SUPREME INFRA: Infra Player With a Strong Foundation

Mid-sized infrastructure EPC contractor Supreme Infrastructure appears substantially undervalued considering its better than industry performance in terms of margins, return on equity and working capital cycle. Its growing order book and entry into BOT road projects give strong visibility about future growth. Long-term investors should add this scrip to their portfolio.

GROWTH DRIVERS
The company currently has orders worth 3,117 crore which is 3.4 times its sales for FY11. Nearly 85% of these unexecuted orders are for buildings and roads, while the rest consist of bridges, irrigation and power etc.
In the roads segment, Supreme Infra is a fully backward integrated company. It produces all the key raw materials such as asphalt and RMC, and has in-house stone quarrying and crushing capacities. This enables it to earn one ofthe best margins in the industry.
The company moved into Build-Operate-Transfer (BOT) road projects only a few years back, and has six such projects in hand today. The company is awaiting financial closure for three of them. For these it can sell equity at the special purpose vehicle (SPV) level to some international financial investors.
To expand geographical presence, the company recently opened a regional office in Kolkata.
Supreme Infra is also ramping up its project execution capacities. It acquired a 51% stake in Aurangabad-based Rudranee Infra, which specialises in water pipelines and power distribution projects. Supreme has also taken up a hospital construction project in Mumbai, and an industrial construction project for a steel plant in Jalna.
It plans to enter new segments like ports, power plants and tunneling.

FINANCIALS
In the last six years, the company’s revenue has grown six-fold. In FY11, revenues grew 72% at 918.7 crore. EBIDTA for FY11 was up 65% at 156.5 crore. The bottom line grew 80% to 70.7 crore.
The company enjoys one of the highest margins, highest RoEs and the best working capital cycle among its peers.

VALUATION
The company is currently trading at 6.6 times its earnings for FY11. This is lower than its peers such as IRB Infra, Simplex Infra, Patel Engineering, IVRCL etc that trade at a P/E of between 7.8 and 13.8. In FY12, the company’s net sales are expected to hit 1,300 crore with a net profit of 95 crore. Given this, the company is trading at an attractive one-year forward P/E of 4.9.