Recommendation from Construction - Infrastructure

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

GPT INFRAPROJECTS: BUILDING A SOLID FOUNDATION

HERE IS WHY
✓   Domain expertise in infrastructure projects
✓   Government’s focus to boost the infrastructure sector
✓   Impressive order book

I ndia is expected to become the third-largest economy in the world with a GDP of USD 5 trillion in the next three years and touch USD 7 trillion by 2030 on the back of continued reforms. To reach this goal the government plans to boost infrastructure investment. The infrastructure sector is important for India’s economy. Keeping in mind the necessity and importance of the infrastructure sector in mind, our choice scrip for this issue is GPT Infraprojects Limited. Established in 1980, the company represents the infrastructure business of the GPT Group in Kolkata.

It operates in two segments – civil and infrastructure projects and the manufacture of railway concrete sleepers – and has five decades of experience in both these fields. It manufactures pre-stressed concrete sleepers at dedicated manufacturing facilities in India, South Africa, Namibia and Ghana, building on its track record of being India’s first concrete sleeper manufacturer for railway tracks. As regards its financials, in Q1FY25, on a consolidated basis, the company’s revenue increased by 2.47 per cent YoY to ₹241.73 crore as compared to ₹235.90 crore from the previous year’s same quarter.

On a sequential basis, its revenue decreased by 18.06 per cent. The PBIDT excluding other income increased by 24.87 per cent to ₹32.12 crore YoY as compared to ₹25.72 crore from the previous year’s same quarter, while sequentially decreasing by 6.30 per cent. Its net profit stood at ₹16.22 crore compared to ₹12.47 crore, a YoY increase of 30.13 per cent, while sequentially increasing by 7.60 per cent from ₹15.08 crore. The government’s increased allocation for infrastructure development, particularly in areas like transportation, railways and urban development will help the company to capitalise significantly.

The company’s order book stands at ₹3,669.1 crore, providing visibility of 3.6 times the FY24 revenues. The order inflow for Q1FY25 was at ₹811.5 crore, with a significant order of ₹549 crore from Rail Vikas Nigam Limited (RVNL) for an elevated corridor project. Post QIP, the company’s bidding capacity is expected to increase to ₹1,200-1,500 crore from ₹1,000 crore, allowing for larger contracts. The company’s skill lies in successfully executing large-scale projects which can enhance its reputation and attract more business.

GPT Infraprojects has expanded its horizons and is entering new geographies like Maharashtra. It is presently engaged in three contracts in Mumbai for MRIDCL, valued at approximately ₹600 crore. The company has also completed the acquisition of Jogbani Highway Private Limited (JHPL). It is also exploring diversification outside India, tapping opportunities for EPC projects in African markets with past contracts in Mozambique and ongoing discussions in Namibia. Rail Vikas Nigam Limited, Indian Railways, IRCON International Limited, National Highways and Infrastructure Development Corporation, GMR Power and Urban Infrastructure Limited are some of its leading clients. On the valuation front, its shares are trading at a PE of 31.4 times, which is higher than its three-year median PE of 12.2 times. The company has a three-year average return on equity (ROE) of 13.4 per cent and a return on capital employed (ROCE) of 16.6 per cent. Considering the infrastructure sector’s growth and the potential ahead, we recommend BUY.