CRISIL Research Ier Report Supreme Infrastructure 2013

8/13/2019 CRISIL Research Ier Report Supreme Infrastructure 2013

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CRISILIERIndependentEquityResearch

Enhancing investment decisions

SupremeInfrastructure India

Ltd

Detailed Report


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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis

of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a

five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-

point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISILFundamental Grade Assessment

CRISILValuation Grade Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)

4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)

3/5 Good fundamentals 3/5 Align (+-10% from CMP)

2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)

1/5 Poor fundamentals 1/5 Strong downside (


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Supreme Infrastructure India LtdStrong order book; gearing is a key monitorable

Fundamental Grade 3/5 (Good fundamentals)

Valuation Grade 5/5 (CMP has strong upside)

Industry Construction & Engineering

1

December 12, 2013

Fair Value 300

CMP 207

For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI ) and Thomson Reuters.

With a strong order book of ~53 bn (provides revenue visibility for the next two-three years),

focus on regional and segmental (increasing share of water and power) diversification, andlow execution risk in the EPC of in-house BOT projects, Supreme Infrastructure India Ltd

(Supreme Infra) is well poised for healthy growth in the next two-three years. The company

also has a good portfolio of BOT assets which, once operational, are expected to generate

steady cash flows and post average equity IRR of ~15%. We retain our fundamental grade of

3/5. However, the stretched working capital, high gearing and the pending equity of 1.6 bn in

BOT projects are monitorables any deterioration could have an impact on our fundamental

grade. Further, high dependence on the road and building segments is a risk as slowdown in

investments in these segments could hamper growth.

Current order book of 53 bn provides revenue visibility for the next 2.7 years

The current order book provides revenue visibility for the next 30 months. The execution risk

of the order book is low as orders are progressing well and orders from in-house BOT

projects (~23% of the order book) have secured the necessary funding, clearances and land.

Supreme Infra is also taking steps to move into newer segments such as water and power;we expect these segments to contribute more to the order book.

Attractive portfolio of BOT assets; pending equity of 1.6 bn is a monitorable

Supreme Infra has a good portfolio of BOT assets - we expect these projects to generate

strong steady cash flows once operational and post average equity returns of 15%; moreover

there is low risk in timely completion of under-construction BOT projects as land acquisition is

nearly complete, financial closure (except for one) has been achieved and all approvals have

been attained. However, pending equity of 1.6 bn is a key monitorable.

Total funding gap of 2.3bn is manageable; gearing expected to remain high

There is a total funding gap of 2.3bn over the next two years (including pending equity of

1.6 bn in the BOT projects, 2.0 bn for working capital, 1.3 bn for capex, supported by

internal accruals of 2.7 bn). We see debt on the parent companys balance sheet,

securitisation of operational BOT projects and promoter equity as the likely routes for funding.

We expect the gearing to remain high but under 2x; it remains a key monitorable.Estimate two-year revenue CAGR of 8%; margin to decline by 50 bps in FY15

We estimate revenues to increase at a two-year CAGR of 8% to 23 bn in FY15, primarily

driven by execution of the current order book. EBITDA margin is expected to decline from

15.5% in FY13 to 14.9% in FY15 due to increasing presence in East India with lesser

backward infrastructure support. PAT is expected to decline to 1.0 bn in FY15 from 1.1 bn

in FY13.

Valuations: Current market price has strong upside

CRISIL Research has used the sum-of-the-parts (SoTP) method to value Supreme Infra and

arrived at a fair value of 300 per share. The contracting business has been valued by the

P/E ratio, while BOT projects have been valued by the P/B value method. At the current

market price, our valuation grade is 5/5.

KEY FORECAST (STANDALONE)(mn) FY11 FY12 FY13 FY14E FY15E

Operating income 9,185 15,059 19,870 20,371 23,057

EBITDA 1,565 2,435 3,085 3,059 3,440

Adj net income 776 918 1,121 861 986

Adj EPS- 46.4 54.8 66.9 51.4 58.9

EPS growth (%) 61.6 18.2 22.1 (23.2) 14.5

Dividend yield (%) 0.6 0.6 1.0 1.0 1.0

RoCE (%) 22.1 22.9 21.0 17.1 17.0

RoE (%) 35.5 29.2 28.1 17.5 17.0

PE (x) 4.5 3.8 3.1 4.0 3.5

P/BV (x) 1.2 1.0 0.8 0.7 0.6

EV/EBITDA (x) 4.9 4.5 4.3 4.7 4.5

NM: Not meaningful; CMP: Current market price

Source: Company, CRISIL Research estimates

CFV MATRIX

KEY STOCK STATISTICSNIFTY/SENSEX 6237/20926

NSE/BSE ticker SUPREMEINF

Face value (per share) 10

Shares outstanding (mn) 16.7

Market cap (mn)/(US$ mn) 3,472/56

Enterprise value (mn) /(US$ mn) 13,259/215

52-week range ()/(H/L) 265/146

Beta 1.5

Free float (%) 42.2%

Avg daily volumes (30-days) 22,065Avg daily value (30-days) (mn) 4.4

SHAREHOLDING PATTERN

PERFORMANCE VIS--VIS MARKET

Returns

1-m 3-m 6-m 12-m

Supreme Infra -3% 28% 0% -16%

CNX 500 4% 8% 7% 2%

ANALYTICAL CONTACTMohit Modi (Director) [email protected]

Ravi Dodhia [email protected]

Bhaskar Bukrediwala [email protected]

Client servicing desk

+91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

FundamentalGrade

PoorFundamentals

ExcellentFundamentals

Strong

Dow

nside

Str

ong

Upside

56.6% 57.4% 57.8% 57.9%

12.3% 12.8% 12.8% 12.9%6.8% 6.5% 6.5% 6.4%

24.3% 23.4% 23.0% 22.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec- 12 Mar- 13 J un -13 Sep-13

Promoter FII DII Others

For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI ) and Thomson Reuters.


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Table 1: Supreme Infra - Business environment

Product / Segment Engineering, procurement and construction (EPC) Build, operate and transfer(BOT)

Revenue contribution (FY13) 98% 2%Revenue contribution (FY15E) ~87% ~13%

Product / service offering The company started as a construction material supplier,

ventured into road EPC and then gradually diversified

into other segments such as building, water, power,

bridges among others. Currently Buildings and roads

comprise ~85% of the order book

Order book break-up (as of FY13): roads (42%),

buildings (46%), water (4%), power (1%) and others (7%)

Develop and manage road projects

Current portfolio: Nine BOT road projects and

one bridge project. The bridge project and three

road projects are operational while the remaining

six road projects are under development. Of the

projects under development, four are expected

to be operational by the first half of FY15

Geographic presence The company has projects in 13 states (primary being Maharashtra, Rajasthan, Haryana and Punjab). States

from North India (including Haryana, NCR, Punjab, UP) comprise 47% of the order book, West India (primarily

Maharashtra) 35% and East India (West Bengal, Assam, Bihar, Jharkhand) comprise the rest

The company has gradually reduced its dependence on Maharashtra. The share of order book fromMaharashtra now comprises


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Supreme Infrastructure India Ltd

3

Grading Rationale

EPC order book on strong footing; focusing on diversification

Strong order book provides revenue visibility for 2.7 years

Supreme Infras confirmed order book of 52.6 bn (2.7x revenues) provides good revenue

visibility for the next 30 months. Besides, the company is also L1 in orders worth 12.5 bn.

The order book was backed by strong order inflows of 41 bn in FY13, highest in the past

three years.

Figure 1: Healthy order book at 2.7x revenues Figure 2: Strong order inflow in FY13

Source: Company, CRISIL Research Source: Company, CRISIL Research

Roads and buildings dominate the order book

Roads and buildings continue to dominate the order book. Roads and building orders

comprised ~50% and ~30% of the new orders of 41bn, respectively, in FY13.

Figure 3: Order book concentrated in roads and buildings Figure 4: Order inflow driven by roads and building orders


26.2 33.0 49.2 52.6

2.8

2.2

2.52.7

-

0.5

1.0

1.5

2.0

2.5

3.0

-

10.0

20.0

30.0

40.0

50.0

60.0

FY11 FY12 FY13 H1FY14

(x)(bn)

Order book OB/Sales (RHS)

21.4 22.9 40.7 14.0

15%7%

77%

-8%

-40%

-20%

0%

20%

40%

60%

80%

100%

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

FY11 FY12 FY13 H1FY14

(bn)

Order Inf low y-o-y growth (RHS)

Buildings46%

Bridges5%

Roads42%

Water4%

Railway2%

Power1%

Buildings29%

Bridges6%

Roads50%

Water8%

Railway4%

Power3%

Healthy order book at 2.7x

revenues was driven by strong

order inflows


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4

Low execution risk

The execution risk is low as we understand that most of the projects are progressing well. All

the in-house BOT projects, which form a significant ~23% of the order book, have received

environmental and forest clearances and land acquisition is nearly complete.

Figure 5: In-house BOT projects = one-fourth of total order book

Source: Company, CRISIL Research

Diversifying to water and power segments

In a bid to reduce the high dependence on roads and buildings (~47% and ~39% of the order

book respectively), Supreme Infra aims to increase its presence in the power and water

segments. Since FY09, the company has gradually increased its focus on these segments.

For example, the ticket size of the orders in the water projects has gradually increased from

~50mn to 1,600mn (the Bhayander water project). Similarly, in the power segment, the

company has improved its ticket size and is handling projects valued at 1.1bn (turnkey

contract for MSEDCL). As a result, the combined share of power and water segments has

improved from 0% in FY09 to ~5% in FY13 and 7% in Q2FY14. Though the managements

efforts towards diversification to the water and power segments are steps in the right direction,

we opine that it would be challenging to get large orders in these segments given the

competition in each of these segments. In both these segments there are established players

such as BHEL, Thermax, L&T, Tata Projects, KEC International, Kalpatru, Lanco Infratech,

BGR Energy HCC, IVRCL, Gammon, NCC, Soma, Patel Engg and Sadbhav. In the water

segment, the company carries out capital works such as construction of reservoirs, drainage

systems, etc. In the power segment, the company has primarily worked with MSEDCL, taking

turnkey contracts for transmission power lines.

In-house BOT23%

Total77%


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Figure 6: East India lacks enough backward infra support Figure 7: EBITDA margin expected to decline


Expect steady growth in order book

We expect the order book to grow at a steady 20% CAGR over the next two years, lower than

37% CAGR growth in the past two years. The slow growth in order book is expected to be

driven by a decline in order inflows in the roads segment and slower growth in the building

segment.

Roads: Expect a decline in order inflow

Going forward, we expect a decline in the order inflow in roads. Until now, the order inflow in

roads was largely supported by EPC orders from Supreme Infras own road BOTs (with 61%

of new orders in roads from in-house BOTs). However, going forward the company does not

want to take BOT projects as they are capital intensive; instead it plans to focus on cash

contracts. In cash contracting orders, all orders, except one currently being executed by the

company, are of state highways. The company is primarily active in Maharashtra (~40% of the

roads orders) which has greater private sector participation and higher budget expenditure for

roads. CRISIL Research expects the investments in state highways to post an average CAGR

of 11% over FY13-15 based on the ongoing thrust on state road development by state

governments. Supreme Infra with its presence in state highways particularly Maharashtra, is

well poised to take orders for state highways.

1,565 2,435 3,085 3,059 3,440

17.0%

16.2%

15.5%

15.0% 14.9%

14%

14%

15%

15%

16%

16%

17%

17%

18%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY11 FY12 FY13 FY14E FY15E

(mn)

EBITDA EBITDA margin (RHS)


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7

Buildings: Growth expected to be subdued over the next two years

We expect growth in building orders to be subdued at ~2-3% CAGR over the next two years

because of the weak real estate demand in NCR and MMR (the key markets for Supreme

Infra comprising 80% of the building order book). Based on our discussion with market

participants, residential demand has been weak impacted by high interest rates, rising capital

values and weak economic growth. In the commercial segment, the demand has been hit by

low economic activity (slow growth across sectors in the past and weak global cues). Based

on CRISIL Researchs discussion with leading developers, we believe the pace of new

launches has slowed down and developers have pushed back their construction schedules.

This push-back is going to result in a slower order intake for construction players such as

Supreme Infra. CRISIL Research expects 50-60% of the planned supply in the NCR and MMR

markets to be delayed.

Figure 8: Steady growth in order book Figure 9: Order inflow to be muted


Attractive BOT portfolio; equity funding of1.6 bn a challenge

Expect strong cash flows and equity returns from operational projects

Supreme Infra has four operational BOT projects; Manor-Wada-Bhiwandi is the latest to

commence operations in March 2013 and Q1FY14 was the first full quarter of its operations.

Based on the daily cash collection data from the three projects, we have analysed the equity

IRRs expected out of these projects. We believe that Nagar Kopargaon and Manor-Wada-

Bhiwandi could generate equity IRR of 15-17%.

26.2 33.0 49.2 61.8 75.1

26%

49%

26%22%

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

60

70

80


(bn)

Order book y-o-y growth (RHS)

21.4 22.9 40.7 33.0 36.4

15% 7%

77%

-19%

10%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

5

10

15

20

25

30

35

40

45


(bn)



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9

Pending equity funding of 1.6 bn is a monitorable

The six under-construction BOT projects require equity funding of 1.6 bn in the next two

years. Out of this, ~1 bn was earlier expected to come from leading international investor 3i

(to be infused in the Panvel-Indapur project). However, 3i may not invest the balance owing to

change in its views on the prospects of the infrastructure segment in India. This has increased

the equity investment burden on Supreme Infra to 1.6 bn. The funding of the BOT projects is

a monitorable.

Table 5: Pending equity investment of 1.6bn

bn Project cost Debt Equity

Supreme

Infra's share

(including 3i)

Equity infused

(as of Q1FY14) Pending

Operational

Manor-Wada-Bhiwandi 4.3 3.2 1.1 1.1 1.1 -

Ahmednagar-Kopargaon 2.3 1.8 0.6 0.6 0.6 -

Patiala,Nabha,Malerkotla 0.9 0.7 0.3 0.3 0.3 -

Kasheli Bridge 3.0 2.0 1.0 0.1 0.1 -

Total operational 10.6 7.6 2.9 2.0 2.0 -

Under construction

Panvel-Indapur 12.1 9.0 3.1 2.3 1.3 1.0

Jaipur Ring Road 10.5 7.9 2.6 1.0 0.8 0.3

Ahmednagar-Karnala-

Tembhurni

5.4 4.1 1.4 1.4 1.4 -

Sangli-Shiroli 3.3 2.5 0.8 0.8 0.8 -

Haji-Malang 0.8 0.5 0.3 0.3 0.2 0.1

Kotkapura-Muktsar 1.1 0.8 0.3 0.3 - 0.3

Total (for under-construction) 33.1 24.7 8.4 6.1 4.5 1.6

Total 43.7 32.4 11.3 8.1 6.5 1.6


Total funding gap of ~2.3 bn incremental debt is the mostlikely option; gearing expected to remain high

Supreme Infra faces a funding gap of ~2.3 bn over the next two years. Total ~4.9 bn

funding is required in the next two years. Out of this, ~2.0 bn is for working capital, ~1.3 bn

for capex and ~1.6 bn for the remaining equity investment in BOT projects. We have also

assumed a dividend payout of

0.1bn (similar to what it paid in FY13). While ~

2.7 bn isexpected to be generated out of internal accruals and negligible contribution of ~ 0.1 bn as

free cash flow to equity from operational BOTs, the remaining ~2.3 bn needs to be funded by

either debt or equity. We believe debt on the parent companys balance sheet, securitisation

of certain operational BOTs and promoters equity are likely routes to manage the funding

gap. In our estimates, we have taken debt as the possible source of funding. The current

gearing of the company is high at 2.3x (as of FY13-end). However, with support from internal

accruals, we expect Supreme Infra to manage the gearing at ~2.0x. Gearing is a key

monitorable for our fundamental grade.


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Table 6: Total funding gap of 2.3bn Figure 10: Gearing to remain high

bn FY14E FY15EUses of funds

Working capital requirement (A) (0.8) (1.2)

Capex (B) (0.6) (0.6)

Equity investments in BOTs (C) (0.8) (0.8)

Dividends (D) (0.0) (0.0)

Sources of funds

Internal accruals standalone (E) 1.2 1.4

Funding gap (A+B+C+D-E) (1.0) (1.3)


Securitisation and promoter equity are other likely funding options

Though we have not assumed any equity infusion in our estimates, we feel that the company

has certain operational projects which if securitised would help it to manage the funding gap.

As per our analysis, Manor-Wada-Bhiwandi and Patiala-Malerkotla projects are expected to

generate strong equity cash flows with IRRs of 17% and 15%, respectively. These projects are

present in key commercial corridors and have recorded strong cash collection.

Table 7: Assessment of operational BOT projects

Project

CRISILs

assessmentof success

Equity

invested(mn)

Expected

equityIRR

Basis of opinion

Manor-Wada-

Bhiwandi

(Maharashtra)

High 1,075 17%

Bhiwandi, known for its textile industry, has the largest number of power looms in the

country. Many of the pharmaceuticals, retail chains, logistics companies have taken

godowns on lease given the benefits in lease rentals. Bhiwandi is also the highest octroi

paying city in India. Given the presence of power looms and godowns and improvement in

infrastructure, traffic has been increasing

Wada has industries such as pipes, chemicals, etc. Due to availability of huge land parcels

at lower costs, many small-scale and medium-scale industries are setting up their units here

Bhiwandi to Manor via Wada provides easy access to NH-8 which connects Maharashtra

and Gujarat. Manor is a junction on NH-8, the Ahmedabad-Mumbai highway

Patiala,

Malerkotla

Road (Punjab)

Moderate 280 15%

Patiala is known as a tourist destination. It has one of the highest number of vehicles per

capita and is well connected by road through NH64 (Zirakpur-Patiala-Bhatinda) and NH1(Delhi-Patiala-Amritsar)

Malerkotla to Patiala provides access to NH 64, a 256-km long highway which connects

Chandigarh to Bhatinda

Nagar

Kopargaon

(Maharashtra)

Low 590 ~11%

Ahmednagar, the largest district of Maharashtra, is home to 19 sugar factories. It also

houses automobile, electronics, agricultural industries, etc. It has population of 0.3 mn

Kopargaon is part of the Ahmednagar district. It has three sugar factories, an industrial

estate with 52 small scale industries and a dairy. It has population of 0.25 mn

The famous Sai Baba temple in Shirdi is located between Ahmednagar and Kopargaon

Kasheli Bridge

(Maharashtra)High 100

NA

(small

project)

This bridge connects Thane to Bhiwandi-Wada Road. It is located on the Mumbai-Agra

highway (NH-3), which ensures smooth connectivity between Mumbai, Thane, Nashik and

the rest of India


1.5

2.2 2.2

2.01.9

3.2

2.3 2.3

1.8 1.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

FY11 FY12 FY13E FY14E FY15E

(x)

Net D/E Interest coverage


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Promoter equity likely, if required

We believe that the promoters of the company have the wherewithal to put in their own

money, if need be, to partially meet the funding gap. The promoters have a huge built-up

space of 1.2 mn sq ft, in Powai, Mumbai generating revenues of ~400 mn as lease rentals.

Based on our discussion with the promoters, we believe they are willing contribute equity to

the company, if required. Moreover, there have been instances of promoter equity infusion in

the past as well which gives us comfort.


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13

Financial Outlook

Revenue to grow at 2-year CAGR of 8% to 23.1 bn in FY15

We expect the companys standalone revenues to increase at a two-year CAGR of 8%, slower

than the past two years, to 23.1 bn in FY15. Execution of the current orders (77% of

revenues in FY14 and 60% in FY15) is expected to drive growth.

Figure 11: Revenue growth to decline Figure 12: Order intake and order intake growth


EBITDA margin to contract by ~50 bps

In FY13, EBITDA margin declined to 15.5% due to lower margin from certain projects. Weexpect margin to decline to ~15.0% in FY15. As the company increases its share beyond

North and West India - areas that enjoy a good backward infrastructure support - we believe

resource mobilisations and overheads costs are likely to increase, leading to a contraction in

margins.

Figure 13: EBITDA margin to moderate


9.2 15.1 19.9

20.423.1

72%

64%

32%

3%

13%

0%

20%

40%

60%

80%

0

5

10

15

20

25


(bn)

Revenue y-o-y growth (RHS)

21.4 22.9 40.7 33.0 36.4

15% 7%

77%

-19%

10%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

5

10

15

20

25

30

35

40

45


(bn)

Order Inflow y-o-y growth (RHS)

1,565 2,435 3,085 3,059 3,440

17.0%

16.2%

15.5%

15.0% 14.9%

14%

14%

15%

15%

16%

16%

17%

17%

18%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


(mn)


EBITDA margin to contract by

50 bps to ~15% in FY15


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14

PAT expected to be flat

We expect PAT to decline to 1.0 bn in FY15 from 1.1 bn in FY13 due to lower revenue

growth and expected decline in margins, also depreciation and interest cost are expected to

remain high. EPS is expected to decline to 58.9 in FY15 from 66.9 in FY13.Figure 14: PAT and PAT margin Figure 15: EPS and EPS growth


RoCE and RoE to decline but remain healthy

Due to the expected decline in margin and the investment in BOT projects (which will not fetch

returns in the initial years), RoCE is likely to decline from 21.0% in FY13 to 17% in FY15. RoE

is expected to decline from 28.1% in FY13 to 17% in FY15.

Figure 16: RoE and RoCE to remain healthy despite decline

Source: Company, CRISIL Research estimates

776 918 1,121 861 986

8.5%

6.1%

5.6%

4.2% 4.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

200

400

600

800

1,000

1,200


(mn)

PAT PAT margin (RHS)

46.4 54.8 66.9 51.4 58.9

61.6%

18.2% 22.1%

-23.2%

14.5%

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

10

20

30

40

50

60

70

80


()

EPS y-o-y growth (RHS)

22.1 22.921.0

17.1 17.0

35.5

29.228.1

17.5 17.0

0

5

10

15

20

25

30

35

40


(%)

RoCE RoE


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15

Management Overview

CRISIL's fundamental grading methodology includes a broad assessment of management

quality, apart from other key factors such as industry and business prospects, and financial

performance.

Capable second generation

Supreme Infra has an experienced management headed by promoter-director

Mr Bhawanishankar Sharma. Mr Sharma has an experience of more than three decades in

the construction sector. He is supported by his two sons - Mr Vikram Sharma and Mr Vikash

Sharma. Mr Vikram Sharma is the managing director of the company. He joined the company

in 1998 and has turned it around from a materials supplier to a leading EPC player in the

country. He holds a bachelors degree in civil engineering from Mumbai University and has

been on the board for the past 15 years. Mr Vikas Sharma is a whole time director with the

company. He holds a masters degree in management studies from Mumbai University. He

has been with the company for the past 15 years and heads the finance and accounts

division.

A closely-held company

Supreme Infra is a closely-held company with family members and friends of promoters

comprising the senior management. Some regional heads of Supreme Infra are college

friends of Mr Vikram Sharma. The day-to-day decision making is decentralized at the regional

level and are taken by the regional heads. However, major decisions are taken by the

promoters in co-ordination with the senior management.

Promoters are highly

experienced and have strong

domain expertise


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19

Figure 19: P/E premium / discount to CNX 500 Figure 20: P/E movement

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

CRISIL IER reports released on Supreme Infrastructure India Ltd

Date Nature of report

Fundamental

grade Fair value

Valuation

grade

CMP

(on the date of report)

04-Sep-12 Initiating coverage 3/5 595 5/5 273

16-Nov-12 Q2FY13 result update 3/5 595 5/5 270

07-Mar-13 Q3FY13 result update 3/5 595 5/5 204

12-Jun-13 Q4FY13 result update 3/5 432 5/5 204

04-Sep-13 Q1FY14 result update 3/5 320 5/5 173

12-Dec-13 Detailed Report 3/5

300 5/5

207

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%-10%

0%

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Premium/Discount to CNX 500

Median premium/discount to CNX 500

0

1

2

3

4

5

6

7

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev


22/28


20

Company Overview

Incorporated in 1983, Supreme Infra is a Mumbai-based construction company. Having

started as a materials supplier, over time the company has evolved as an EPC player focusing

on segments such as roads and buildings. It has a backward integrated model and owns four

quarrying mines, six crushing plants, and 13 RMC plants. Its clientele includes PWD

Maharashtra, NHAI, Jaipur Development Authority (JDA), Sadbhav Engineering, K Raheja,

Hiranandani Constructions and MMRDA (a state government entity).

Table 10: Milestones

1983 Incorporated as Supreme Asphalts Pvt. Ltd

2002 Changed name to Supreme Infrastructure Pvt. Ltd

2002 Received first contract for roads and bridges in Amravati by MSRDC

2003 Set up first RMC plant in Powai, Mumbai

2004 Received first order for construction and widening of Western Express Highway from

MMRDA

2006 Received order from Sadbhav Engineering for four-laning of Bhiwandi-Nasik Highway

2006 Established quarrying and crushing plant, RMC plant in Padgha, Nasik (Maharashtra)

2007 Received first order from NHAI worth 1 bn for balance work at NH-4, links four major

cities of India (Mumbai, Pune, Bengaluru and Chennai)

2008 Came out with an IPO, offered ~3.5 mn shares to raise ~380 mn

2008 Forayed into railway and received orders worth 289 mn from Central Railway

2008 Forayed into housing project and received an order to construct low-cost housing inThane, Mumbai

2009 Received a 2.4 bn order to construct a multi-storied complex in Haryana

2010 Awarded first BOT project worth 12.1 bn from NHAI to construct a four-lane road in

Panvel-Indapur

2011 Received award for Fastest Growing Construction Company (small category-2nd

rank) at the 9th Construction World - Annual Awards 2011

2012 Commencement of tolling operations for Patiala Nabha Malerkotla (PNM) road project

2013 Manor-Wada-Bhiwandi toll operations commenced from March 2013


23/28


21

Annexure: Financials (Standalone)

Source: CRISIL Research

Income statement Balance Sheet

(mn) FY11 FY12 FY13 FY14E FY15E (mn) FY11 FY12 FY13 FY14E FY15EOperating income 9,185 15,059 19,870 20,371 23,057 Liabilities

EBITDA 1,565 2,435 3,085 3,059 3,440 Equity share capital 167 167 167 167 167

EBITDA margin 17.0% 16.2% 15.5% 15.0% 14.9% Reserves 2,651 3,294 4,351 5,173 6,119

Depreciation 246 284 336 376 431 Minorities - - - - -

EBIT 1,319 2,151 2,749 2,683 3,009 Net worth 2,818 3,461 4,518 5,340 6,287

Interest 408 915 1,192 1,475 1,634 Convertible debt 250 - - - -

Operating PBT 911 1,236 1,557 1,208 1,375 Other debt 4,299 7,958 10,235 11,313 12,391

Other income 49 28 41 22 33 Total debt 4,549 7,958 10,235 11,313 12,391

Exceptional inc/(exp) (17) - (24) - - Deferred tax liability (net) 88 108 104 104 104

PBT 944 1,264 1,573 1,230 1,409 Total liabilities 7,454 11,527 14,857 16,757 18,782

Tax provision 184 346 477 369 423 Assets

Minority interest - - - - - Net fixed assets 2,578 2,815 3,021 3,383 3,592

PAT (Reported) 760 918 1,096 861 986 Capital WIP 74 107 101 0 0

Less: Exceptionals (17) - (24) - - Total fixed assets 2,652 2,923 3,123 3,384 3,593

Adjusted PAT 776 918 1,121 861 986 Investments 1,191 3,163 3,1953,992 4,790

Current a ssets

Ratios Inventory 1,170 1,414 1,707 1,953 2,211

FY11 FY12 FY13 FY14E FY15E Sundry debtors 2,886 4,963 6,790 7,255 8,528

Growth Loans and advances 1,463 4,052 5,386 5,685 6,123

Operating income (%) 72.0 64.0 31.9 2.5 13.2 Cash & bank balance 335 318 430 423 267

EBITDA (%) 63.9 55.5 26.7 (0.8) 12.5 Marketable securities 39 48 17 17 17

Adj PAT (%) 94.9 18.2 22.1 (23.2) 14.5 Total current assets 5,893 10,794 14,330 15,334 17,146

Adj EPS (%) 61.6 18.2 22.1 (23.2) 14.5 Total current liabilities 2,281 5,363 5,805 5,969 6,762

Net current assets 3,612 5,431 8,525 9,366 10,384

Profitability Intangibles/Misc. expenditure - 11 15 15 15

EBITDA margin (%) 17.0 16.2 15.5 15.0 14.9 Total assets 7,454 11,527 14,857 16,757 18,782

Adj PAT Margin (%) 8.5 6.1 5.6 4.2 4.3

RoE (%) 35.5 29.2 28.1 17.5 17.0 Cash flow

RoCE (%) 22.1 22.9 21.0 17.1 17.0 (mn) FY11 FY12 FY13 FY14E FY15E

RoIC (%) 25.4 27.0 24.7 20.2 20.5 Pre-tax profit 960 1,264 1,598 1,230 1,409

Total tax paid (146) (326) (480) (369) (423)

Valuations Depreciation 246 284 336 376 431

Price-earnings (x) 4.5 3.8 3.1 4.0 3.5 Working capital changes (1,782) (1,828) (3,011) (849) (1,174)

Price-book (x) 1.2 1.0 0.8 0.7 0.6 Net cash from operations (722) (606) (1,558) 388 243

EV/EBITDA (x) 4.9 4.5 4.3 4.7 4.5 Cash from investments

EV/Sales (x) 0.8 0.7 0.7 0.7 0.7 Capital expenditure (452) (565) (540) (637) (640)

Dividend payout ratio (%) 2.8 2.3 3.1 3.9 3.4 Investments and others (679) (1,981) (2) (798) (798)

Dividend yield (%) 0.6 0.6 1.0 1.0 1.0 Net cash from investments (1,132) (2,546) (542) (1,435) (1,438)

Cash from financing

B/S ratios Equity raised/(repaid) 315 - - - -

Inventory days 47 34 31 35 35 Debt raised/(repaid) 1,545 3,409 2,277 1,078 1,078

Creditors days 83 126 104 104 105 Dividend (incl. tax) (24) (25) (39) (39) (39)

Debtor days 115 120 125 130 135 Others (incl extraordinaries) 198 (250) (24) (0) -

Working capital days 129 123 148 160 160 Net cash from financing 2,033 3,135 2,213 1,039 1,039

Gross asset turnover (x) 3.2 4.3 4.9 4.3 4.3 Change in cash position 180 (17) 113 (7) (156)

Net asset turnover (x) 4.0 5.6 6.8 6.4 6.6 Closing cash 335 318 430 423 267Sales/operating assets (x) 3.6 5.4 6.6 6.3 6.6

Current ratio (x) 2.6 2.0 2.5 2.6 2.5

Debt-equity (x) 1.6 2.3 2.3 2.1 2.0 Quarterly financials

Net debt/equity (x) 1.5 2.2 2.2 2.0 1.9 ( mn) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14

Interest coverage (EBITDA/Interest) 3.8 2.7 2.6 2.1 2.1 Net Sales 3,471 5,503 6,534 4,415 3,115

Interes t coverage (EBIT/ Interes t) 3.2 2.3 2.3 1.8 1.8 Change (q-o-q) -20% 59% 19% -32% -29%

EBITDA 607 950 827 720 491

Per share Change (q-o-q) -13% 56% -13% -13% -32%

FY11 FY12 FY13 FY14E FY15E EBITDA margin 17.5% 17.3% 12.7% 16.3% 15.8%

Adj EPS () 46.4 54.8 66.9 51.4 58.9 PAT 194 359 285 221 88

CEPS 61.1 71.8 87.0 73.9 84.6 Adj PAT 194 359 285 221 88

Book value 168.3 206.7 269.9 319.0 375.5 Change (q-o-q) -25% 85% -21% -22% -60%

Dividend () 1.3 1.3 2.0 2.0 2.0 Adj PAT margin 5.6% 6.5% 4.4% 5.0% 2.8%

Actual o/s shares (mn) 16.7 16.7 16.7 16.7 16.7 Adj EPS () 11.6 21.5 17.0 13.2 5.2


24/28


22

Focus Charts

Revenue and y-o-y growth Strong order intake in FY13


EBITDA and EBITDA margin EPS and EPS growth


RoCE and RoE Share holding pattern


9.2 15.1 19.9

20.4

23.1

72%

64%

32%

3%

13%

0%

20%

40%

60%

80%

0

5

10

15

20

25


(bn)

Revenue y-o-y growth (RHS)

21.4 22.9 40.7 33.0 36.4

15% 7%

77%

-19%

10%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

5

10

15

20

25

30

35

40

45


(bn)


1,565 2,435 3,085 3,059 3,440

17.0%

16.2%

15.5%

15.0% 14.9%

14%

14%

15%

15%

16%

16%

17%

17%

18%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


(mn)


46.4 54.8 66.9 51.4 58.9

61.6%

18.2% 22.1%

-23.2%

14.5%

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

10

20

30

40

50

60

70

80


()

EPS y-o-y growth (RHS)

22.1 22.921.0

17.1 17.0

35.5

29.228.1

17.5 17.0

0

5

10

15

20

25

30

35

40


(%)

RoCE RoE

56.6% 57.4% 57.8% 57.9%

12.3% 12.8% 12.8% 12.9%6.8% 6.5% 6.5% 6.4%

24.3% 23.4% 23.0% 22.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec-12 Mar-13 Jun-13 Sep-13

Promoter FII DII Others


25/28

This page is intentionally left blank


26/28


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President

Mukesh Agarwal CRISIL Research +91 22 3342 3035 [email protected]

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Business Development

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Business Development Equity Research

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27/28

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28/28

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