An Infrastructure business as a Listed Startup
In our experience catching inflection points/breakouts just in time is extremely difficult and a futile exercise. We've had both fortunate instances, such as with Jupiter Wagons (CEBBCO), where industry trends aligned with our strategy, leading to favorable outcomes. Conversely, there have been less fortunate times when our efforts were met with waiting periods after purchases or false starts, resulting in less-than-desirable outcomes.
Let's introduce the company at hand. We believe it stands on the cusp of a crucial turning point, despite its substantial surge of around 70% in the past year. Our outlook towards this entity is one of growth orientation, and we intend to adopt a systematic investment plan (SIP) approach to capitalize on its potential.
Our conviction stems from identifying three key inflection points: the evolving industry landscape, significant management changes, and the promising scope for growth—both financially and in terms of geographical reach.
An interesting note is that, although the company is classified as an infrastructure entity, its distinct attributes position it within the ambit of our listed startups.
Here's a snapshot of the company's noteworthy attributes:
The company boasts a market capitalization just shy of INR 500 Crore (equivalent to approximately 60 Million USD), indicating a notable presence within its sector.
Its core activities encompass the construction and repair of bridges, roads, and railway tracks, along with a stake in railway manufacturing—a portfolio that showcases its vital role in critical infrastructural development.
Impressively, the company's trailing twelve-month (TTM) profit has surged threefold when compared to figures from five years ago. This remarkable growth trajectory not only indicates resilience but also outpaces industry benchmarks.
One of the standout strengths lies in the company's meticulous debt and risk management practices. Over the course of a decade, the company has managed to maintain minimal debt escalation—a testament to its prudent financial management.
Anchoring its legacy are three generations of familial involvement in the business. Notably, the youngest generation, characterized by their ivy league education, brings a fresh perspective and competence to the table.
The company meets and exceeds all essential criteria, including the quality of independent directors and client relationships. Particularly noteworthy is the commendable feedback regarding the work ethic and professionalism displayed by the youngest generation.
Before we delve deeper, it's crucial to address the inherent risks associated with infrastructure-related ventures.
These risks encompass factors such as project delays, cancellations, client concentration, financial obligations, legal uncertainties, and the influence of external variables.
At 9A1, our perspective holds that the infrastructure sector is poised for sustained growth, albeit with the caveat that success will be determined by adept balance sheet management, efficient project execution, prudent risk diversification, and the cultivation of specialized expertise—a factor we aptly refer to as the "special sauce."
Now, let's delve into the reasons underlying our belief that this company stands at an inflection point:
With a robust financial foundation and a track record that inspires confidence, the company is now positioned to vie for projects that exceed the INR 1000 Crore mark. This newfound ability signifies a significant milestone in its growth trajectory.
A closer look at the company's order book reveals that it currently exceeds 2.5 times its revenue—an impressive indicator of its existing solid footing and potential for further expansion.
Leveraging its unique specialization, the company has successfully secured and executed projects across diverse regions of India. Notable among these are states like Maharashtra, Rajasthan, and UP. The inherent potential for growth within these regions is undeniably substantial.
The company's strategic international expansion efforts, spanning both manufacturing and contracting, have shown promising initial results. This expansion not only broadens its horizons but also taps into significant untapped potential.
Recent quarterly performance figures provide cause for optimism. With metrics such as EBITDA % reflecting exceptional growth, the management's confidence in sustaining this upward trajectory is well-founded.
The company's exemplary cash flow management and adept debt handling continue to be among its standout attributes, underpinning its financial stability.
Furthermore, the ongoing improvement in the company's credit rating is anticipated to positively impact its debt costs, enhancing its financial efficiency.
In essence, the key determinant of success for this company lies not solely in its ability to generate orders and stimulate demand, but in its aptitude for executing projects with precision and managing financial intricacies deftly. The confluence of its unique expertise, diversified project portfolio, and ambitious international expansion endeavors positions it favorably to outperform prevailing industry benchmarks in terms of profit margins.
In light of our understanding that the business serves as a consistent compounder for us, we remain cautious in avoiding the establishment of specific price targets or multiples. Given the distinctive dynamics inherent in the infrastructure sector, we enthusiastically endorse the adoption of a SIP approach as the optimal strategy for capitalizing on the potential presented by this investment opportunity.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. It is crucial for readers to conduct their own due diligence and exercise caution.
Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
Happy to chat and discuss these in detail
About Us -
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reachout at: govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at: aaroah.m@people-group.com