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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore ED: HEMANT MARADIA SA: DHANANJAY SINHA

India Equity Research | Construction & Infrastructure

June 5, 2018

Visit Note

RPP Infra Projects Refer to important disclosures at the end of this report

Attractive play on rural infra capex theme

CMP Target Price

Rs 222 NA as of (June 5, 2018) 12 months

Rating Upside

NOT RATED NA

Change in Estimates

EPS Chg FY19E/FY20E (%) NA

Target Price change (%) NA

Target Period (Months) NA

Previous Reco NOT RATED

Emkay vs Consensus

EPS Estimates

FY19E FY20E

Emkay 18.9 25.5

Consensus - -

Mean Consensus TP (12M) Rs 379

Stock Details

Bloomberg Code RPP IN

Face Value (Rs) 10

Shares outstanding (mn) 23

52 Week H/L 325 / 206

M Cap (Rs bn/USD bn) 5 / 0.07

Daily Avg Volume (nos.) 155,901

Daily Avg Turnover (US$ mn) 0.6

Shareholding Pattern Mar '18

Promoters 52.5%

FIIs 2.1%

DIIs 5.0%

Public and Others 40.4%

Price Performance

(%) 1M 3M 6M 12M

Absolute (13) (22) (23) (10)

Rel. to Nifty (13) (24) (27) (18)

Relative price chart

Source: Bloomberg This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation:

Viral Shah

[email protected]

+91-022-66242453

Shreyans Mehta

[email protected]

+91-022-66121339

-20

-12

-4

4

12

20

200

225

250

275

300

325

Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

%Rs

RPP Infra Projects (LHS) Rel to Nifty (RHS)

We recently met the management of RPP Infra Projects (RPP) a small cap (Rs5bn mcap)

to get a broad sense of its business and industry prospects.

RPP Infra Projects is one of the leading and rapidly growing integrated Engineering

Procurement & Construction (EPC) companies with a well-diversified presence across

various segments. The company has a large order book of ~Rs11.8bn spread across 3

main segments-Infrastructure (49%), Water Management (23%) and Buildings (28%).

RPP has focused primarily on small government projects (worth ~Rs0.5-1bn) in the past

and has now upgraded to Rs1-1,3bn with a predominant presence in South India such as

Karnataka, Tamil Nadu and Andhra Pradesh. This strategy has worked well for the

company, which has been able to maintain margins of ~13-14% (even during tough times).

Given the government’s thrust on rural and infrastructure development, RPP’s rural focus,

diversified order book and strong balance sheet make it an attractive investment. At CMP,

the stock trades at 16.9x its FY18 adj. earnings and 7.8x its FY18 EV/EBITDA.

Diversified presence; healthy order book with sustainable margins and

marquee clientele

RPP is one of the leading and fast-growing integrated EPC companies with a well-diversified

presence across various segments. The company’s well laid strategy of focusing on small

government projects (worth ~Rs500-1,000mn) has paid off for the company, with healthy

margins of ~13-14% (even during tough times). In our view, RPP’s impressive execution track

record, healthy market share in most of its key geographies and growing capability to bid for

higher ticket size projects (Rs1.5bn-2.5bn) on a standalone basis make it an alluring play on

the rural infrastructure capex theme.

Govt’s constant thrust on rural infra to aid rural-centric players such as RPP

The government’s relentless thrust has always been on development of infrastructure sectors

of strategic importance to the economy, such as Electricity/Power, Railways, Roads, Ports,

Airports etc. Further, in Budget 2018-19, the focus continued to be on Infrastructure, Rural

and Social sectors with the objective of boosting agriculture income and improving the quality

of urban & rural infrastructure, along with providing better healthcare to the masses. In our

view, such increase in spending from the Center and States (where RPP has a strong

presence) is expected to create large opportunities for rural-centric players such as RPP. The

company has an average hit ratio of 20% plus for the project bid in the respective sectors,

giving us confidence and comfort in terms of order inflow prospects.

Outlook & Valuation: Given the government’s thrust on rural and infrastructure development

companies like RPP would be one of the biggest beneficiaries. RPP’s rural focus, diversified

order book and strong return ratios (20%+) make it an lucrative investment. At CMP, the stock

trades at 16.9x its FY18 adj. earnings and 7.8x its FY18 EV/EBITDA.

Financial Snapshot (Consolidated)

(Rs mn) FY14 FY15 FY16 FY17 FY18

Net Sales 2,403 2,659 3,147 3,672 4,991

EBITDA 358 351 455 489 649

EBITDA Margin (%) 14.9 13.2 14.4 13.3 13.0

APAT 140 103 193 229 116

EPS (Rs) 6.2 4.6 8.5 10.1 5.2

EPS (% chg) 22.0 (26.3) 87.2 18.7 (49.2)

ROE (%) 10.2 6.3 10.8 11.6 5.4

P/E (x) 35.8 48.6 25.9 21.9 43.0

EV/EBITDA (x) 17.0 17.6 12.2 11.4 8.9

P/BV (x) 3.2 2.9 2.7 2.4 2.3

Source: Company, Emkay Research

RPP Infra Projects (RPP IN) India Equity Research | Visit Note

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA June 5, 2018 | 2

Exhibit 1: Emerging play on rural infrastructure


Exhibit 2: Presence in GDSP growing state and uptick in technical qualification to drive earnings


Exhibit 3: RPP on a strong wicket

(Rs bn) Mcap Order Book

Revenue Visibility

(yrs)

Asset Turnover

Working Cap

Net D:E RoE

NCC 65.7 300.0 3.9 1.4 160 0.3 10.2

JKIL 27.4 85.0 4.2 0.9 115 0.0 9.4

ITD Cementation

25.3 90.9 4.4 2.0 86 0.6 16.2

Ahluwalia 22.4 30.7 1.9 2.7 68 (0.1) 20.5

Simplex 24.6 186.2 2.8 1.3 245 2.1 7.4

Sadbhav 55.1 132.3 3.7 1.1 209 0.7 12.5

PNC 42.6 73.2 3.9 0.9 220 0.1 14.9

RPP 5.0 11.8 2.4 1.4 140 0.3 13.9


0.0

5.0

10.0

15.0

An

dhra

Pra

desh

Ka

rnata

ka Ta

mil

Nadu

Te

langa

na

Ma

hara

shtr

a

Guja

rat

GSDP CAGR growth (FY12-FY17)Rs800-1000mn

Rs1500-2500mn

FY14 FY18

5360

11750

0

10000

20000

FY14 FY18

(Rs m

n)

Order book

2,403

4,991

0

5,000

10,000

FY14 FY18

(Rs m

n)

Revenue

RPP gaining momentum and well

placed to tap opportunity in rural

capex as fundamental

parameters remains strong

Rising Order book

Stable margins (13-14%)

Improving working capital

Improving Return Ratios

Emerging India

(Play on rural infrastruture)

Direct beneficiary

of government

spending

Revenue visibility and

lower bad debts

Present across some

of the fastest

growing states in

India Timely

completion of projects

De-riskingbusiness

model geographically of Rs60bn

Eyeing large ticket sized

orders through

strategic tie-ups




Investment Rationale

Incorporated in 1995 and promoted by Arul P Sundaram, RPP Infra Projects (RPP) is one of the

leading and rapidly growing integrated EPC companies in India with a well-diversified presence

in Highways, Roads & Bridges, Civil Construction (Water Management), Irrigation, Mass &

Affordable Housing and Power projects. The company has successfully executed over 200 civil

construction projects till date across various segments. Over the years, RPP has consciously

focused on small government projects (worth ~Rs500-1,000mn) with a predominant presence in

the Southern states such as Karnataka, Tamil Nadu and Andhra Pradesh. This strategy has

worked well for the company, which has been able to maintain margins of ~13-14% (even during

tough times). As of Mar’18, RPP had an order book of Rs11,750mn, translating into an order

book-to-sales ratio of ~2.4x FY18 revenue. Over FY14-18, the company’s revenue/earnings

have expanded at a CAGR of 20%/21% with steady return ratios (11-12%). In our view, the

government’s continuous spending on infrastructure development and irrigation continues to be

a major growth driver for companies such as RPP. We believe that RPP will be a major

beneficiary of increasing opportunities in the infrastructure space, which can be reflected in the

recent order wins of ~Rs5,000mn - primarily in Roads and Irrigation (in Mar’18 and April’18).

Exhibit 4: Strategic focus has worked well in the past


Exhibit 5: Benefits to continue in the future


Emerging play on rural infrastructure

The government’s relentless thrust has always been on development of sectors of strategic

importance to the economy, such as Electricity/Power, Railways, Roads, Ports, Airports etc.

Further, in Budget 2018-19, the focus continued to be on Infrastructure, Rural and Social sectors

with the objective of boosting agriculture income and improving the quality of urban & rural

infrastructure, along with providing better healthcare to the masses. We believe that initiatives

such as the development of irrigation infrastructure (to address the problem of drinking water

supply and ensure availability of water for farming), improving rural connectivity, building

affordable housing & townships for urban poor and providing “power to all” could create huge

opportunities for rural-centric players such as RPP.

RPP has always bid for government projects or projects funded by government, NABARD, Asian

Development Bank, World Bank or international banks to avoid any fund related issues, clearly

underscoring its conservative and prudent strategic direction. Further, spending from states

where RPP has a wide presence is also on the rise, which augurs well for the company. RPP is

predominantly present in the Southern regions covering states of Karnataka, Andhra Pradesh,

Tamil Nadu and the Union Territory of Pondicherry, etc where government spending has been

rising (primarily on Irrigation, Housing and Transportation). This gives us comfort about its future

revenue visibility.

Direct beneficiary of government

spending

• Presence in small ticket size contracts (Rs1-2.5bn) in

rural space (limited listed players in this space)

Revenue visibility and

lower bad debts

• 100% of its order book comprises of govt orders,

ensuring greater business visibility and secured

receivables

Present across some of the

fastest growing states in India

• 71% of its order book is from Tamil Nadu, Karnataka

and Andhra Pradesh

Timely completion of

projects

• Successfully completed most of its projects on time

with no cost over-runs

De-riskingbusiness model geographically

• Venturing into newer geographies like Madhya

Pradesh, Maharashtra, Rajasthan etc, which are

also fast growing states

Eyeing large ticket sized

orders through strategic tie-ups

• Slowly and steadily building technical capabilities

with the help of strategic alliances such as Hunan

Construction & Delamore




Exhibit 6: Key government initiatives benefitting emerging players like RPP


The Government’s prominent national schemes such as ‘Power for All by 2022’, ‘Pradhan Mantri

Gram Sadak Yojana (PMGSY)’, ‘Pradhan Mantri Krishi Sinchai Yojana (PMKSY)’, ‘Housing for

All by 2022’ and ‘Smart City’ programme etc will unlock huge opportunities for companies like

RPP. In our view, RPP’s impressive execution track record, healthy market share in most of its

key geographies and rising capability to bid for higher ticket size projects (Rs1,500mn-2,500mn)

on a standalone basis make it an attractive play on the rural infrastructure capex theme.

PMGSY - Initiative to improve rural road network with average capex of Rs190bn

p.a.

Launched in 2000, PMGSY was aimed at providing all-weather road connectivity to eligible

unconnected rural habitations as per the 2001 census. To strengthen this initiative, PMGSY–II

was launched on 1st May, 2013, which aims to consolidate the rural road network through

upgradation of routes and ‘Major Link Routes’. In the 12th Five Year Plan period, the government

had set a target of 50,000km. Till Dec’17, it has cleared projects for 6,40,520km (worth

~Rs2.38tn) since the inception of PMGSY. Of this, funds worth Rs1.6tn have already been

disbursed to states. In our view, the government’s thrust on the development of rural

infrastructure would continue to be on the rise. In Budget FY18-19, the government allocated

Rs190bn (12.4% yoy) for the development of rural infrastructure under PMGSY.

Exhibit 7: Performance of PMGSY in last 5 years

Year Target

Habitations Achievement

(nos) Target

(km) Achievement

(km)

Construction rate per day

(km/day)

2013-14 3500 9416 26950 27339 75

2014-15 4688 11068 21775 38057 104

2015-16 10177 9933 33649 35155 96

2016-17 15000 11691 48812 47447 130

2017-18 15000 6371 51000 25341 69

Source: CRM report on PMGSY

Exhibit 8: Allocations to PMGSY

Source: CRM report on PMGSY, media reports.

Emerging India

(Play on rural infrastruture)

Pradhan Mantri Awaas Yojana. 1 cr houses by

2019

Allocation of Rs65bn Pradhan Mantri

Gram Sadak Yojana

Funding support of Rs.190bn

Prime Minister Krishi Sinchai

Yojna

Allocation of Rs26bn

Smart Cities

Allocation of ~Rs20.4bn

Atal mission for rejuvenation and urban

transformation (AMRUT)

Allocation of Rs60bn

Micro Irrigation Fund in

NABARD

Initial Corpus of Rs50bn

142183 190

169190

0

50

100

150

200

2014-15 2015-16 2016-17 2017-18 2018-19E

(Rs b

n)

Investments




PMAY scheme to help RPP tap opportunities in mass housing

Under the Pradhan Mantri Awas Yojana (PMAY), the government aspires to provide homes to

18mn households in urban India and ~30mn households in rural India by 2022. As of April’17,

the government has approved construction of ~1.9mn urban houses. Of this, only 103,000 have

been constructed so far. In our view, this creates huge opportunities for small/local players like

RPP, who have the right expertise to execute such projects since these are government

contracts with low to mid ticket size.

Exhibit 9: Housing shortage in states and UTs (mn units)

Source: Report of the Technical Group on Urban Housing Shortage, Emkay Research

PMAY Gramin - Strong budgetary allocation a key catalyst

In order to address the gaps in rural housing programme and in keeping with the commitment to

provide “Housing for All” by 2022, the government has introduced the PMAY-Gramin (PMAY-G)

initiative. This would provide monetary assistance for the construction of “pakka houses” with

basic amenities to all rural homeless and to those living in dilapidated/“kutcha houses”. The

scheme is divided into two distinct phases, with Phase-I involving construction of 10mn

households (from Nov’16-Mar’19) and Phase-II involving construction of another 20mn houses

from Apr’19-Mar’22. The government’s budgetary allocation to such schemes continues to

increase with Rs1,360bn allotted in Budget FY18-19.

Exhibit 10: Strong budgetary allocation to PMAY-G for FY19


Exhibit 11: Some orders bagged by RPP under govt schemes (Center + States)

Key orders under various govt schemes Scheme/Authority Rs mn

Karnataka Slum Development Board for construction of 795 ground floor dwelling units Pradhan Mantri Awas Yojana 454

Affordable Housing Project for construction of multi stored tenements with minimum 400 sq ft

Tamil Nadu Slum Clearance Board - Housing for All 1,190

Construction of houses for Tamil refugees by Indian govt at Jafna, Sri Lanka Ministry of External Affairs 710

Construction of 160 quarters in Mangalore and Panambur; 112 quarters in Dakshin Kannada district

Karnataka Police Housing 308

Construction of dwelling units in Mysore city Karnataka Police Housing 278

Construction of dwelling units in Kolar, Karnataka Karnataka Police Housing 230

Construction of scientific godown of 40,000MT capacity at Nagapatinam, Edamanal TNCSC 503

Source: Company Data, Emkay Research

1.3

0.0

0.3 1.2

0.4

0.5

0.1 1.0

0.4

0.0

0.1 0.6 1.0

0.5 1.1 1.9

0.1

0.0

0.0

0.2

0.4

0.1 0.4 1.2

0.0 1.3

0.0 3

.1

0.2 1.3

0.0

0.0

0.1

0.0

0.0

18.8

0

15

30

An

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Aru

nachal…

Assam

Bih

ar

Chattis

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Goa

Guja

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Hary

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Jam

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Ma

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Pu

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y

Pu

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b

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an

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kim

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ura

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engal

An

dam

an &

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Chandig

arh

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aga

r

Dam

an &

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India

110 100 160 230 210

682 777961

1,109 1,149

0

200

400

600

800

1000

1200

1400

1600

2014-15 2015-16 2016-17 2017-18 2018-19 (BE)

Rs b

n

GoI allocations for IAY/PMAY-G GoI allocations for MoRD




Healthy and diversified order book with presence across various segments

RPP has a track record of multi-year presence in various key infrastructure verticals such as

Roads, Bridges, Irrigation and Civil Construction. It is also well positioned to capitalize on huge

spending from Centre, States and Industries. The company has strong presence in the southern

region, with 53% of the order book coming from Tamil Nadu and Karnataka. RPP has a robust

order book of ~Rs11,750mn as on Q4FY18, spread across 3 main segments - Infrastructure

(49%), Water Management (23%) and Buildings (28%).

Over the last two years, the company has an average hit ratio of 20% plus for the project bid in

the respective sector. This is reflected in its order book, which has expanded at a CAGR of 21.7%

over FY14-FY18 to Rs11,750mn, led by healthy order inflows from both, Central as well as State

governments. Given the huge opportunities (with government’s continuous focus on

infrastructure development), and RPP’s robust bid pipeline of Rs30bn, we expect the company

to win more orders going forward.

Exhibit 12: % Share of order wins

Source: Company Data, Emkay Research

Exhibit 13: RPP’s key competitors in each segment

Segments Key competitors

Building N R Constructions

P G Setty Construction Technology Private Limited

Kbr Infratech Limited

Renaatus Projects Private Limited

P&C Projects (P) Limited

Kmv Projects Limited

R.R Thulasi Builders (I) Pvt Ltd

Standard Infratech India Private Limited

Water Management

(Pipeline Projects)

Larsen & Tubro

Annai Infra Developers Private Limited

Koya And Company Construction Limited

Nagarjuna Construction Company Limited

Indian Hume Pipe Co Ltd

Consolidated Construction Consortium Limited

Infrastructure Shapoorji Pollanji Group

Knr Constructions Limited

Rr Constructions And Infrastructure India Pvt Limited

M B Patuil Construction Ltd

Npcc Ltd., Rns Infrastructure Limited

Ramalingam Construction Company

Ghai Construction Limited

Source: Company data, Emkay Research

Exhibit 14: Order book grew at a CAGR of 21.7% from FY14-FY18


27.2

35.8

23.0

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

-

5,000

10,000

15,000

20,000

25,000

Building Water Management ( PipelineProjects )

Infrastructure

(x)

Rs m

n

Bidded for projects Projects bagged Strike rate

1501 1885 1640 2515 32802251

43703410 2122

27401608

23142200 3223

5730

0

2000

4000

6000

8000

10000

12000

14000

FY14 FY15 FY16 FY17 FY18

(Rs m

n)

Buildings Water Management Infrastructure




Exhibit 15: Key projects bagged in past two years

Sr No Scope of work Month Amount (Rs mn)

1 Two lane with paved shoulders in the State of Maharashtra on EPC mode Apr-18 1,382

2 Housing for All - Affordable Housing project in TN Apr-18 1,190

3 Rehabilitation/Upgradation of existing 2 lane/4 lane on EPC mode in Maharashtra Apr-18 1,440

4 Tamil Nadu Water Supply and Drainage Board Oct-17 1,896

5 Construction of concrete duct bank and supply of all necessary items Aug-17 389

6 Karnataka State Police Housing and Infrastructure Development Corp Ltd Aug-17 508

7 Establishment of Primary Processing Centre from TNSAMB Jul-17 192

8 Construction of Scientific Storage Godown of 40000MT Jun-17 503

9 Civil work at Tukkapur 400 VK AIS S/S1 AP May-17 328

10 Power Grid Bangladesh Apr-17 1,000

11 Karnataka Slum Development Board (KSDB) for construction of 795 ground floor dwelling units Mar-17 454


Expanding presence into newer geographies; Portfolio skewed towards fastest

growing states

RPP started with a strong presence in two southern states of Tamil Nadu and Karnataka, but

over the years, it has expanded into newer geographies, helping it to de-risk its business. The

dependence on orders from key states such as Tamil Nadu and Karnataka has reduced. This

can be seen from the current order book, which contributes 52% to the total order book (v/s 86%

in FY14). Further, armed with unparalleled micro expertise, RPP has established a strong

presence in states where GSDP has been growing at a healthy pace. Over the last 5 years, these

states have witnessed huge government spending in key sectors such as Irrigation, Water

Pipeline, Roads, Mass Housing and Urban Infrastructure. For instance, Karnataka has increased

its allocation to sectors such as Irrigation, Road and Water Sanitation by 20.5% yoy, 11.8% yoy

and 6% yoy, respectively. Similarly, capex allocation towards Housing, Urban Development and

Roads & Bridges will continue to remain strong in Andhra Pradesh in FY19.

Exhibit 16: Entering newer geographies to de-risk geography risk


Exhibit 17: Rural spending has been on the rise


Exhibit 18: RPP present in states with strong GDP CAGR

Source: Planning Commission, Emkay Research

Exhibit 19: Overall investment on Infra & Allied Activities has increased by 65.6% yoy for FY19 to ~Rs141.6bn in AP

Source: AP Budget Documents.

74%83% 81%

40% 39%

12%6% 10%

22%13%

3% 6%

4%3%

6%

24%

9%

7%3%

20% 13%

0%

50%

100%


Tamil Nadu Karnataka Andhra Pradesh Maharastra

Uttar Pradesh Rajasthan Telegana Madhya Pradesh

Kerala Overseas

-

2,000

4,000

6,000

8,000

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

2015-1

6

2016-1

7Others Agriculture and allied activities

Rural development Irrigation and flood control

Energy Industry and minerals

Transport

0.0

2.0

4.0

6.0

8.0

10.0

12.0

An

dhra

Pra

desh

Ka

rnata

ka

Ta

mil

Nadu

Te

langana

Ma

hara

sh

tra

Guja

rat

GSDP CAGR growth (FY12-FY17)

0

50000

100000

150000

2012-1

3

2013-1

4

2014-1

5

2015-1

6

2016-1

7

2017-1

8

2018-1

9E

Water Supply & Sanitation Housing

Urban Development Irrigation

Roads & Bridges Road & Transport




Exhibit 20: Allocation for Irrigation, Road Transport and Water Supply & Sanitation increased by 20.5% yoy, 11.8% yoy and 6% yoy, respectively for FY18 in Karnataka

Source: Karnataka Budget Documents, Emkay Research

Exhibit 21: Allocation for key sectors (Urban Development, Housing and Irrigation up by 35% yoy, 35% yoy and 17% yoy in Tamil Nadu

Source: Tamil Nadu Budget Documents, Emkay Research

Strategic collaborations to move up the ladder

RPP has entered into strategic tie-ups with renowned companies like Siemens, Hunan

Construction Engineering Group Corporation (HNCEG), Delamore and Owl group of companies

(D&O) etc. to act as joint ventures partners for joint developing of large projects across India and

neighboring countries. In our view, these strategic tie-ups will help the company in increasing its

technical and financial eligibility, besides bid for big ticket orders going forward.

Collaboration with Siemens: RPP has inked a pact with Siemens to bid for a power

project in Bangladesh. It has entered into a consortium agreement with Siemens for

submitting a joint bid to Power Grid Company of Bangladesh to install substations. This

contract is for the design, supply, erection, testing and commissioning of 230kV and 132kV

sub-stations on a turnkey basis. RPP’s scope principally comprises construction of civil

works on EPC basis, which is expected to be in the range of Rs970mn.

0

50000

100000

150000

200000

2014-15 2015-16 2016-17 2017-18 2018-19E



Roads & Bridges Road Transport

0.0

20000.0

40000.0

60000.0

80000.0

100000.0

2012-1

3

2013-1

4

2014-1

5

2015-1

6

2016-1

7

2017-1

8

2018-1

9E



Roads & Bridges Road Transport




Financial Analysis

Exhibit 22: Order book grew at a CAGR of 21.7% from FY14-FY18


Exhibit 23: Revenue grew at a CAGR of 20% from FY14-FY18


Exhibit 24: EBITDA grew at a CAGR of 16% from FY14-FY18


Exhibit 25: Adjusted PAT grew at a CAGR of 20.6% from FY14-FY18


Exhibit 26: Tighter control on working capital leads to fall in WC days


Exhibit 27: Leverage under control


5,3

60

8,5

69

7,2

53

7,8

60

11,7

50

0

2000

4000

6000

8000

10000

12000

14000


(Rs m

n)

Order Book

2,4

03

2,6

59

3,1

47

3,6

72 4

,991

0

1,000

2,000

3,000

4,000

5,000

6,000


(Rs m

n)

Revenues

358

351 4

55

489

649

0

100

200

300

400

500

600

700


(Rs m

n)

EBITDA

140

166

192 228

296

0

50

100

150

200

250

300

350


(Rs m

n)

Adj.PAT

327

338

246

229

140

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0


(days

)

Working Cap days

0.7

0.7

0.3

0.3

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


(x)

Net D:E



ED: HEMANT MARADIA SA: DHANANJAY SINHA June 5, 2018| 10

Valuation & Relative valuation:

Companies like RPP would be one of the biggest beneficiaries of the government’s clear rural

thrust and relentless infrastructure focus. RPP’s rural focus, diversified order book and strong

return ratios (20%+) make it an alluring investment. RPP has historically traded at an average

P/E multiple of 15x and has traded at peak multiples of 30-35x. At CMP, the stock trades at 16.9x

its FY18 adj. earnings and 7.8x its FY18 EV/EBITDA. Historically traded at average P/E multiple

of 15x

Exhibit 28: PE Band


Exhibit 29: Relative Valuation

Company CMP MCAP Sales (Rs mn) Ebitda (Rs mn) PAT (Rs mn) RoE P/E EV/EBITDA

(Rs) (Rs bn) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

NCC 109.4 65.7 75,593 104,540 119,607 8,549 10,461 11,910 3,934 4,276 5,019 10.2 9.6 10.3 16.7 16.1 13.7 9.0 7.8 7.0

JKIL 256.1 19.4 20,507 22,968 26,873 3,212 3,715 4,407 1,366 1,616 2,033 9.4 10.2 11.6 14.2 12.0 9.5 5.9 4.9 4.0

ITD Cementation 147.5 25.3 20,605 30,898 34,080 2,715 3,399 3,749 948 1,575 1,869 16.2 14.6 15.6 26.7 20.1 13.6 9.8 9.9 7.1

Ahluwalia 334.9 22.4 16,466 19,496 23,325 2,193 2,593 3,102 1,154 1,453 1,787 20.5 21.1 21.1 19.4 15.4 12.6 9.8 8.3 6.8

Simplex 434 24.6 57,662 65,336 75,656 6,689 7,579 8,776 1,170 1,349 1,781 7.4 7.0 7.7 18.4 18.3 13.8 8.3 7.4 6.5

Sadbhav 321.6 55.1 35,051 43,096 53,698 4,151 4,841 6,050 2,207 2,375 2,931 12.5 12.0 13.2 25.0 23.2 18.8 16.5 13.9 11.2

PNC 161.85 42.6 18,566 28,220 39,508 3,188 3,810 5,334 2,510 2,154 2,657 14.9 11.4 12.9 17.0 19.8 16.0 14.1 12.3 8.9

RPP 221.5 5.0 4,991 6,812 9,069 649 920 1,224 116 426 576 5.4 17.8 20.0 43.0 11.7 8.7 7.8 6.1 4.9

Source: Bloomberg, Company, Emkay Research

050

100150200250300350400450500

Ap

r-12

Oct-

12

Ma

r-13

Au

g-1

3

Jan

-14

Jul-1

4

Dec-1

4

Ma

y-1

5

Oct-

15

Ma

r-16

Se

p-1

6

Fe

b-1

7

Jul-1

7

Dec-1

7

Jun

-18

8x

12x

16x

20x




Company background

Incorporated in 1995 and promoted by Mr Arul P Sundaram, RPP is one of the leading and fast-

growing integrated EPC companies in India with a well-diversified presence in Highways, Roads

& Bridges, Civil Construction (in Water Management), Irrigation, Mass and Affordable Housing

and Power projects. The company has successfully executed over 200 civil construction projects

till date across various segments of the construction and infrastructure industry. Over the years,

RPP has focused on small government projects (worth ~Rs500-1,000mn) and has a wide

presence in Southern states of Karnataka, Tamil Nadu and Andhra Pradesh.

Exhibit 30: Business Segments and Clients

Segments Buildings Infrastructure Water Management

Order Book (as on Q4FY18)

(Rs mn) 3,280 5,730 2,740

Operating Margin (%) 9-10% 12-15% 15-18%

Key Clients BHEL, CPWD, Neyveli Lignite Corp,

Local Bodies etc

NHAI, Power Grid,

PWD etc

TN Water Supply Board, Karnataka Neeravari Nigam

Limited, Local Bodies etc

Technical Eligibility (Without

JV) (Rs mn) 120 (Ground Floor) 2,500 2,000

Technical Eligibility (With JV)

(Rs mn) 70 (Multi Storey) 5,000 4,000


Exhibit 31: Management Background

Name Designation Description

P. Arulsundaram Chairman and Managing Director

He holds a Bachelor’s degree in civil engineering from Sri Vinayaka Mission Research

Foundation. He has over 27 years of experience in civil works in the field of transportation

/ power/ commercial buildings and irrigation projects.

A. Nithya Whole Time Director & CFO

She holds a Master’s degree in Business Administration (Finance) & Software

Applications. She has vast experience in Accounts & Finance, Taxation, Foreign

Exchange, Legal, Corporate Governance and Human Resource.

Mr. R.P. Muralithasan Director

He holds a bachelor’s degree in civil engineering and has executed several prestigious

civil engineering projects for RPPIPL. He has over 28 years of experience in the

Construction Industry.

Mr. K. Ravi Independent Director He holds a Bachelor of Engineering from National Institute of Technology, Tamil Nadu. He

has over 43 years of experience in the engineering industry





Key Risks

Interest rate risk: An EPC player’s profitability is highly sensitive to interest rates and drastic

changes in interest rates can hamper the company’s profitability.

Delay in project execution: Infrastructure projects’ profitability is highly linked to timely

completion of projects. Any delay in project execution can hurt profitability and cash flows of the

company.

Order book skewed towards government projects: RPP’s order book is skewed towards

government projects, which exposes it to political risks. However, RPP is diversifying into other

states in order to mitigate that risk.




Key Financials (Consolidated)

Income Statement

Y/E Mar (Rs mn) FY14 FY15 FY16 FY17 FY18

Net Sales 2,403 2,659 3,147 3,672 4,991

Expenditure 2,045 2,309 2,692 3,184 4,342

EBITDA 358 351 455 489 649

Depreciation 79 74 49 51 68

EBIT 280 277 406 438 581

Other Income 68 46 50 31 64

Interest expenses 165 174 192 164 193

PBT 183 148 264 306 452

Tax 43 45 71 77 336

Extraordinary Items 0 0 0 0 0

Minority Int./Income from Assoc. 0 0 0 0 0

Reported Net Income 140 103 193 229 116

Adjusted PAT 140 103 193 229 116

Balance Sheet


Equity share capital 226 226 226 226 226

Reserves & surplus 1,326 1,481 1,643 1,849 1,973

Net worth 1,552 1,707 1,869 2,075 2,199

Minority Interest 0 0 0 0 0

Loan Funds 1,221 1,326 809 976 1,681

Net deferred tax liability 7 (4) (9) (13) (22)

Total Liabilities 2,779 3,029 2,669 3,039 3,857

Net block 468 390 255 287 307

Investment 3 3 3 4 1

Current Assets 2,561 3,747 3,613 4,499 4,937

Cash & bank balance 122 143 250 405 923

Other Current Assets 886 1,090 1,075 1,007 872

Current liabilities & Provision 284 1,144 1,238 1,791 1,390

Net current assets 2,277 2,603 2,375 2,708 3,547

Misc. exp 0 0 0 0 0

Total Assets 2,779 3,029 2,669 3,039 3,857

Cash Flow


PBT (Ex-Other income) (NI+Dep) 183 211 263 304 452

Other Non-Cash items (17) (7) 18 (28) 0

Chg in working cap (165) (192) (61) (22) (322)

Operating Cashflow 188 203 382 386 55

Capital expenditure (16) 1 41 (88) (49)

Free Cash Flow 172 204 423 298 6

Investments 0 0 0 (1) 2

Other Investing Cash Flow 17 10 8 21 0

Investing Cashflow 1 11 49 (68) (47)

Equity Capital Raised 0 0 0 0 0

Loans Taken / (Repaid) (34) (7) (122) 12 715

Dividend paid (incl tax) (11) (11) (11) (11) (13)

Other Financing Cash Flow 0 0 1 0 0

Financing Cashflow (210) (192) (324) (163) 509

Net chg in cash (21) 21 107 155 518

Opening cash position 143 122 143 250 405

Closing cash position 122 143 250 405 923





Key Ratios

Profitability (%) FY14 FY15 FY16 FY17 FY18

EBITDA Margin 14.9 13.2 14.4 13.3 13.0

EBIT Margin 11.6 10.4 12.9 11.9 11.6

Effective Tax Rate 23.3 30.5 27.0 25.1 74.2

Net Margin 5.8 3.9 6.1 6.2 2.3

ROCE 13.3 11.1 16.0 16.4 18.7

ROE 10.2 6.3 10.8 11.6 5.4

RoIC 11.4 10.1 15.5 17.6 21.1

Per Share Data (Rs) FY14 FY15 FY16 FY17 FY18

EPS 6.2 4.6 8.5 10.1 5.2

CEPS 9.7 7.8 10.7 12.4 8.2

BVPS 68.7 75.5 82.7 91.8 97.3

DPS 0.5 0.6 0.5 0.5 0.5

Valuations (x) FY14 FY15 FY16 FY17 FY18

PER 35.8 48.6 25.9 21.9 43.0

P/CEPS 26.9 33.2 24.3 21.1 31.9

P/BV 3.2 2.9 2.7 2.4 2.3

EV / Sales 2.5 2.3 1.8 1.5 1.2

EV / EBITDA 17.0 17.6 12.2 11.4 8.9

Dividend Yield (%) 0.2 0.3 0.2 0.2 0.2

Gearing Ratio (x) FY14 FY15 FY16 FY17 FY18

Net Debt/ Equity 0.7 0.7 0.3 0.3 0.3

Net Debt/EBIDTA 3.1 3.4 1.2 1.2 1.2

Working Cap Cycle (days) 327.4 337.6 246.5 228.9 191.9

Growth (%) FY14 FY15 FY16 FY17 FY18

Revenue (7.6) 10.7 18.3 16.7 35.9

EBITDA (10.2) (2.0) 29.6 7.5 32.8

EBIT (6.7) (1.0) 46.7 8.0 32.6

PAT 22.0 (26.3) 87.2 18.7 (49.2)

Quarterly (Rs mn) Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18

Revenue 1,176 1,125 1,079 1,370 1,417

EBITDA 133 162 137 181 181

EBITDA Margin (%) 11.3 14.4 12.7 13.2 12.8

PAT 83 78 68 (93) 82

EPS (Rs) 3.7 3.4 3.0 (4.1) 3.7


Shareholding Pattern (%) Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Promoters 68.0 52.5 52.5 52.5 52.5

FIIs 3.0 4.0 4.1 2.1 2.1

DIIs - 5.1 5.2 5.2 5.0

Public and Others 29.0 38.4 38.2 40.2 40.4

Source: Capitaline




Emkay Rating Distribution

BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.

ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.

HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.

REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.

SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.

Completed Date: 05 Jun 2018 21:06:24 (SGT) Dissemination Date: 05 Jun 2018 21:07:24 (SGT)

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This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab Emirates This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Emkay Global Financial Services Ltd.

CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

http://www.emkayglobal.com/




SINGAPORE

DBS Bank Ltd

Contact: Janice Chua

12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982

Tel. 65-6878 8888

Fax: 65 65353 418

e-mail: [email protected]

Company Regn. No. 196800306E

THAILAND

DBS Vickers Securities (Thailand) Co Ltd

Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Nagkok Thailand 10330

Tel. 66 2 857 7831

Fax: 66 2 658 1269


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

INDONESIA

PT DBS Vickers Sekuritas (Indonesia)

Contact: Maynard Priajaya Arif

DBS Bank Tower

Ciputra World 1, 32/F

JI. Prof. Dr. Satrio Kav. 3-5

Jakarta 12940, Indonesia

Tel. 62 21 3003 4900

Fax: 62 21 3003 4943





Viral Shah, MMS

[email protected]

+91-022-66242453

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