Initiating coverage | Infrastructure

January 23, 2015

MBL Infrastructures

BUY

CMP

`442

Gearing-up for next level of growth

Target Price

`561

Strong Order inflows to lead to better execution: MBL Infrastructures (MBL), a

Investment Period

12 Months

specialist EPC player is expected to benefit from NHAI’s ~2,000km of EPC award

activity in the next 12 months. With economic revival, infra award activity across

verticals should catch-up. MBL has participated in projects worth `10,000cr.

Stock Info

Going by its past track record, of ~25% strike rate, MBL should report ~`2,500cr

Sector

Infrastructure

worth of new project wins in the next 12 months. We expect MBL’s order inflow to

Market Cap (` cr)

916

report ~13% CAGR over FY2014-17E, which is likely to be followed-up by

Net debt (` cr)

704

stronger execution. Accordingly, we expect MBL’s standalone entity to report a

strong ~18% top-line CAGR during FY2014-17E.

Beta

1.3

52 Week High / Low

464/100

~16% PAT CAGR during FY2014-17E: Stronger execution, benefits of backward

integration and better absorption of fixed costs, should help the standalone entity

Avg. Daily Volume

14,819

report a ~22% EBITDA CAGR during FY2014-17E (EBITDA margin to expand

Face Value (`)

107bp during the same period). Despite a strong EBITDA growth, higher interest

BSE Sensex

29,279

and depreciation expenses would restrict standalone PAT at ~16% CAGR during

Nifty

8,836

the same period, as per our estimation.

Reuters Code

MBLI.BO

BOT projects nearing completion: MBL has a portfolio of 5 BOT Road projects, of

Bloomberg Code

MBL@IN

which 4 are won on “Toll+Grant” or “Toll+Annuity” model. This, when coupled

with the fact that 4 of these projects are in the mineral belt region and are inter-

connected with no alternate roads, indicates that these projects could generate

impressive equity IRRs. With commencement of 4 BOT projects in FY2016-17, we

Shareholding Pattern (%)

can expect a possible easing in the balance sheet stress.

Promoters

46.7

Comfortable Balance Sheet: MBL is one of the Road developers with moderate

MF / Banks / Indian Fls

29.6

consol. D/E ratio of 1.8x. With 3 BOT projects nearing completion (to commence

FII / NRIs / OCBs

5.7

tolling in FY2016E) and 4^th to commence operations in FY2017E, we expect

Indian Public / Others

18.1

consol. D/E ratio to increase to 2.7x by FY2017E. With Management clarifying

that it does not intend to add any new BOT projects to company’s portfolio till

FY2017E, we are confident that MBL’s D/E ratio would peak at 2.7x, which is

comforting.

Abs. (%)

3m 1yr 3yr

Sensex

9.4

38.5

72.3

Valuation: At CMP of `442/share, MBL is trading at FY2016E and FY2017E

EV/EBITDA multiple of 9.1x and 7.0x, respectively. Improved order inflow outlook

MBL

37.6

272.5

198.7

(with current bid pipeline of ~`10,000cr), strong profitability growth, and a

comfortable Balance Sheet strengthen our view that MBL is poised for re-rating

from here-on. We value BOT projects using PV of Free Cash Flows to Equity

shareholders to arrive at a value of `105/share (for all 5 of the BOT projects). We

have assigned 8.0x target P/E multiple to the standalone business to arrive at a

value of `456/share. On adding-up value of standalone entity and BOT projects,

we arrive at FY2017E sum-of-the-parts (SoTP) based price target of `561/share.

Given the 27% upside from the current levels, we initiate coverage on MBL

Infrastructures with a BUY rating.

Key Financials (Standalone)

Y/E March (` cr)

FY2013

FY2014

FY2015E

FY2016E

FY2017E

Net Sales

1,343

1,754

2,019

2,453

2,857

% chg

30.6

15.1

21.5

16.5

Net Profit

100

118

% chg

35.8

12.9

18.4

17.6

EBITDA (%)

9.8

10.0

10.5

10.9

11.1

EPS (`)

P/E (x)

14.0

10.3

10.8

9.1

7.8

P/BV (x)

2.0

1.7

1.4

1.2

1.1

RoE (%)

15.1

17.6

15.2

14.4

14.8

RoCE (%)

16.6

19.3

17.5

16.5

Yellapu Santosh

EV/Sales (x)

0.9

0.7

0.8

0.7

022 - 3935 7800 Ext: 6828

EV/EBITDA (x)

9.2

7.0

7.5

6.8

6.0

[email protected]

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

Initiating coverage | MBL Infrastructure

Investment Argument

Order Inflow outlook improves, gives better revenue

visibility

In a poor award activity environment during FY2010-14, captive orders from BOT

projects helped MBL clock a 36% CAGR in its order inflows. Taking into account

the new government’s thrust on the Infra sector, and with economic indicators

showing signs of revival; we expect revival across Infra award environment to

catch-up from here on.

Post amendments to the Land Acquisition Law, NHAI is gearing up to have a

strong award activity in 4QFY2015E-FY2016E. We expect NHAI to award

~4,000km of road projects in the next 12 months. Of these, ~2,000km would be

through the EPC route. With MBL’s Management clarifying that the company would

not be bidding for BOT projects, it can be estimated on this basis that MBL would

only bid for ~2,000km of EPC road projects.

The Management also highlighted that the company has bid for projects worth

~`10,000cr, which are currently at different bidding stages. If we look at the last

5 years’ historical win rate of 20-40%, coupled with slightly lower bidding intensity,

we are comforted that MBL is likely to report ~`2,500cr (indicating 25% strike rate

assumption) worth of project wins in the next 12 months.

Our order inflow growth assumption captures (1) resumption in award activity from

State PWDs/ NHAI Road projects, (2) award activity from DFC (Dedicated Freight

Corridor) space, and

(3) uptick in award activity from Metro, Industrial

Construction as well as Building & Housing Construction space. Accordingly, we

expect ~13% CAGR in MBL’s order inflows during FY2014-17E.

Exhibit 1: Order Inflow to catch-up

Exhibit 2: Execution to pick-up

3,000

200

3,500

1.8x

1.6x

3,000

2,500

152

150

1.4x

2,500

2,000

1.2x

100

2,000

1.0x

1,500

0.9x

1,500

0.9x

0.8x

0.6x

1,000

0.6x

1,000

0.5x

0.4x

500

(14)

500

0.2x

(32)

-50

0.0x

FY10

FY11

FY12

FY13

FY14

FY15E FY16E FY17E

FY10

FY11

FY12

FY13

FY14

FY15E FY16E FY17E

OI (` cr)

y/y change (%)

OB (` cr)

Execution Rate (x)

Source: Company, Angel Research

MBL’s unexecuted order book (as of 2QFY2015-end) stands at `2,354cr, thereby

giving revenue visibility for another 4-5 quarters. As against the Management’s

guidance of an order book of over `3,500cr by 4QFY2015-end, we expect MBL to

end with an order book of `2,886cr. Our lower OB assumption for FY2015 is

owing to expectation of just `1,700cr of OI for FY2015 (to-date, publicly reported

OI of `860cr). However, with order inflow momentum likely to catch-up from

here-on, we expect MBL to also experience strong uptick in execution (execution

rate would pick-up from 0.6x in FY2014 to 1.0x by FY2017E).

January 23, 2015

Initiating coverage | MBL Infrastructure

BOT projects to start paying-off

Currently, only 1 of the 5 BOT Road projects owned by MBL is operational. The

remaining 4 projects are likely to commence operations in FY2016-17E. 3 of the

4 ongoing projects are nearing completion (entire land acquisition is complete,

and majority of equity infusion is done), indicating minimal execution risks from

here-on. These 3 BOT projects are likely to attain Commercial Operations Date

(CoD) over the next 2-4 quarters.

Exhibit 3: BOT Projects Net Total Income (in ` cr)

FY14

FY15E

FY16E

FY17E

Seoni-Balaghat-Rajegaon BOT project

Waraseoni-Lalbarra BOT project

Garra-Waraseoni BOT project

Seoni-Katangi BOT project

Suratgarh-Bikaner BOT project

BOT Projects - Net Total Income

130

Source: Company, Angel Research

Given that the ongoing EPC work at Suratgarh-Bikaner BOT project is slow and

behind schedule (~20% of total EPC work is done), we expect this project to attain

CoD in 2HFY2017E.

AAP Infrastructures Ltd (Seoni-Balaghat-Gondia stretch), the company’s only

operational BOT project, has been profitable since FY2010 (incurred losses during

FY2008-09). Notably,

2 of the

4 BOT projects have been bagged under

Toll+ Annuity model and another 2 have been bagged on a grant model. We are

impressed with Management’s business acumen, as MBL is likely to generate

Future Cash flows of 0.4x-2.5x for the equity invested. MBL’s cautious strategy

impresses us as in our view, we expect MBL to generate impressive Equity IRRs in

the range of

15-18% (for

3 of the upcoming BOT projects). Whereas,

Garra-Waraseoni project in our view is likely to generate just 6% equity IRR.

We expect MBL’s Net Total Income from BOT projects to increase from `17cr in

FY2014 to `130cr in FY2017E (95% CAGR during FY2014-17E). Also, with the

commencement of tolling across 4 BOT projects, we expect the debt repayment

cycle of these SPVs to commence, thereby easing consol. balance sheet stress.

~18% & ~16% Revenue & PAT CAGR, respectively, during FY14-17E

On the back of a strong ~13% CAGR in Order Inflows during FY2014-17E, we

expect execution also to pick. Accordingly, we expect the standalone business to

report ~18% revenue CAGR during FY2014-17E to `2,857cr.

Revenue growth should help MBL absorb fixed costs, leading to EBITDA growth.

Our 22% EBITDA CAGR estimate during FY2014-17E is on the back of following

levers, (1) benefits from their in-house Ready-To-Mix concrete (RMCs), (2) access to

6 quarrying facilities, (3) higher utilization of in-house Construction Equipment

(current Plant & Machinery [P&M] Gross block stands at `200cr), and (4) better

absorption of fixed costs. Despite commencement of interest rate down-cycle, we

do not expect entire benefits of EBITDA growth to flow-down to the PAT level. We

expect interest and depreciation expenses to restrict PAT CAGR during FY2014-17E

to ~16%.

January 23, 2015

Initiating coverage | MBL Infrastructure

Comfortable Gearing ratio

MBL has been prudent in managing its capital requirements. Considering

standalone entity’s D/E ratio (of ~1.0x) and standalone entity’s potential to

generate over `100cr of Cash Flow from Operations during FY2014-17E, we are

not much concerned about the gearing ratio at standalone entity level.

MBL’s selective strategy to bid for and win new BOT projects at the right time has

helped the company in managing its capital efficiently. This could be gauged from

their consol. D/E ratio, which at 2QFY2015-end stood at 1.8x.

As a prudent move, in anticipation of improvement in business cycle, MBL recently

pursued a Qualified Institutional Placement (QIP) issue (issued 3.2mn additional

shares @`365/share, thereby raising ~`110cr). 4 of the ongoing BOT projects

require equity investments of ~`87cr. With MBL’s Management clarifying that it

would not bid for BOT Road projects till FY2017E, idly lying cash and internal

accruals should be enough to fund the equity requirements of these 4 BOT

projects. Also, by raising equity, MBL has built-up its war chest for the next phase

of growth. On the whole, we expect consol. gearing ratio to increase to 2.7x by

FY2017E, which is in a comfortable zone.

Exhibit 4: Standalone D/E ratio

Exhibit 5: Consolidated D/E ratio

1,200

2.0x

2,500

3.0x

2.7x

1.8x

2.6x

1,000

2.5x

1.6x

2,000

1.3x

1.4x

2.1x

800

1.3x

2.0x

1.2x

1,500

1.1x

1.6x

1.1x

1.0x

1.6x

600

1.0x

1.5x

0.8x

1,000

400

1.0x

0.6x

0.4x

500

200

0.5x

0.2x

0.0x

FY13

FY14

FY15E

FY16E

FY17E

FY13

FY14

FY15E

FY16E

FY17E

Std. Debt (` cr)

D/E ratio (x)

Consol. Debt (` cr)

D/E ratio (x)

Source: Company, Angel Research

Selective bidding, best approach to grow Order Book

MBL, over the years, has shown immense maturity in bidding for the right kind of

projects and working for clients who are quality conscious. It bids for projects,

which are funded either by government agencies or international bodies such as

World Bank and ADB. This strategy mitigates payment default risk and helps

maintain WC levels prudently.

When the entire industry was witnessing heated competition and experiencing

higher D/E ratios (on account of higher exposure to BOT road projects), MBL

stayed away from the BOT space. It was only after competition started easing-off

that MBL entered the BOT Road space. This strategy helped them bid for projects

in a lesser competitive environment and sign the projects with attractive terms.

Given that 2 of MBL’s projects are on Toll+ Annuity and another 2 on Toll+ Grant

model, we are optimistic of the company experiencing impressive equity IRR across

these projects. This strategy has also helped MBL in building its order book in a

down-cycle, when the award activity witnessed severe slowdown. It is this business

January 23, 2015

Initiating coverage | MBL Infrastructure

prudence, which helped MBL cover its fixed costs base in a down-cycle and

maintain ~10% standalone EBITDA levels.

Notably, all projects of MBL have a price pass-on clause in-built, thereby insulating

the company from any sharp fall in EBITDA margins.

All the above-mentioned initiatives and well timed strategic moves have helped

MBL maintain ~10% EBITDA margins during FY2010-14 and generate Cash flow

from Operations to the tune of ~`176cr during FY2012-14.

Backward integration to aid in quicker margin expansion

MBL over the years has invested in (1) Ready-to-Mix Concrete (RMC) plants,

(2)

6 quarrying facilities strategically located across North & Eastern India and

(3) wide array of Construction Equipments. This strategy to invest in resources

would help the company in ensuring quick and timely supply of stone aggregates

at the project location, thus translating into cost savings. In an up-cycle, where

award activity is likely to see a sharp bounce back, we expect having large

inventory of construction equipments would help MBL in lowering execution costs;

reduce mobilization time, thereby translating to higher operating margins. All

these backward integration initiatives should help the standalone entity in reporting

a 107bp EBITDA margin expansion during FY2014-17E to 11.1%.

January 23, 2015

Initiating coverage | MBL Infrastructure

Update on BOT Projects

MBL has a portfolio of 5 BOT Road projects, of which only 1 is operational

(Seoni-Balaghat-Gondia). MBL’s Management has guided that all 4 BOT road

projects would be operational in FY2016E (vs. our assumption of only 3 being

operational in FY2016E). By 2QFY2015-end, MBL had already invested `201cr of

the total required `288cr, implying that `87cr further needs to be invested towards

these 4 BOT projects. ~`110cr raised from the QIP issue and internal accruals

should help MBL meet the remaining equity requirement of `87cr.

Exhibit 6: Details of BOT Projects

Particulars

AAPIL

MHDCL

MPTRCL

MPRNCL

SBTRCL

Seoni-Balaghat-

Waraseoni-

Garra-

Stretch

Seoni-Katangi

Bikaner-Suratgarh

Gondia

Lalbarra Road

Waraseoni

Project Type

BOT- Toll

BOT- Toll+Annuity

BOT- Toll

State

Madhya Pradesh

Maharashtra

Madhya Pradesh

Rajasthan

Length (kms)

114

172

Status

Operational

Under Construction Under Construction Under Construction Under Construction

Concession Period

15 years

30 years

15 years

16 years

MBL's stake

100%

65%

Concession Agreement Date

Mar-05

Sep-11

Dec-11

Mar-13

Dec-11

TPC (` in cr)

108

212

137

620

EPC (` in cr)

177

110

510

Debt (` in cr)

101

450

Equity (` in cr)

170

Grant (` in cr)

Traffic Growth Assumption:

1-5 years

6-16 years

16 years and there-after

Equity IRR (%)

15%

16%

18%

Source: Company, Angel Research; Note: NA- Not Applicable

MBL’s Management maintained that they have strategically bid for road projects in

mineral rich regions, which also happen to be important hubs and presently do not

have any other alternative connecting roads. Notably, 4 of the 5 BOT road

projects are inter-connected namely, Seoni- Balaghat-Gondia, Seoni-Katangi to

Maharashtra Border, Waraseoni-Lalbarra and Garra-Waraseoni stretches.

Accordingly, MBL’s Management claims to have 2 stretches of BOT projects. One

of the stretches is on NH-15 across Suratgarh-Bikaner (connecting north India to

Samakhiali, Gujarat) and other one is a stretch across NH-6/7 in Madhya

Pradesh.

January 23, 2015

Initiating coverage | MBL Infrastructure

Consolidated Financials

MBL reported an impressive 29% top-line CAGR during FY2010-14 to `1,766cr.

This top-line growth reflects (1) ~51% order book CAGR during the same period,

and (2) ~21% Toll Income CAGR during same period (for their only operational

BOT- Seoni-Balaghat-Rajegaon stretch). At 2QFY2015E-end, MBL’s unexecuted

order book stood at `2,354cr, thereby giving revenue visibility for another

4-5 quarters. For 1HFY2015E, MBL reported a 14.0% yoy top-line growth (to

`864cr). With uptick in order book and commencement of 4 BOT road projects,

we expect MBL to report a 19% top-line CAGR during FY2014-17E.

Exhibit 7: Consol. Revenue split

FY14-17E

Particulars (` cr)

FY14

FY15E FY16E

FY17E

CAGR (%)

Consolidated Revenues

1,766

2,038

2,507

2,986

Standalone Revenues

1,749

2,019

2,453

2,857

Revenues from BOT Projects

130

Seoni-Balaghat-Rajegaon BOT project

Waraseoni-Lalbarra BOT project

n/a

Garra-Waraseoni BOT project

n/a

Seoni-Katangi BOT project

n/a

Suratgarh-Bikaner BOT project

n/a

Source: Company, Angel Research; Note: n/a- Not Applicable

Despite a challenging macro environment, EPC business’ dependency on captive

BOT projects helped the company maintain its EBITDA margins at over 10% levels.

During FY2010-14, MBL reported an impressive 19.6% EBITDA CAGR (to `188cr).

With 4 of the BOT projects (have higher EBITDA margins vs. EPC business) likely to

commence operations in FY2016-17, coupled with (1) efficiencies from their

backward integration initiatives, and (2) new project wins on low bidding intensity,

we can expect MBL to report sharp EBITDA growth during FY2014-17E (we have

modeled ~32% CAGR over FY2014-17E). In other words, we expect EBITDA

margins to expand by 372bp during FY2014-17E to 14.4%.

Exhibit 8: Consol. EBITDA split

FY14-17E

Particulars (` cr)

FY14

FY15E FY16E FY17E

CAGR (%)

Consolidated EBITDA

188

229

311

429

Standalone EBITDA

176

212

267

317

BOT Projects EBITDA

112

111

Source: Company, Angel Research

During FY2010-14, MBL reported a restricted PAT CAGR of ~9%, reflecting the

impact of higher interest and depreciation expenses (partly owing to their

Seoni-Balaghat-Rajegaon BOT project). 4 of the BOT projects are expected to

commence operations in FY2016-17E. We do not expect the entire benefits of

EBITDA growth to flow down to the PAT level, as interest and depreciation

expenses would also increase. Accordingly, we expect MBL to report ~9% PAT

CAGR during FY2014-17E. In other words, PAT margins would decline from 4.4%

in FY2014 to 3.3% by FY2017E.

January 23, 2015

Initiating coverage | MBL Infrastructure

Exhibit 9: Consol. PAT split

FY14-17E

Particulars (` cr)

FY14A

FY15E

FY16E

FY17E

CAGR (%)

Consolidated PAT

Standalone PAT

100

118

BOT Projects PAT

(12)

(19)

Source: Company, Angel Research; Note: NA - Not applicable

Capital deployment towards BOT projects, which report losses in first 1-2 years,

should be a drag on overall return ratios of the company. Accordingly, we expect

consol. Return on Capital Employed (RoCE) and Return on Equity (RoE) ratios to

decline from ~16%/18% in FY2014 to ~13%/13% in FY2017E.

Exhibit 10: Consolidated RoCE (%)

Exhibit 11: Consolidated RoE (%)

FY13

FY14

FY15E

FY16E

FY17E

FY13

FY14

FY15E

FY16E

FY17E

Source: Company, Angel Research

January 23, 2015

Initiating coverage | MBL Infrastructure

Valuation

We have valued MBL using Sum-Of-The-Parts method. MBL’s EPC business (under

standalone entity) has been valued using FY2017E P/E multiple, whereas BOT

projects are valued using the “Free Cash flow to Equity holders” method.

Value of Core EPC business

The standalone EPC business is trading at FY2016E and FY2017E P/E multiple of

9.1x and 7.8x, respectively. Standalone entity EPC is trading at ~25% discount to

its peers’ average (include- Simplex Infra, Ahluwalia Contracts, KNR Construction

and J Kumar Infra). This discount could be attributable to (1) MBL’s lower RoE of

14.8% for FY2017E vs. peers’ average of 16.3% in FY2017E), and (2) higher

dependency on only one vertical, i.e. the Roads Vertical (a/c’s for ~73% of

unexecuted order book).

Exhibit 12: Peer Group comparison (Standalone numbers)

Revenues (` cr)

EBITDA Margins (%)

PAT Margins (%)

Rev. CAGR

PAT CAGR

Particulars

FY14

FY15

FY16

FY17

FY15E FY16E FY17E FY15E FY16E FY17E

FY2014-17E(%)

MBL Infra

1,754

2,019

2,453

2,857

10.5

10.9

11.1

4.2

4.1

17.7

16.3

Simplex Infra

5,499

5,696

6,472

7,670

10.7

10.8

10.4

1.2

1.8

2.6

11.7

49.4

KNR Construction

837

886

1,059

1,336

15.4

15.5

14.7

7.1

7.3

16.9

17.2

Ahluwalia Contracts

957

1,155

1,408

1,692

10.3

11.0

11.9

5.7

6.2

7.0

20.9

76.0

J Kumar Infra

1,169

1,456

1,774

2,191

17.5

17.3

16.8

6.9

7.4

7.6

23.3

25.9

Average

13.5

13.7

13.5

5.2

5.7

6.2

18.2

42.1

Source: Bloomberg estimates, Company, Angel Research

Exhibit 13: Peer Group comparison (Standalone numbers)

M-Cap

RoE (%)

EPS (`)

Adj. P/E (x)

CMP

(` cr)

FY14

FY15

FY16

FY17

FY15E

FY16E

FY17E

FY15E

FY16E

FY17E

MBL Infra

442

916

17.6

15.2

14.4

14.8

40.9

48.5

57.0

10.7

9.0

7.7

Simplex Infra

366

1,812

4.5

4.9

7.8

12.1

13.9

24.1

41.7

26.3

15.2

8.8

KNR Construction

378

1,055

4.5

4.9

7.8

12.1

22.3

27.5

34.9

16.8

13.6

10.8

Ahluwalia Contracts

243

1,626

10.1

23.1

23.2

24.4

10.1

13.4

17.9

24.1

18.1

13.5

J Kumar Infra

476

1,535

15.6

14.9

16.0

16.8

31.9

41.6

52.0

14.9

11.4

9.2

Average

8.7

12.0

13.7

16.3

20.5

14.6

10.6

Source: Bloomberg estimates, Company, Angel Research

We have valued MBL’s core EPC business (standalone entity) based on P/E multiple

and assigned 8.0x for FY2017E EPS of `57, resulting in value of `456 per share.

Value of BOT projects

BOT projects have been valued using the “Free Cash flow to Equity holders”

method. Our value for all the 5 BOT projects comes to `105/share, which is 19%

January 23, 2015

Initiating coverage | MBL Infrastructure

of the overall SOTP value for the company. Ongoing projects contribute 3% and

under-development projects contribute 16% to the overall value.

On combining the value of EPC business BOT projects, we arrive at a combined

business value of `561/share, reflecting 27% upside in the stock price from the

current levels. In order words, the stock’s current market price reflects the business

value of just the standalone entity. We sense that as and when announcements of

the remaining

4 BOT projects are made, the stock price would catch-up

accordingly. We initiate coverage on MBL with a target price of `561/ share.

Exhibit 14: Sum-of-the-Parts based Valuation Table

FY17E Std. PAT

Target Value

Value/ share

Particulars

Segment

Target Multiple

% of SoTP Basis

(` cr)

(`)

MBL's EPC business

Construction

118

8.0

945

456

P/E of 8.0x

Total

945

456

Discounted FCFE

Adj. FCFE Value

Value/ share

Particulars

Proj. Type

Project Stake

% of SoTP Basis

(` cr)

(`)

Road BOT projects

Seoni-Balaghat-Rajegaon

Toll

100%

K_e of 17%

BOT Project

Waraseoni-Lalbarra BOT Project Toll + Annuity

100%

K_e of 17%

Garra-Waraseoni BOT Project Toll + Annuity

100%

K_e of 17%

Seoni-Katangi BOT Project

Toll

100%

K_e of 17%

Suratgarh-Bikaner BOT Project

Toll

114

65%

K_e of 17%

Total

258

218

105

Grand Total

1,162

561

100

Upside

27%

CMP

442

Source: Company, Angel Research

Key risks

 Promoters have pledged ~5% of their equity stake (Promoters hold 46% stake

in MBL Infra). Any further increase in the pledge by the promoters could lead

to volatility in the stock price.

 Suratgarh-Bikaner BOT project currently accounts for ~20% of unexecuted

order book. Any further delays in getting clearances could impact our near-

term execution assumptions, as well as equity IRRs.

 Lower than expected order inflows due to slowdown in new project award

activity

 Slower growth vs. our traffic growth expectations is potential risk to toll

revenues from BOT projects.

January 23, 2015

Initiating coverage | MBL Infrastructure

Exhibits

Exhibit 15: Order Book split- Vertical-wise

Exhibit 16: Order Book split- State-wise

5.8%

11.7%

6.0%

18.3%

7.2%

3.9%

24.9%

17.5%

54.8%

10.7%

11.1%

5.5%

22.6%

Roads & Highway Cons. Railway Infra

Building & Housing

Haryana

Assam

New Delhi

Uttarakhan

Other Infra

Roads & Highway O&M

West Bengal

Rajasthan

Madhya Pradesh Others

Source: Company, Angel Research

Exhibit 17: Order Book split- Client-wise

Exhibit 18: Consol. Revenue (` cr)

3,500

10.7%

20.8%

3,000

9.5%

2,500

6.1%

2,000

5.8%

1,500

22.6%

1,000

500

24.6%

PWD Uttarakhand WBHDCL

NHAI

PWD Haryana

Others

PWD Rajasthan

MPRDC

FY13

FY14

FY15E

FY16E

FY17E

Revenues (` cr)

y/y change (%)

Source: Company, Angel Research

Exhibit 19: Consol. EBITDA (` cr)

Exhibit 20: Consol. PAT (` cr)

500

120

450

100

400

350

300

250

200

150

100

(2)

(5)

FY13

FY14

FY15E

FY16E

FY17E

FY13

FY14

FY15E

FY16E

FY17E

EBITDA (` cr)

y/y change (%)

PAT (` cr)

y/y change (%)

Source: Company, Angel Research

January 23, 2015

Initiating coverage | MBL Infrastructure

Exhibit 23: List of Ongoing projects

Contract Value

Unexecuted Value

Project details

(` in cr)

Development & Operation on BOT basis of Bikaner-Suratgarh of NH-15

510

411

Widening to 4-lane of Dankuni-Chandanagar section of SH-13

318

275

Improve & strengthening of roads under Package no. C-4 in Almora dist.

217

Construction of Seoni-Katangi BOT Road project

177

RCD Contract, ADB funded project for improvement/ upgradation of roads & bridges of SH-68

169

(Shivganj-Rafiganj- Uphara-Devkund-Baidrabad)

NHAI contract to widen-strengthen NH-37 stretch of Sonapur-Guwahati (51% JV with TCIL)

158

Improve & strengthen roads under Package no. C-2 in Udham singh Nagar dist.

143

Construction of Garra-WaraSeoni BOT Road project

110

Construct buildings at National Law University, Rajiv Gandhi Education City, Sonepat Dist.

Construct depot-cum-workshop at Kalindi-kunj (Line-8 for Delhi MRTS Phase III)

Construct 222 flats, Keelandev Towers at Shivaji Nagar, Bhopal, MP

Construct Bus Terminus at GT Road, Serampore Municipality, Hooghly, WB

Re-development of Police Colony, Delhi Cantt.

Construction of Residential Buildings for NHAI staff at Dwarka, N-Delhi

Construction of WaraSeoni-Lalbarra BOT Road project

Construct Assam Judicial Academy & National Law School at Amingaon, Assam

Construct 4-lane RoB at Delhi Ambala line in Sonepat, Haryana

Construct Police Residence Quarters at Kindli Check Post, Delhi

Construct 96 flats at Tulsi Nagar, Bhopal

Construct 2-lane RoB at Delhi Ambala Railway line of Sonepat-Purkhas Road, Sonepat, Haryana

Construct Group Housing Residential Apartments for NBCC on Delhi Saharanpur Highway, Baghpat, UP

Construct 92 flats at Mahadev Parisar, & Construct Commercial Building at Shivaji Nagar, Bhopal

Construct 2-lane RoB at Delhi Ambala Railway line of Delhi-Ambala, Sonepat, Haryana

Construct Panchayat & Rural Development Dept. Building at Sector-19 in Naya Raipur

Construct Police Station & Residences at Hari Nagar, New Delhi

Construct Residential Accommodation for Senior Officers of SPA, Bhopal

O&M of Garra-Waraseoni Road project

O&M of Waraseoni-Lalbarra Road project

O&M of Seoni-Katangi Road project

263

O&M of Suratgarh-Bikaner Road project

251

O&M of Seoni-Balaghat Gondia Road, MP

Residential Complex for Judicial staff at Sec-19, Dwarka, Delhi

Other Contracts

Total Gross Order Book

3,327

2,354

Source: Company, Angel Research

January 23, 2015

Initiating coverage | MBL Infrastructure

Income Statement (Standalone)

Y/E March (` cr)

FY13

FY14

FY15E

FY16E

FY17E

Net Sales

1,343

1,754

2,019

2,453

2,857

% Chg

30.6

15.1

21.5

16.5

Total Expenditure

1,211

1,578

1,807

2,186

2,539

Cost of Materials Consumed

954

1,376

1,587

1,921

2,237

Direct Labour, Sub-Contracts

180

118

125

150

173

Employee benefits Expense

Other Expenses

EBITDA

131

176

212

267

317

% Chg

34.0

20.3

26.1

18.7

EBIDTA %

9.8

10.0

10.5

10.9

11.1

Depreciation

EBIT

124

166

197

249

296

% Chg

33.9

18.3

26.4

19.0

Interest and Financial

115

139

Charges

Other Income

PBT

101

115

136

160

Tax

% of PBT

25.4

26.0

PAT before Exceptional item

100

118

Exceptional item

PAT

100

118

% Chg

35.8

12.9

18.4

17.6

PAT %

4.1

4.3

4.2

4.1

Diluted EPS

% Chg

35.8

(4.6)

18.4

17.6

January 23, 2015

Initiating coverage | MBL Infrastructure

Balance Sheet (Standalone)

Y/E March (` cr)

FY13

FY14

FY15E

FY16E

FY17E

Sources of Funds

Equity Capital

Reserves Total

374

443

633

725

833

Networth

391

460

654

746

854

Total Debt

446

463

695

955

1,080

Other Long-term Liabilities

108

153

199

Deferred Tax Liability

Total Liabilities

974

1,111

1,582

1,934

2,167

Application of Funds

Gross Block

175

214

279

324

364

Accumulated Depreciation

102

Net Block

137

166

216

243

261

Capital WIP

Investments

166

220

308

Current Assets

Inventories

491

559

729

872

984

Sundry Debtors

302

374

544

640

730

Cash and Bank Balance

Loans, Advances & Deposits

Other Current Asset

Current Liabilities

285

324

365

405

447

Net Current Assets

601

725

1,056

1,294

1,508

Other Assets

139

Total Assets

974

1,111

1,582

1,934

2,167

January 23, 2015

Initiating coverage | MBL Infrastructure

Cash Flow Statement (Standalone)

Y/E March (` cr)

FY13

FY14

FY15E

FY16E

FY17E

Profit before tax

101

115

136

160

Depreciation

Change in Working Capital

(80)

(3)

(308)

(205)

(168)

Interest & Financial Charges

115

139

Direct taxes paid

(47)

(14)

(30)

(35)

(42)

Cash Flow from Operations

163

(125)

111

(Inc)/ Dec in Fixed Assets

(33)

(39)

(65)

(45)

(40)

(Inc)/ Dec in Investments

(26)

(68)

(54)

(88)

Cash Flow from Investing

(59)

(107)

(119)

(133)

(40)

Issue/ (Buy Back) of Equity

117

Inc./ (Dec.) in Loans

109

232

260

125

Dividend Paid (Incl. Tax)

(3)

(6)

(9)

(10)

Interest Expenses

(51)

(70)

(84)

(115)

(139)

Cash Flow from Financing

(58)

256

136

(24)

Inc./(Dec.) in Cash

(3)

Opening Cash balances

Closing Cash balances

January 23, 2015

Initiating coverage | MBL Infrastructure

Key Ratio (Standalone)

Y/E March

FY13

FY14

FY15E

FY16E

FY17E

Valuation Ratio (x)

P/E (on FDEPS)

14.0

10.3

10.8

9.1

7.8

P/CEPS

12.4

9.1

9.2

7.7

6.6

Dividend yield (%)

0.7

0.8

0.9

EV/Sales

0.9

0.7

0.8

0.7

EV/EBITDA

9.2

7.0

7.5

6.8

6.0

EV / Total Assets

1.2

1.1

1.0

0.9

Per Share Data (`)

EPS (fully diluted)

31.6

42.9

40.9

48.5

57.0

Cash EPS

35.7

48.5

48.3

57.5

67.3

DPS

3.0

3.7

3.5

4.2

Book Value

224

263

315

360

412

Returns (%)

RoCE (Pre-tax)

16.6

19.3

17.5

16.5

Angel RoIC (Pre-tax)

15.0

18.4

14.7

14.8

15.5

RoE

15.1

17.6

15.2

14.4

14.8

Turnover ratios (x)

Asset Turnover (Gross Block) (X)

0.8

0.9

Inventory / Sales (days)

134

109

116

119

Receivables (days)

Payables (days)

Leverage Ratios (x)

D/E ratio (x)

1.1

1.0

1.1

1.3

Interest Coverage Ratio (x)

2.4

2.2

2.1

January 23, 2015

Initiating coverage | MBL Infrastructure

Income Statement (Consolidated)

Y/E March (` cr)

FY13

FY14

FY15E

FY16E

FY17E

Net Sales

1,355

1,766

2,038

2,507

2,986

% Chg

30.3

15.4

23.0

19.1

Total Expenditure

1,212

1,578

1,809

2,196

2,557

Cost of Materials Consumed

954

1,376

1,587

1,921

2,237

Direct Labour, Sub-Contracts

180

118

125

150

173

Employee benefits Expense

Other Expenses

103

EBITDA

143

188

229

311

429

% Chg

31.2

21.6

35.8

38.1

EBIDTA %

10.6

10.7

11.2

12.4

14.4

Depreciation

EBIT

132

174

208

277

372

% Chg

31.6

19.4

33.3

34.3

Interest and Financial Charges

155

246

Other Income

PBT

103

121

125

129

Tax

% of PBT

25.7

25.2

25.3

29.2

33.9

PAT before Exceptional item

Exceptional item

PAT before Minority Interest

Minority Interest

(14)

PAT after Minority Interest

% Chg

35.9

17.1

(1.9)

12.2

PAT %

4.2

4.4

3.5

3.3

Diluted EPS

% Chg

36.0

(1.1)

(1.9)

(3.8)

January 23, 2015

Initiating coverage | MBL Infrastructure

Balance Sheet (Consolidated)

Y/E March (` cr)

FY13

FY14

FY15E

FY16E

FY17E

Sources of Funds

Equity Capital

Reserves Total

380

451

642

722

797

Networth

398

469

663

742

817

Total Debt

644

772

1,391

1,955

2,183

Other Long-term Liabilities

Minority Interest

Deferred Tax Liability

Total Liabilities

1,116

1,347

2,193

2,837

3,126

Application of Funds

Gross Block

248

287

352

841

1,583

Accumulated Depreciation

121

183

Net Block

189

214

261

720

1,400

Capital WIP

209

376

715

620

Investments

Current Assets

Inventories

491

559

729

872

984

Sundry Debtors

253

318

594

731

829

Cash and Bank Balance

102

Loans, Advances & Deposits

Other Current Asset

Current Liabilities

208

330

365

405

447

Net Current Assets

692

721

1,103

1,382

1,612

Other Assets

Total Assets

1,116

1,347

2,193

2,837

3,126

January 23, 2015

Initiating coverage | MBL Infrastructure

Cash Flow Statement (Consolidated)

Y/E March (` cr)

FY13

FY14

FY15E

FY16E

FY17E

Profit before tax

103

121

125

129

Depreciation

Change in Working Capital

(35)

(56)

(472)

(248)

(172)

Interest & Financial Charges

155

246

Direct taxes paid

(48)

(14)

(31)

(36)

(44)

Cash Flow from Operations

122

(272)

216

(Inc)/ Dec in Fixed Assets

(172)

(206)

(404)

(394)

(121)

(Inc)/ Dec in Investments

(20)

(4)

Cash Flow from Investing

(191)

(206)

(409)

(394)

(121)

Issue/ (Buy Back) of Equity

117

Inc./ (Dec.) in Loans

202

128

619

564

228

Dividend Paid (Incl. Tax)

(3)

(6)

(9)

(10)

Interest Expenses

(58)

(75)

(89)

(155)

(246)

Minority Interest

(14)

Cash Flow from Financing

142

638

401

(42)

Inc./(Dec.) in Cash

(6)

(42)

Opening Cash balances

Closing Cash balances

102

January 23, 2015

Initiating coverage | MBL Infrastructure

Key Ratio (Consolidated)

Y/E March

FY13

FY14

FY15E

FY16E

FY17E

Valuation Ratio (x)

P/E (on FDEPS)

13.7

10.1

10.2

10.4

10.8

P/CEPS

11.5

8.5

8.3

7.5

5.9

Dividend yield (%)

0.7

0.8

0.9

EV/Sales

1.0

0.8

1.1

1.0

EV/EBITDA

9.4

7.9

10.0

9.1

7.0

EV / Total Assets

1.2

1.1

1.0

Per Share Data (`)

EPS (fully diluted)

32.3

44.0

43.5

42.7

41.0

Cash EPS

38.7

52.0

53.6

58.9

75.3

DPS

3.0

3.7

3.5

4.2

Book Value

227.1

267.6

319.7

358.2

394.4

Returns (%)

RoCE (Pre-tax)

14.6

15.6

12.7

11.8

13.2

Angel RoIC (Pre-tax)

12.9

14.4

10.2

10.4

12.5

RoE

15.2

17.8

15.9

12.6

12.7

Turnover ratios (x)

Asset Turnover (Gross Block) (X)

0.6

0.7

0.5

0.4

Inventory / Sales (days)

127

108

115

117

113

Receivables (days)

Payables (days)

Leverage Ratios (x)

D/E ratio (x)

1.6

2.1

2.6

2.7

Interest Coverage Ratio (x)

2.3

2.4

1.8

1.5

January 23, 2015

Initiating coverage | MBL Infrastructure

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

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companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

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Disclosure of Interest Statement

MBL Infrastructure

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

Reduce (-5% to -15%)

Sell (< -15%)

January 23, 2015

Initiating coverage | MBL Infrastructure

6^th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800

Research Team

Fundamental:

Sarabjit Kour Nangra

VP-Research, Pharmaceutical

[email protected]

Vaibhav Agrawal

VP-Research (Banking)

[email protected]

Amarjeet Maurya

Analyst (FMCG, Media, Mid-Cap)

[email protected]

Bharat Gianani

Analyst (Automobile)

[email protected]

Rahul Dholam

Analyst (Metal, Oil & Gas)

[email protected]

Santosh Yellapu

Analyst (Infrastructure)

[email protected]

Shrenik Gujrathi

Analyst (Cap Goods, Cement)

[email protected]

Umesh Matkar

Analyst (Banking)

[email protected]

Twinkle Gosar

Analyst (Mid-Cap)

[email protected]

Tejas Vahalia

Research Editor

[email protected]

Technicals and Derivatives:

Siddarth Bhamre

Head - Technical & Derivatives

[email protected]

Sameet Chavan

Technical Analyst

[email protected]

Sneha Seth

Associate (Derivatives)

[email protected]

Institutional Sales Team:

Mayuresh Joshi

VP - Institutional Sales

[email protected]

Meenakshi Chavan

Dealer

[email protected]

Gaurang Tisani

Assistant Manager

[email protected]

Production Team:

Dilip Patel

Production Incharge

[email protected]

CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 - 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 /

NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.

January 23, 2015