MBL INFRASTRUCTURES LTD BUY

REPORT ON MBL INFRA

We initiate a buy cal on the stock with a target price of INR 270 for an investment horizon of one year

MBL INFRASTRUCTURES LTD

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TABLE OF CONTENT

CONTENT

1. COMPANY PROFILE

2. VALUATION & EARNINGS ESTIMATE

3. INDUSTRY OVERVIEW

4. COMPANY DESCRIPTION

5. MANAGEMENT

6. KEY INITIATIVES

7. RESULT ANALYSIS

8. RISK ASSOCIATED

9. PEER GROUP COMPARISON

10. CHARTS & GRAPHS

11. OUTLOOK & CONCLUSION

MBL INFRASTRUCTURES LTD

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MBL Infrastructures Ltd is a Delhi based Engineering Procurement

and Construction (EPC) company focusing primarily on five sectors

namely, Highway Construction, Road Maintenance, Industrial

Infrastructure Projects, Other Civil Engineering Projects and BOT

Projects. MBLIL is an integrated player with its own ready mix

concrete (RMC) and bitumen plants and stone quarries/mining.

Apart from catering to captive needs, the RMC and quarry divisions

of the company supplies surplus production to third parties. The

company is currently executing 14 projects simultaneously. Their

clients include various government bodies and other private sector

bodies.

VALUATION

Outlook & Valuation Summary

In view of strong order book, efficient execution of ongoing

projects and improving track record, we expect the company’s top

line to grow at a healthy rate of 40% and 30%for FY11E and

FY12E to Rs 8.8 bn and 11.5bn.The company is well poised to

capitalise on the opportunities and grow faster than its peers.MBL

trades at a P/E of 5.29X and 4.07X FY11E and FY12E earnings

which we think is available at a steep discount to its peers

considering its high growth rate and healthy return ratios. Since the

stock offers good opportunity, we initiate a “buy” call on the stock

with a target price of Rs 270 an upside of 68% from the present

levels.

EARNINGS ESTIMATES:

Outlook:

FY08 FY09 FY10 FY11E FY12E

SALES (mn) 2963 5138 6331 8863 11522

PAT (m) 169 274 370 532 691

NPM (%) 5.71 5.33 5.84 6 6

EPS 14.3 23.3 28.1 30.37 39.48

Date:21 th MAY 2011

CMP = 160.70

TARGET PRICE= 270

BSE Code 533152

NSE Code MBLINFRA

Market Cap (Rs Cr) 283.2

52 Week High/Low 292.85/160.05

Face Value Rs10.00

Shares O/S (MN) 17.51

P/E 5.23

INDUSTRY P/E 13.13

INDUSTRY constructing &contracting-

civil

Research Analyst:

Tanvi Sharma

tanvi@incredibleadvisory.com

Prmotor

58%

FII4%

DII13%

Others

25%

Share Holding Pattern

Mbl Infrastructures

ltd BUY

b

BUY

MBL INFRASTRUCTURES LTD

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. MBLIL’s current stand alone order book stands at approx. `1, 6000 mn in about in 8 states of

the country which stands at ~2.5x FY10 sales, will be the main revenue driver for the next two

years. The company’s closing order book to grow at a CAGR of 29% during FY10A to FY13E.

The company has invested in developing its own modern construction equipment & machinery

and has also built a strong and technically experienced work force. It owns an entire range of

state of the art road construction machinery which is enough to meet the present and future

requirements. The company currently owns 114 km toll road project in Madhya Pradesh and

recently it has bagged a 96 km BOT project for Rs. 8150 mn from NHAI in Orissa .The JV

orders together make other `11950 mn. The order book will grow because of government’s

concentration on road development and company’s impressive execution track record. The debt

to equity ratio of 0.9x as end of FY10 gives company an advantage of low leverage which will

enable it to raise adequate capital through debt funding without going for equity dilution.

INDUSTRY SNAPSHOT As per the Union Budget 2010-11, allocation for infrastructure projects for the ensuing fiscal is

`2, 14,000 crore ($47.5 billion) since good roads, ports and railways are essential to sustain

growth. In the next Five Year Plan (2012-17),India will need double the investment of $500

billion that will go into infrastructure development in current plan period.Preliminary exercises

suggest investment in infrastructure will have to expand to $1 trillion in the 12th Five Year Plan.

The envisaged 12th plan spend is more than the cumulative spend over the last 4 five year plan

periods which strengthens outlook for the sector. India will require US$70bn of investment over

the next three years to build 20 km of road per day to ensure future growth. Out of the USD70bn,

60% (Rs. 42bn) will be raised by the private sector. The share of private investment in

infrastructure would have to increase from Rs. 1,721.9bn during the 10th plan to a whopping Rs.

6,195.9bn during the 11th plan. Ministry of Rural Development (MoRD) plans to construct

129,707 Kms of new rural roads and upgrade 100,740 Kms of existing rural roads in the 11th

Five Year plan. Again, bulk of the planned spend is directed towards roads, ports, power and

urban infrastructure segments. With no change in sectoral allocation and with an average

construction intensity continues, this would create bright prospects for the construction industry.

COMPANY DESCRIPTION ⇒ MBL Infrastructures Ltd was incorporated on august 25, 1995 with the name Maheshwari

Brothers Ltd. The company commenced their business on September 12, 1995.In the year 1996,

the company took over Maheshwari Brothers, a partnership firm engaged in the business of

trading in steel and waste management at steel plants. MBL Infrastructures Ltd is a Delhi based

Engineering Procurement and Construction (EPC) company. The company focuses on five

sectors namely,Highway Construction, Road Maintenance, Industrial Infrastructure Projects,

Other Civil Engineering Projects and BOT Projects. The company has a pan India presence.

They have executed and undertaken a number of projects in the states of West Bengal, Madhya

Pradesh, Uttarakhand,Orissa, Maharashtra, Rajasthan, Assam, Uttar Pradesh, Bihar, Delhi,

Andhra Pradesh, Chhattisgarh, Jharkhand, Haryana and Karnataka. Their clients include NHAI,

MPRDC, SAIL, MMRDA,CPWD and State PWDs and currently executing 14 projects

MBL INFRASTRUCTURES LTD

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IPO in 2009

Of

57 lakhs shares was

1.97 times subscribed

simultaneously. The company has over a period of time established in the construction segment

and has become a established player in the road construction segment. The company bids mainly

for NHAI and select state projects funded by World Bank or Asian Development Bank which

ensures timely payments and better margins. It is commendable that the company has always

completed its projects on time.

MANAGEMENT

Experienced Management

The company has experienced and young team of management which will help the company to

Grow on a faster pace. They have entered into various strategic tie ups to execute and bid

projects of bigger seize there by mitigating their project risks. As

per the management guidance and they are looking out

for option into urban infrastructure and water & water

waste management projects. The key

personnel details are given as under

Name & Designation Brief Profile

Anjanee Kumar Lakhotia, CEO & Chartered Accountant. Has been director with the company

Whole Time Director since inception and has over 10 years of experience in

infrastructure development

Maruti Maheshwari, Executive Commerce Graduate. Joined the company in 1996 and has

Director over 10 years experience in infrastructure development

Surinder Singh Kohli, Independent 65 years old; Ex-Chairman of India Infrastructure Finance Company

Director Limited, Punjab National Bank and Punjab & Sind Bank

Ashwini kumar Singh, Independent 66 years old; Electrical Engineer; Part of SAIL senior management

Director for more than 20 yrs Presently resident director of Essar Steel Ltd.

Kumar Singh Baghel, Independent

68 years old; M.A. (English) & CAIIB; Worked

with

Director State Bank of Bikaner & Jaipur for over 34 years

MBL INFRASTRUCTURES LTD

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KEY INITIATIVES In house execution capability

The company has invested in developing its own modern construction equipment & machinery and has

also built a strong and technically experienced work of more than 600 employees which

will lead to on-time execution of projects. It owns an entire range of state of the art road construction

machinery which is enough to meet the present and future requirements. Backward integration has helped

in rapid mobilization at multiple location and given an edge over peers

Margins protected because of Escalation clause

To protect its operating margins the company tries to mitigate the risk by including the escalation

Clause thereby protecting itself form rise in prices. As informed by the management almost 99% of the

order book is protected by the escalation clause

Adoption of Asset light model

The company has adopted asset light model wherein the company targets specific high potential

projects across the EPC and BOT segment. The strategy is to go for selective bidding of projects

in Joint Ventures (JV) or bid it on their own. This model not only enables the company to execute big size

projects by mitigating the risk through JV route but also facilitates to have pan–India presence. Thus, de-

risking its business model.

Low Debt to Equity ratio ensures future growth without equity dilution

The debt to equity ratio of the company stands at 0.86x as end of FY10. This gives company an

Advantage of low leverage which will enable it to raise adequate capital through debt funding without

going for equity dilution. Going forward we expect it to remain at 1.4x by FY13E.

Early Mover in the segment

The come had a early mover advantage as it was among the first batch of contractors to be

Awarded the contracts to build the prestigious North South East West corridor by NHAI and it was The

first contractor to complete this project. They were the first to be awarded the comprehensive

Maintenance of Ring Road and Outer Ring road, the most important corridors of Delhi

Joint Venture route will enhance the company’s capacity to bid and improve technical pre-

qualification

The company has entered into specific JV’s with localised players to execute various key and high value

projects. It has helped the company to enhance it’s capacity to bid and improve it’s technical pre-

qualification thereby mitigating the project risk. Such strategy will help the company to bag more high

value projects in the future and grow it’s order book. 42% of the total order book consists of orders won

via the JV route

Exploring other opportunities The company has ventured itself into urban infrastructure for constructing 4 multi storey buildings.The

project is for civil works in the campus of Rajiv Gandhi Thermal Power Project , a profitable central

government organization at Hisar Dist. The cost of projects is for Rs. 314.88 mn. This will

give the company a first hand experience into such business and a diverse opportunity to venture

into urban infrastructure projects going ahead.

MBL INFRASTRUCTURES LTD

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RESULT ANALYSIS

PROFIT &LOSS STATEMENT in Rs

Cr

Particulars Mar-10 Mar-09 Mar-08 Mar-07

No of Months 12 12 12 12

Gross Sales 6288.83 5058.42 2918.06 1693.15

Less :Inter divisional transfers 0 0 0 0

Less: Sales Returns 0 0 0 0

Less: Excise 0 0 0 0

Net Sales 6288.83 5058.42 2918.06 1693.15

EXPENDITURE :

Increase/Decrease in Stock 38.61 -1.84 -23.59 22.36

Raw Materials Consumed 2595.38 2542.73 1327.79 765.79

Power & Fuel Cost 229.55 101.7 97.11 37.27

Employee Cost 102.12 67.93 52.8 30.52

Other Manufacturing Expenses 2328.51 1556.95 1014.48 548.38

General and Administration Expenses 96.38 73.22 66.06 55.53

Selling and Distribution Expenses 0 0 0 0

Miscellaneous Expenses 62.67 54.34 0.3 0.28

Expenses Capitalised 0 0 0 0

Total Expenditure 5453.23 4395.03 2534.95 1460.13

PBIDT (Excl OI) 835.6 663.39 383.11 233.02

Other Income 6.6 6.33 5.31 0.6

Operating Profit 842.2 669.72 388.42 233.62

Interest 281.93 253.85 135.12 83.64

PBDT 560.26 415.88 253.3 149.98

Depreciation 43.4 34.36 31.95 24.63

Profit Before Taxation & Exceptional

Items 516.87 381.52 221.35 125.34

Exceptional Income / Expenses 0 0 0 0

Profit Before Tax 516.87 381.52 221.35 125.34

Provision for Tax 175.26 107.68 49.74 14.76

PAT 341.61 273.84 171.61 110.59

Adj to Profit After Tax 0 0 -13.67 -1.77

Profit Balance B/F 178.98 124.04 132.61 61.73

Appropriations 520.59 397.88 290.55 170.55

Equity Dividend (%) 20 20 15 10

Earnings Per Share (Rs.) 19.51 23.18 15.51 10

Book Value (Rs.) 126.88 83.95 54.8 43.22

MBL INFRASTRUCTURES LTD

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BALANCE SHEET in Rs Cr

SOURCES OF FUNDS Mar-10 Mar-09 Mar-08 Mar-07

Share Capital 175.14 118.14 110.64 110.64

Share warrants & Outstandings 0 0 0 0

Total Reserve 2047.01 873.58 495.69 367.51

Shareholder's Funds 2222.15 991.72 606.32 478.14

Secured Loans 1383.72 1091.67 525.06 311.51

Unsecured Loans 529.66 673.7 319.93 240.28

Total Debts 1913.38 1765.38 844.99 551.79

Total Liabilities 4135.52 2757.1 1451.31 1029.93

APPLICATION OF FUNDS :

Gross Block 1146.05 874.95 678.26 549.99

Less: Accumulated Depreciation 321.28 278.31 233.31 199.99

Less: Impairment of Assets 0 0 0 0

Net Block 824.77 596.64 444.95 350

Lease Adjustment A/c 0 0 0 0

Capital Work in Progress 48.87 0 1.46 33.15

Pre-operative Expenses pending 0 0 0 0

Assets in transit 0 0 0 0

Investments 120 120 120 111.05

Current Assets, Loans & Advances

Inventories 976.56 401.85 225.72 126.21

Sundry Debtors 2401.06 1410.44 1055.63 607.91

Cash and Bank 330.17 449.85 271.12 228.16

Other Current Assets 11.45 8.43 5.5 1.84

Loans and Advances 1455.26 1053.24 547.72 261.98

Total Current Assets 5174.49 3323.82 2105.69 1226.1

Less : Current Liabilities and

Provisions

Current Liabilities 1326.74 885.14 1140.22 638.64

Provisions 556.17 306.79 22.68 17.86

Total Current Liabilities 1882.91 1191.93 1162.91 656.5

Net Current Assets 3291.58 2131.89 942.78 569.6

Miscellaneous Expenses not written off 0 0 0 0

Deferred Tax Assets / Liabilities -149.69 -91.43 -57.88 -33.87

Total Assets 4135.52 2757.1 1451.31 1029.93

Contingent Liabilities 321.39 340.73 364.23 0

MBL INFRASTRUCTURES LTD

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Operations and Overview During the year under review your Company has achieved gross

turnover of Rs. 6288.83 mn as against Rs. 5058.42 man for the previous year registering a

growth of 24% over the previous year. The profit before interest, tax and depreciation

(PBIDT) increased to Rs. 835.6 mn from Rs. 663.39 mn in the previous year, the Net Profit

after tax (PAT) increased to Rs. 341.61mn as against Rs273.84 in the previous year

RISK ASSOCIATED

⇒ Rise in Competition due to low entry barrier

The massive growth in infrastructure and reformation in the road construction segment has

encouraged more private players into the segment. These opportunities have brought in

competition into the segment. low entry barriers in this sector could affect margins going

forward.

⇒ Raw material volatility may hit profitability

The major raw materials required by the construction companies are cement, sand ,steel and

bitumen . The company has mitigated the risk by escalation clause but a sharp spike in

commodity cost will impact the margins of the company because the company cannot pass it on

the entire hike to the customers.

⇒ BOT projects dependent on traffic growth

The toll revenue depends on traffic growth and any slow growth in traffic which is lower than

our expectations will significantly impact the forecasted toll revenue.

⇒ Sensitive to government projects

The order book of the company has been dominated by government projects and the company is

dependent on them for fresh order inflows. Any slow down in the order outflow from these

clients due to any changes in government policies will have a major impact on the order book of

the company.

⇒ Execution risk of projects

The company has a track record of timely completion of projects. The company being a new

entrant in the BOT segment, there could be a potential execution risk. Land acquisition is also

another problem, any delays in project execution would affect the revenues of the company

going forward.

⇒ Integrated Order Book

Out of the total order book of Rs.15,893 mn the company is dependent on a single order for the

Construction of road at Rimuli-Roxy-Rajamunda section of NH215 in Orissa which constitutes

~41% (Rs.6550 mn) of the total order book. Any delay in execution will affect the growth of the

Company.

MBL INFRASTRUCTURES LTD

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COMPARISON WITH PEER COMPANIES

MBL C&C MADHUCON SUPREME IVRCL SADBHAV IRB

INFRA CONSTRUCTION PROJECTS INFRA INFRA ENGINEERING INFRA

Mkt Cap 283.2 253.42 789.61 394.36 1851.71 1952.88 5194.85

EPS 30.93 25.01 6.91 44.47 6.7 7.98 1.96

P/E 5.23 4.33 15.48 5.30 10.35 16.33 79.74

SALES(Cr) 625.65 1679.5 1393.86 561.1 5557.3 1272.14 77.22

PAT(Cr) 34.16 69.09 45.76 39.2 70.21 53.84 55.84

R0CE (%) 20.54 19.38 9.42 17.04 18.64 16.27 2.63

ROA (%) 126.88 225.56 78.34 109.75 69.3 313.21 41.24

DEBT

EQUITY (%) 0.86 1.34 0.89 2.23 0.87 1.08 0.48

NPM (%) 5.42 5.87 3.28 7.32 1.26 4.23 10.25

OPM (%) 14.09 23.7 10.4 19.3 11.92 11.38 25.04

Predominant focus on fast execution and a healthy order book are key reasons for

MBL to be able to maintain a healthy growth and margins as compared to its peer

companies. MBL is enjoying the highest ROCE as compared to its peers.

Considering the growth potential of MBL and comparing the PE multiple, we feel

that MBL is trading at a significant discount.

MBL INFRASTRUCTURES LTD

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Index Comparison

Performance

Chart

Performance Chart

Source:bseindia.com

The performance chart shows that with the increase in the net sales the net profit

has also shown a considerable increase but the market cap still remains the same.

Therefore there is a lot of potential in the stock of the company which needs to be

trapped

MBL INFRASTRUCTURES LTD

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NUTSHELL

We believe that the company is to witness robust growth going forward owing to its strong

execution track record, favorable dynamics of the construction industry. Healthy order book of

approx`1600 Cr which is 2.5 times its FY10 sales &will be the main revenue driver for the next

two years.MBL Infra has registered phenomenal top line growth over the past 3 years 55%

CAGR between FY07-FY10 on the back of a solid 50% CAGR in the Order Book over the same

period . This coupled with impressive execution track record of the company, makes us believe

that the top line will grow at a CAGR of 34% over FY10-FY12E. MBLIL has put in bids for new

Projects worth `3,500 crore. Its order book composition consists of orders from NHAI, Asian

Development Bank (ADB)/World Bank (WB) funded projects and others. Considering all these

factors we are bullish on the company and initiate a definite” buy” call.

MBL INFRASTRUCTURES LTD

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Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for

the purchase or sale of any financial instrument or as an official confirmation of any transaction.

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reliable but do not represent that it is accurate or complete and it should not be relied on as such.

Reliable investors are advised to satisfy themselves before making any investments. Incredible

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contained in the reports and consequently is not liable for any decision taken based on the same.

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contained in this report. This document is provide for assistance only and is not intended to be

and must not alone be taken as the basis for an investment decision.

INCREDIBLE ADVISORY SERVICES

PVT. LTD.

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