Strong Order inflows to lead to better execution: MBL Infrastructures (MBL), a
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 Rs10,000cr.
Going by its past track record, of ~25% strike rate, MBL should report ~Rs2,500cr
worth of new project wins in the next 12 months. We expect MBL’s order inflow to
report ~13% CAGR over FY2014-17E, which is likely to be followed-up by
stronger execution. Accordingly, we expect MBL’s standalone entity to report a
strong ~18% top-line CAGR during FY2014-17E.
~16% PAT CAGR during FY2014-17E: Stronger execution, benefits of backward
integration and better absorption of fixed costs, should help the standalone entity
report a ~22% EBITDA CAGR during FY2014-17E (EBITDA margin to expand
107bp during the same period). Despite a strong EBITDA growth, higher interest
and depreciation expenses would restrict standalone PAT at ~16% CAGR during
the same period, as per our estimation.
BOT projects nearing completion: MBL has a portfolio of 5 BOT Road projects, of
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 interconnected
with no alternate roads, indicates that these projects could generate
impressive equity IRRs. With commencement of 4 BOT projects in FY2016-17, we
can expect a possible easing in the balance sheet stress.
Comfortable Balance Sheet: MBL is one of the Road developers with moderate
consol. D/E ratio of 1.8x. With 3 BOT projects nearing completion (to commence
tolling in FY2016E) and 4th to commence operations in FY2017E, we expect
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
Valuation: At CMP of Rs442/share, MBL is trading at FY2016E and FY2017E
EV/EBITDA multiple of 9.1x and 7.0x, respectively. Improved order inflow outlook
(with current bid pipeline of ~Rs10,000cr), 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 Rs105/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 Rs456/share. On adding-up value of standalone entity and BOT projects,
we arrive at FY2017E sum-of-the-parts (SoTP) based price target of Rs561/share.
Given the 27% upside from the current levels, we initiate coverage on MBL
Infrastructures with a BUY rating.

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