For 2QFY2016, MBL Infrastructures (MBL) reported a 16.8% yoy top-line growth
to Rs406cr. The company reported a yoy decline in EBITDA margin to 11.7% for
the quarter. During 2QFY2015, MBL had received Rs5cr as escalation amount
from the Guwahati project. On adjusting for the same, the EBITDA margin
declined 202bp yoy. Fall in yoy EBITDA margin reflects (1) 85.8% increase in
other expenses (to Rs29cr) and 82.8% increase in labor and sub-contracting costs
(to Rs28cr). The 41.5% yoy increase in employee expenses is mainly on account of
induction of new employees into the company in earlier quarters. Despite strong
execution, EBITDA decline on a yoy basis percolated to the PAT level; PAT
declined by 17.6% yoy to Rs18cr. The Reported PAT margin of the company
declined from 6.2% a year ago to 4.4% in 2QFY2016.
MBL’s unexecuted order book as of 2QFY2016 stands at ~Rs2,150cr (order book
to LTM revenues is at 1.0x).
With 3 BOT projects expected to commence tolling in FY2016-2017E and
Management clarifying that it does not intend to add any new BOT projects to the
company’s portfolio till FY2017, we are confident that MBL’s D/E ratio would
peak out in FY2017E at 2.3x.
Outlook and valuation: We continue to maintain our positive view on MBL
considering its historical execution experience, huge emerging market opportunity
in the Roads & Highways vertical and 3 BOTs expected to commence operations
in the next 12-15 months. Likelihood of 3 BOT projects commencing operations
in FY2017E comforts us to estimate that the consolidated Balance Sheet should
peak in FY2017E, which is comparatively better than some of its peers. Using
SoTP based valuation methodology we arrive at FY2017E based price target of
Rs285. Given the upside potential, we maintain our Buy on the stock.

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