MEP Infrast.Q1 FY17Transport Infrastructure

MEP Infrast.

Q1 FY17 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 3

→FY 17 revenue remained stable at Rs. 461 crores, in line with FY 16 Q1 despite project maturation.
→Medium-term growth expected through strong visibility from Hybrid Annuity Model (HAM) projects.
→Six HAM projects awarded with order book value of Rs. 3,827 crores, commanding ~19% market share.
→Potential new long-term projects via TOT (Toll-Operate-Transfer) model with estimated bid size of Rs. 75,000 to 1,00,000 crores.
→TOT projects expected to provide long tenure (20-30 years) revenue streams from existing toll roads.
→Financial closures of HAM projects anticipated between Sept-Dec 2016, enabling project commencements.
→The company actively bidding for more long-term and TOT projects to increase order inflow.
→Revenue growth visibility constrained by limited clarity on TOT ticket sizes but expected to improve with project clustering finalization.

Category 3

→Margins on EPC (Engineering, Procurement, and Construction) projects are conservatively expected at 14-15%, with potential eventual combined margins exceeding 16-18% due to economies of scale and operational efficiencies (Page 8).
→The company has a robust bidding pipeline, especially in long-term Hybrid Annuity Model (HAM) and TOT projects, providing good visibility of future revenues (Page 11).
→The recent award of 6 HAM projects totaling an order book of around Rs. 3,827 crores positions MEP Infra as a leader in this segment, anticipated to support steady revenue growth (Page 1).
→Financial closures for these HAM projects are expected between September to December 2016, securing medium-term operational earnings (Page 1).
→The company expects adequate cash profits to cover near-term debt repayments (~Rs. 100 crores in FY17 increasing over the years), supporting financial stability (Page 12).
→Ongoing participation in TOT projects with long tenure (20-25 years) is expected to enhance long-term revenue visibility (Page 11).

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Yes

→The company has board approval to raise authorized share capital up to Rs. 300 crores.
→Fundraising is planned through preferential allotment or a rights issue targeting existing shareholders and potentially fresh investors.
→Promoters are committed to infusing a substantial portion of the required equity capital for Hybrid Annuity Model (HAM) projects.
→Equity requirement for six HAM projects is estimated at around Rs. 530-555 crores, with 12-15% equity component.
→Debt-equity ratio for HAM projects is targeted around 25:75 (equity:debt), not including a 40% NHAI grant.
→In-principle bank approvals have been received for financial closure of the six HAM projects, with closures expected between September and December 2016.
→Debt repayment obligations for FY17 are about Rs. 100 crores, ballooning to Rs. 150+ crores in FY18 and increasing subsequently.

Yes

→MEP Infra currently has a strong order book with 6 awarded Hybrid Annuity Model (HAM) projects, valued at around Rs. 3,827 crores, representing approximately 19% market share in HAM space (Page 1).
→The total project cost for these 6 HAM projects is about Rs. 3,800 crores with EPC work of Rs. 3,500 crores (Page 6).
→The company expects to achieve financial closure for all 6 projects between September and December 2016 (Page 1).
→There is robust visibility and pipeline for long-term projects, including Hybrid Annuity Model projects (6 orders in hand) with project life spans of 15+2.5 years and TOT projects with shelf life of 20-25 years (Page 11).
→The bidding pipeline remains strong, with a company focus on hybrid annuity and TOT projects to expand the long-term portfolio (Page 11).
→The government plans to award 25,000 km highway projects in FY17, with 40% of projects under HAM requiring investments worth Rs. 60,000 crores, offering good opportunities for future orders (Page 2).

Yes

→The company is undertaking significant capital investment related to its 6 Hybrid Annuity Model (HAM) projects, with an aggregated project cost of around Rs. 3,800 crores.
→Total EPC work for these projects is about Rs. 3,500 crores.
→Indicative equity requirement is approximately 12-15%, equating to Rs. 530-555 crores, to be infused over the life of the projects.
→The joint venture partner San Jose India will contribute 26% equity in 4 projects and 40% in 2 projects.
→The company has board approval to raise authorized share capital to Rs. 300 crores via preferential allotment or rights issue to meet upfront equity requirements.
→Promoters are committed to infusing a substantial portion of the required capital for equity needs of HAM projects.
→The company is consolidating and financially closing these 6 projects, with financial closures anticipated between September to December 2016.
→Actively monitoring and selectively participating in TOT projects, anticipating future strategic investments there.

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