IPO update: GR Infraprojects

GR Infraprojects came out with its IPO about 10 weeks ago. Value Research's analysis of the IPO can be found here. In this follow-up article, we focus on the IPO's performance, post-IPO events and changes in its valuation since then.

Our analysis of the IPO
We gave a score of 16 out of 27 to this Gujarat-based construction and engineering company when it came out with its IPO. The score was based on the company's business model which diversifies into road engineering, procurement and construction (EPC) and the construction of highways. The company's operations span across 15 states in India and since 2006, it has executed over 100 road-construction projects. It is also involved in the manufacturing of bitumen, road-marking paints, electric poles, road signage and fabricating and galvanising metal-crash barriers. Also, it has recently ventured into railways projects as well. The company has a very robust order book which stands at Rs 15,058 crore (excluding GST) as on June 30, 2021.

GR Infraprojects has maintained an excellent track record to execute its projects and boasts of completing more than 50 per cent of its projects well before the scheduled completion date. However, our main concern was the new order inflow, with the company having been awarded just 5.2 per cent and 6.1 per cent of the total bids submitted in FY21 and FY20.

Our rating of the company was based on the following:

• On the 10 business metrics, the company did well on four
• On the six management-quality-related metrics, it did well on five
• On the eight financial metrics, the company did well on four
• On the three valuation-related metrics, the company scored well on all.

Stock performance since listing
The company's IPO was one of the best subscribed IPOs of 2021 and was oversubscribed by more than 100 times. The Qualified Institutional Bidder (QIB) portion was oversubscribed by 168 times, while the non-institutional investors flocked in a large number, oversubscribing their portion by around 238 times and the retail portion by 12.5 times.

Buoyed by such a high demand for its shares, the stock debuted with more than 100 per cent listing gains, owing to its cheap valuation as compared to its peers. At the upper band, the company's stock was to trade at a P/E of 8.5, while the median P/E for its competitors stood at 15.8, which allowed the stock to skyrocket. The stock was listed at a price of Rs 1,700 as against its issue price of Rs 837 and reached a high of Rs 1,838. However, following a stellar start, the company's stock has been on a downward trajectory, owing to profit booking and corrected to almost Rs 1,538 before settling at the current level of Rs 1,631.

Business performance
The company has delivered revenue CAGR of 29.4 per cent over 10 years and has been able to scale up in size on the back of the high capex and a modern equipment fleet of over 7,000 as of March 2021. It derives the majority of its revenues from contracts from the NHAI (National Highway Authority of India) and the MoRTH (Ministry of Road Transport and Highways), which account for a large part of its order book. On the other hand, 99.6 per cent of the order book is made up of the contracts awarded by government authorities. Over the last ten years, the company has a sustained margin profile, with EBITDA growing at a CAGR of 32.2 per cent and PAT margin at a CAGR of 33.6 per cent.

What to do now?
The company has a strong balance sheet, with a net debt-to-equity ratio of 0.3 and a cash-conversion cycle of just 22 days. In the last one month, it has been awarded two projects - worth Rs 951 crore and Rs 927 crore each - from the NHAI. The government's increased focus on road infrastructure and one of the highest budget allocations towards this sector in the recent budget are some of the key tailwinds, which will fuel its future growth.

Currently, the company's stock trades at a P/E of 16.4 times, which is now in line with its peers. However, it faces stiff competition from some of the existing players in road infrastructure, including the giant Larsen & Toubro.