0 0.8 1.0 Net Wrkng Cap. (days) (14.9) 41.1 78.4 55.5 Valuation PER (x) 11.0 9.4 12.0 8.9 P / B (x) 2.4 1.9 1.7 1.4 EV / EBITDA (x) 6.7 6.2 8.2 6.2 EV / Sales (x) 0.9 0.8 0.8 0.6 Earnings Quality Eff. Tax Rate 32.9 31.6 25.4 25.4 Other Inc / PBT 2.6 1.7 1.5 3.8 Eff. Depr. Rate (%) 4.4 5.5 4.1 4.6 FCFE / PAT (1.5) (1.2) (1.0) 0.6. Balance Sheet Abstract (Rs m) Shareholder's Funds 2,774 3,422 3,914 4,604 Total Debt 2,171 3,363 4,457 4,633 Other Liabilities 208 259 298 342 Total Liabilities 5,153 7,044 8,669 9,579 Net Fixed Assets 1,067 1,112 1,368 1,663 Goodwill Investments 120 722 979 1,659 Net Current Assets 5,702 7,373 9,713 11,491 Cash & Equivalents 222 213 176 134 Other Current Assets 2,449 1,710 3,023 3,741 Current Liabilities 2,144 2,387 4,778 5,768 Other Assets 409 224 1,386 534 Total Assets 5,153 7,044 8,669 9,579 Quarterly Financials (Rs m) Y/e March Q3FY14 Q4FY14 Q1FY15 Q2FY15 Net Revenue 4,963 5,061 5,094 3,478 EBITDA 518 438 533 526 % of revenue 10.4 8.7 10.5 15.1 Depr. & Amortization 27 25 38 38 Net Interest 196 126 188 231 Other Income 8 4 3 3 Profit before Tax 302 291 311 260 Total Tax 69 71 78 46 Profit after Tax 233 220 233 214 Adj. PAT 233 220 233 214. November 21, 2014 6
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage % of Total Coverage 60% 50% 40% 30% 20% 10% 0% 49.5% 32.7% 16.8% 0.9% BUY Accumulate Reduce Sell PL s Recommendation Nomenclature BUY : Over 15% Outperformance to Sensex over 12months Accumulate : Outperformance to Sensex over 12months Reduce : Underperformance to Sensex over 12months Sell : Over 15% underperformance to Sensex over 12months Trading Buy : Over 10% absolute upside in 1month Trading Sell : Over 10% absolute decline in 1month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document. November 21, 2014 7