Buy stocks of Supreme Infra; target of Rs 365

Supreme Infra:-

“Supreme Infra has registered revenue growth of 32.2% yoy to Rs. 4,362 mn, showing the execution strength of the company. This strong execution was seen in the road projects viz., Manor Wada Bhiwandi, Ahmednagar Karmala and Panvel Indapur. During the quarter we saw a decline in EBIDTA margins which stood at 16.1% down by 59 bps yoy, primarily due to higher construction expenses as a percentage of sales which went up by 929 bps yoy at 82.1%. during the quarter PAT margins were down by 183 bps yoy at 5.9%, primarily down due to rise in borrowing cost by 74% yoy and rise in effective tax rate by 600 bps yoy at 28.0%.”

“The present order book stands at Rs 43,758 mn including L1 of Rs 9,996 mn which stands at 2.9x FY12 sales. During the quarter SIIL, added orders worth Rs. 11,456 mn. The closing order book has been divided into 50% road, 7% bridges, 1% railway, 37% building, 5% water and balance power. The Company has achieved the financial closure for 9 BOT projects except for the new 10th road BOT project bagged (Kotkapura-Muktsar Road) during Q1FY13 in JV with SPML Infra based out of Punjab. Of the total 10 BOT projects currently 3 projects are operational viz-Kasheli Bridge Patiala Malerkotla and Nagar Kopargaon. During FY13 the company will have 1 Road BOT viz Manor wada Bhiwandi which is expected to get completed and start the operation. Total Equity requirement for 10 road BOT projects is Rs. 7,500 Mn of which Rs 3,800mn has been infused by Supreme Infra while; 3i Capital will infuse Rs. 3,060 mn and balance Rs.640 mn to be infused over the next 36 months by the company.”

“The company is well poised to capitalise on the opportunities of govertment spending on infrastructure. In view of the growing order book, efficient execution of ongoing projects, backward integration and improving track record, we expect the company’s top line to grow at a healthy CAGR rate of ~21% during FY12 to FY14E. At current market price of Rs 278 the stock is trading at a P/E multiple of 4.4x and 3.6x to its FY13E and FY14E EPS of Rs. 63.8 and Rs. 76.4 per share. We maintain buy with a target price of Rs. 365 per share with an upside of 31% based on SOTP method. For the construction business we arrive at a price of Rs 319 per share which discount FY13E EPS of Rs 63.8 by 5x. For BOT projects viz., Manor-Wada-Bhiwandi (MWB), Kasheli Bridge (KB), Nagar Kopargaon (NK) and Patiala Malerkotla which are valued on DCF basis which gives a NPV of Rs 46 per share,” says BP Equities research report.