Om Metal’s Ambitious Infra Projects Strain Cash Flows

Co’s ability to monetise real estate assets to fund its projects key to growth

Rajasthan-based Om Metal Infraprojects (OMIL) is trying to move up the value chain from being a niche engineering player to an infrastructure major using real estate as a stepping stone. The hurdles it is facing in this transition process have kept the scrip out of the market’s radar for quite a long time. However, as its real estate projects gain momentum from the second half of FY12 onwards, retail investors would do well to keep this scrip in their line of vision. 

OMIL controls a 55% market share in hydro-mechanical projects for dams and irrigation projects in India. This mainly involves designing, fabricating and installing floodgates and related mechanical set up for a smooth functioning. It is at present carrying an unexecuted order book of . 550 crore.
Moving away from its core business, OMIL has amassed land parcels in various cities, particularly when they were available at low valuations. After completing a residential project in Kota during FY10, it has started developing the other land parcels. The company has launched new projects in Kota and Jaipur with a total saleable area of 1.1 million sq feet which will get over in 2012 and 2013, respectively. It has a stake in Bandra Slum Rehabilitation project that will net it 1 lakh sq feet of saleable area by March 2015. Similarly, its tie-up with Mahindra Lifespaces for a Hyderabad land entitles it to 80,000 sq feet of saleable area to be ready by March 2013. The company also owns a 4-star hotel in Jaipur and a multiplex in Kota — now leased out to Inox for . 1.5 crore per annum.
As the cashflows from property development start materialising, the company plans to invest them in infrastructure projects. It has bagged stakes in three such projects so far — development of a port and SEZ in Pondicherry and a BOT toll road between Jaipur and Bhilwara.
The company’s ambitious plans have put a strain on its operating cashflows, depleting its accumulated cash reserves. As a result, it ended FY11 with a net debt — debt exceeding cash and bank balances — for the first time in past several years. Its infrastructure projects are high-cost that need to stick to strict timelines. The company’s ability to monetise its real estate assets in time to fund these infrastructure projects are key to its growth prospects.