The stock of GR Infraprojects, India's leading player in the roads and highways sector, has attracted several buy recommendations from the country's top brokerages thanks to its business model, strong execution track record delivering the fastest growth (in the industry), robust profitability, and healthy return ratios.
Brokerage firm Axis Securities has initiated coverage on construction and engineering firm G R Infraprojects with a target price of ₹1,775, implying a 23 percent upside from the stock's March 23 closing of ₹1,442.15 on BSE.
Axis' coverage on the stock has come at a time when the stock has seen sharp correction and is available at a cheaper valuation. Besides, the outlook for the construction sector is bright due to the government's strong focus on the infrastructure sector.
In the current calendar year, the stock is down 17 percent while the benchmark Sensex has shed just a percent in the same period. Currently, the stock is trading at 18 times FY23E and 14 times FY24E earnings per share (EPS).
"The road sector is witnessing long-term structural changes on account of the government push to the infrastructure development and many opportunities are emerging in the construction space such as the development of airports, metros, railways, and power transmission. We believe GR Infra is well-placed to capitalise on these opportunities by leveraging its established track record and healthy financial position," Axis Securities said in a report.
As per Axis, as of December 2021 end, GR Infra’s order book stands robust at ₹14,599 crore (2 times of FY21 revenue),
comprising road projects as well as the Metro projects. The company’s healthy cumulative order book of ₹16,692 crore reflects comfortable revenue visibility for the next two years.
"The company has also diversified into the power transmission segment to leverage its existing infrastructure as well as to insulate its business from future uncertainties. Supported by the company’s healthy and diversified order book and emerging opportunities, we expect GR Infra to deliver healthy revenue growth of 12 percent CAGR over FY22-FY24E," said Axis.
Axis expects GR Infra to report revenue, EBITDA, APAT CAGR of 12 percent, 18 percent and 20 percent, respectively, over FY22-FY24E.
On March 10, brokerage firm ICICI Direct also initiated coverage on the stock with a target price of ₹1,780.
"GR Infra is well placed to deliver 14.7 percent, 19.7 percent revenue, PAT CAGR, respectively, over FY22-24E. Elevated profitability with strong asset turnover is expected to result in healthy return ratios," ICICI said.
ICICI Direct believes GR Infra's operating margins may moderate with a change in project mix and fewer receipts of early completion bonuses. "The balance sheet is expected to remain lean with 0.2 times net D/E whereas monetisation of HAM portfolio is expected to free up tied-up capital. Net working capital (NWC) days is healthy at 55-60 days. Order wins would be keenly watched for medium-term growth visibility," ICICI said.
Market sentiment on the stock is ‘neutral’, according to a MintGenie poll and an average of 11 analysts has a ‘buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.