GR Infra IPO: Attractive valuations, strong fundamentals; grey market premium up 42%, should you subscribe?

G R Infraprojects is an integrated road engineering, procurement and construction (EPC) company.

GR Infraprojects’ Rs 963-crore IPO will open for subscription on Wednesday, July 7, 2021, in a price band of Rs 828-837 per share of face value of Rs 5, each. The public issue will be entirely an offer-for-sale (OFS) of up to 1.15 crore equity shares by existing promoters and shareholders. In the grey market on Monday, GR Infraprojects shares were trading at a premium of Rs 355 over the IPO price. The shares were trading at Rs 1,192 apiece, implying a premium of 42 per cent over the IPO price, according to the people who deal in shares of unlisted companies. Equity shares are proposed to be listed on BSE and NSE.

G R Infraprojects is an integrated road engineering, procurement and construction (EPC) company. Research and brokerage houses — Hem Securities, Choice Broking, and Philip Capital, have given ‘subscribe’ rating while Axis Securities and JM Financial Services have not rated the IPO.

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Choice Broking
Rating: Subscribe

The brokerage firm said that at a higher price band of Rs 837, GR Infraprojects is demanding a P/E multiple of 8.5x (to its FY21 earnings of Rs. 98.6 per share), which is at discount to the peer average. Thus the issue seems to be attractively priced. Considering the government’s focus on enhancing infrastructure assets in the country, primarily the road construction space will continue to attract private capital. GR Infra with its efficient operations is well placed to benefit from the growth in the sector. “With concerns on the sustainability of the EPC profitability in the near term, we assign a subscribe for long term rating for the issue,” it said.

Philip Capital India Research
Rating: Subscribe

The brokerage firm likes the company and its strong fundamentals in terms of its strong execution track record, healthy balance sheet and strong cash flow generating profile. Asking valuations are highly attractive, even after taking our growth/margin concerns into account. “We recommend investors subscribe to the IPO,” it said. It also said that given the average trading multiple of 14x one-year forward PE, and peak multiple of 18-20x one-year PE, the stock provides significant rerating potential at the IPO’s asking valuations.

Hem Securities
Rating: Subscribe

The research firm likes the financial performance posted by company with healthy balance sheet status. Also the company has a healthy order book which gives strong revenue visibility going forward. The company strives to maintain a robust financial position and low debt levels along with emphasis on a strong balance sheet enable the company to pursue future opportunities for growth. “Hence we recommend subscribe both for listing gain and long term purpose,” it said.

Axis Capital
Rating: Not rated

The significant growth of GR Infraprojects business in the last 3 fiscal years has contributed significantly to their financial strength. The report noted that the revenue from operations increased from Rs 5,282.58 crore in fiscal 2019 to Rs 7,844.13 crore in fiscal 2021 at a CAGR of 21.86% while the profit for the year increased from Rs 716.64 crore in fiscal 2019 to Rs 953.22 crore in fiscal 2021 at a CAGR of 15.33 per cent. Among the Key EPC Players, the company saw the fastest growth in operating income over a period of 5-years from fiscal 2015 to 2020 at a CAGR of 47 per cent.

JM Financial Services
Rating: Not rated

The research firm said that the continuing effect of the COVID-19 pandemic on the company’s business and operations is highly uncertain and cannot be predicted. The company’s business is capital intensive. If they experience insufficient cash flows to meet required payments on their debt and working capital requirements, there may be an adverse effect on the results of its operations. GR Infraprojects’ competitive strengths are focused EPC player with road projects focus, established track record of timely execution, in-house integrated model, strong financial performance and credit rating and experienced promoters with strong management team.

(The recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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