Massive Sectoral Tailwinds + Debt Restructuring + Deep Sectoral Expertise with Co.
Massive Sectoral Tailwinds + Debt Restructuring + Deep Sectoral Expertise with Co.
Its already 4x in a year but we believe its still early days!
Company Overview
The company has managed and implemented over 650 projects in EPC, BOTT, and PPP. The company has a strong presence in civil infrastructure, water and wastewater management, and power transmission EPC. Notably, it was among the top 50 companies globally in water handling.
Investment Thesis
The company presents a compelling investment opportunity due to several factors, including strong industry tailwinds, strategic debt reduction, promoter confidence, and a niche market position.
Key Points Supporting Investment:
1. Strong Industry Tailwinds:
- India is experiencing a significant push in water infrastructure, with the government planning to spend ₹10 lakh crore. This aligns with the increasing demand for water, projected at 1500 billion cubic meters versus a supply of 650-700 billion cubic meters.
- The company’s strong clientele includes prestigious organizations like the World Bank and various state boards, ensuring a steady pipeline of projects.
2. Debt Reduction and Financial Health:
- The company is undergoing a one-time settlement and substantial debt reduction, which will significantly improve its financial position. The company has identified ₹40 crore through the sale of a property and expects additional funds of ₹75 crore from the Vivad Se Vishwas scheme, ensuring that around 50% of its debt will be paid off going forward.
- An arbitration award from Arunachal Pradesh amounting to ₹190 crore is anticipated, which will further enhance the company’s cash flow and allow for the extinguishment of unsustainable debt.
3. Promoter Confidence:
- Promoters are actively infusing capital, demonstrating their confidence in the company’s future. This includes an infusion of ₹50 crore by promoters through 70 lakh warrants and additional shares given to NARCL for restructuring.
4. Operational and Market Position:
- The company’s extensive experience of 43 years in water management projects positions it uniquely in the Indian market. The company has a pre-qualification for projects exceeding ₹10,000 crore annually, capable of generating a minimum revenue of ₹3,000 crore per annum.
- The company targets orders from ₹700 crore, where competition is limited to 5-6 players, aiming for margins of 15-20%.
- It has a strong order book of ₹1300 crore to be executed in the next two years, providing a robust revenue stream.
5. Technological and Operational Excellence:
- The company leverages advanced technology like SAP HANA for better project control and efficiency. The company focuses on projects under escrow mechanisms, ensuring no working capital requirements and mitigating financial risks.
Financial Performance and Outlook:
- The company has recorded significant revenue growth of 84% with an EBITDA of ₹66 crore versus ₹5 crore in Q3.
- It has a healthy balance sheet with a net worth of ₹500 crore.
- Future growth is supported by a pipeline of projects and government initiatives, with expected annual government spending of ₹1 lakh crore on water infrastructure.
Risks and Challenges:
- The company has faced challenges due to market conditions and delayed arbitration awards in the past, impacting its financial performance.
- Reliance on government projects could pose risks related to delays and payment cycles.
Conclusion
The company is well-positioned to benefit from India's focus on water infrastructure. The company's strategic debt reduction, strong promoter support, unique market position, and advanced technological adoption make it an attractive investment. Given the strong industry tailwinds and robust order book, the company is poised for significant growth, making it a potential candidate for long-term investment.
We cannot comment on the valuation but we will be making this a core position in our portfolios.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. Readers must conduct their 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.
About Us:
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reach out at govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at aaroah.m@people-group.com
Raghav Ruia - Investment Banker, Student → Reach out at rpruia@usc.edu