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GR Infra IPO: Facts, Stats, Opportunities and Risks

Jul 5, 2021 1:24 AM 5 min read

Following SEBI’s nod, GR Infraprojects Limited (GR Infra) will be opening its IPO, a 100% offer for sale (OFS) of 11.51 million equity shares on July 7th.

About the Company

GR Infra is an engineering, procurement and construction (EPC) company. It is engaged in the design and construction of various road and highway projects across 15 states. Recently, it also diversified into projects in the railway sector.

The family business traces its origins back to the 1960s in the arid hinterland of Rajasthan. Gumani Ram Agarwal began a small infrastructure project near Jaisalmer, which grew into one of the largest players in the EPC sector today.

The company boasts of clients such as the National Highway Authority of India (NHAI), Ministry of Road Transport and Highways (MoRTH) and various state governments, with a 15,000-strong workforce.

Broadly the company’s operations can be divided into three categories - civil construction activities; development of roads and highways on a build-operate-transfer (BOT) basis; and manufacturing activities.

FYI: The BOT model is a type of PPP project delivery method wherein a government entity grants a private company certain concessions to build and operate a public works project, the ownership of which would be "transferred" back to the government entity after a stipulated period of time.

In the manufacturing side of things, processes or produces bitumen, thermoplastic paint, electric poles and road signage, among other items.


Fast Stats

  • The IPO opens on July 7th and closes on July 9th. The listing date is July 19th
  • It is entirely an OFS; there is no fresh issue of shares. (FYI: An offer for sale is where a company’s existing investors cut their holdings by selling their stakes in the market) 
  • IPO price: ₹828-837 ($11.15-11.27) per equity share. The face value is ₹5 per share
  • At the upper end issue price, c. ₹963cr ($130m) would be raised
  • 50% of the total offer has been reserved for QIBs, 15% for NIIs and the remaining 35% for retail investors. 2,25,000 equity shares have been reserved for company employees
  • The grey market premium is as much as ₹340 ($4.58) per share, about 41% above the price band
  • Selling investors off-loading 11.91% of their holdings through this OFS, including exit amounting to 9.9% by Motilal Oswal’s Private Equity Funds
  • Link to DRHP


Money Matters

A total income of ₹6,421.06cr ($865.18m) was reported in FY20, a 20.62% YoY jump. Net profit during the same period climbed 11.85% to ₹799.23cr ($107.69m).

Its total borrowings were ₹4,202.51cr ($566.25m) as of December 2020 while the total order book stood at ₹18,221.98cr ($2.45bn). The company’s net worth was ₹3,725.06cr ($501.9m) at the end of CY20. With Debt/EBITDA of 2.1x, leverage looks under control. 

TABLE: Company Financials

As of April 2021, GR has completed 100+ road construction projects while four BOT projects are currently underway. The company owns three manufacturing facilities at Udaipur, Guwahati and Sandila in addition to a fabricating and galvanisation unit at Ahmedabad.

FYI: This isn’t the first time GR Infra has tried its luck with an IPO. It had filed for an ₹1,800cr ($242.5m) IPO in 2018, but these plans were put on hold due to the IL&FS controversy and the shadow banking crisis.


Sector Analysis

The listed road/infrastructure EPC segment is a crowded one. Existing players include KNR Constructions, PNC Infratech, HG Infra Engineering, Dilip Buildcon, Ashoka Buildcon, IRB Infra and Sadbhav Engineering. Although GR Infra’s higher end of price range would trade at 8.51x FY21 earnings vs peer group average PE of 16.73x, the sector at-large (barring PNC) hasn’t really generated long-term shareholder value.  

COVID-19 hit this labour-intensive segment hard in 2020, with order books reducing and workforce leaving for their hometowns amidst lockdowns. This year, however, EPC companies and the construction sector as a whole have performed better despite the severity of the Second Wave. Strong orders, healthy execution and the absence of a national lockdown kept revenues afloat while on-site stay and safety arrangements for labourers reduced migration.

Thus, despite the broader pandemic-induced drag on the economy, EPC players - especially the larger ones - could log a 15-20% revenue growth in FY22. A general economic rebound in the coming quarters and an uptick in the pace of coronavirus vaccinations could improve margins even further.


Reading the IPO Room

Now, state entities account for the bulk of the clientele of EPC firms. For GR Infra, 99.63% of its order book is attributable to contracts awarded by Government authorities or Government-funded entities. Ergo, a bet on such companies is inadvertently a bet on the Government’s infrastructure spending agenda.

This can be a double-edged sword. On the one hand, any kind of concentration risk is worrisome. Particularly when the risk stems from the spending plans of a severely cash-strapped Government.

On the other hand, nobody in the Government is going to say public spending on infrastructure is a bad idea. That too in a developing country. If anything, it’s always been a top priority for successive Governments, regardless of ideological bent.

The numbers speak for themselves. Projects awarded by the MoRTH and NHAI increased to c. 10,500 km in FY21 (up 23.5% YoY). This year’s Union Budget has also increased the outlay for the road transport and highways sector to ₹1,18,101cr ($15.9bn), a nearly 20% jump YoY.

Then there’s the much-talked-about National Infrastructure Pipeline (NIP), to be implemented through 2025 and involving projects worth ₹111Lcr ($202.11bn). About half of NIP projects involve roads and urban/rural infrastructure, things right up GR’s alley.

All in all, the Government is betting on a major increase in capital spending to create a multiplier effect for job creation and GDP growth.

Knowing that there is strong policy backing for road infrastructure development, it might be worth having a look at the problems plaguing MoRTH, one of GR's top clients. The Ministry's revenue support almost entirely stems from the Union Government, there is still limited private sector participation in the sector, land acquisition remains a contentious issue, and the NHAI stares at a ₹97,000cr ($13bn) debt service liability.

Policy measures such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) are a step forward. There are also plans to monetise highways via the toll-operate-transfer (ToT) model and to establish a Development Finance Institution (DFI).

The bottom line is that the long-term viability of an investment in GR Infra is a statement on the persistence of the Government's spending agenda.


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