MEP Infrastructure Developers Ltd.

MEP Infrastructure Developers Ltd.
IPO Update
April 21, 2015
MEP Infrastructure Developers Ltd. (MEP) established in 2002, is one of
the leading pan-India road/highway tolling operator. The company is
mainly engaged into toll collection and operations & maintenance of
roads/highways built by third parties. Prominent toll collection projects
handled by MEP are the five Mumbai Entry Points and Rajiv Gandhi Sea
Link Project (Worli Sealink).
MEP is coming with an initial public offering (IPO) to raise around Rs.
3,200 to 3,300mn, with subscription starting from 21st Apr. 2015. The
issue will closing on 23rd Apr. 2015
•
•
MEP is coming out with a 100% book building; IPO of equity shares of
face value Rs. 10 each in a price band Rs. 63-65 per equity share. The
issue is priced at 6.3 times the face value at the lower band and 6.5
times on the higher price band.
Not more than 75% of the issue will be allocated to qualified
institutional buyers (QIBs), including 5% to the mutual funds. Further,
at most 15% of the issue will be available for non-institutional bidders
and the remaining 10% for the retail investors.
Net proceed from the issue will be used for following purpose:
•
•
Recommendation
Not Rated
Price Band
Rs. 63 - Rs. 65
Issue Size
Rs. 3,200-3,300mn
Bidding Date
21st April – 23rd April 2015
Book Running Lead IDFC Securities Ltd., IDBI
Manager
Capital and Inga Capital
Registrar
Link Intime India Pvt. Ltd.
Sector
Infrastructure
Promoters
Dattatray P. Mhaiskar, Jayant
D. Mhaiskar and Ideal Toll &
Infrastructure Pvt. Ltd.
Pre-Issue Shareholding Pattern
Promoters
Institutions
Non-Institution
Public
Total
97.17%
0%
2.83
0%
100%
Retail Application Money At Higher Cut Off Price
Partial or full repayment/pre-payment of debt availed by its 99.99%
subsidiary, MEP Infrastructure Pvt. Ltd.
Number of Shares
225
Application Money
14,625
General corporate purposes.
Discount to retail
Cheque Payable To
Valuation & Recommendation
Despite being in operation since 2002, MEP is a loss making entity with
negative capital base on consolidated basis. Recent Maharashtra
government’s directive for closure of toll plazas and toll exemption for
state transport buses and private light motor vehicle, is likely to lessen
the interest in this IPO issue. Thus, investors are directed to invest
cautiously.
Particulars (Rs. mn)
Total Operating Income
Total Operating Expenditure
EBITDA
Depreciation Expenses
Interest Expenses
Reported PAT
EPS
BVPS
EBITDA margin (%)
Reported PAT Margin (%)
RoE (%)
RoCE (%)
0%
“Escrow Account –
MEPIDL IPO – R”
Sumeet Bagadia
Head of Research (022 - 6707 9830)
sumeet.bagadia@choiceindia.com
Rajnath Yadav
Equity Research Associate (022 - 6707 9866)
Rajnath.yadav@choiceindia.com
Consolidated Financial Snapshot
FY10
FY11
FY12
3,283.1
4,493.8
10,801.1
(3,228.3) (3,720.1)
(7,310.9)
54.8
773.8
3,490.2
(4.7)
(386.6)
(946.9)
(53.4)
(1,298.6)
(3,765.9)
(12.7)
(815.3)
(530.9)
(1.1)
(67.8)
(11.3)
9.0
1.6
8.4
1.7%
-0.4%
-1.3%
2.2%
17.2%
-17.0%
-437.9%
1.2%
32.3%
-4.4%
-52.4%
7.7%
FY13
12,800.3
(9,150.6)
3,649.7
(989.7)
(3,765.0)
(929.4)
(9.3)
2.6
FY14
11,979.1
(8,770.6)
3,208.4
(1,264.3)
(3,801.1)
(1,205.6)
(12.1)
(7.5)
7M FY15
11,143.2
(9,213.9)
1,929.2
(1,063.9)
(2,324.3)
(981.6)
(9.0)
(20.7)
28.5%
-7.3%
-325.6%
8.1%
26.8%
-10.1%
5.5%
17.3%
-8.7%
2.4%
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MEP Infrastructure Developers Ltd.
IPO Update
April 21, 2015
Indian Infrastructure Overview:
Infrastructure is one of the key drivers of the Indian Economy and thus it is given a high priority during the formulation of the
policies. Investment in infrastructure is directly correlated to the national GDP, as sectors involved in infrastructure industry
are roads, power telecom, railway, ports, airports etc. As Indian economy is anticipated to grow at higher rate, the
government is expecting huge investments in these sectors. For 12th five year plant the government has increased the
investment in infrastructure to Rs. 51.5tn, representing an increase by 2.6 times as compared to 11th plan. Power sector is
the major contributor towards total infrastructure spending, followed by roads, telecommunication and railways sector in
11th plan.
Infrastructure Spending in Eleventh Five Year Plan
2.0%
17.9%
1.5%
32.7%
10.2%
17.3%
Electricity
Roads
18.4%
Telecommunications
Railways
Ports
Airports
Others
Choice Broking Research
Overview of Road Sector:
India has the second largest road network in the world with 4.7mn Kms. With, nearly half on the network is properly
surfaced, it provides huge growth opportunity. Road sector is the most common mode of transit for both passenger and
freight and has continuously increased its market share. 85% of the passenger and 60% freight traffic are handled by roads.
With 2% of the national road network, national highways handles 40% of the freight traffic, while the rest is handled by the
state and district road network.
Higher traffic is anticipated with growing economy and thus the government has increased the outlay for road sector to
around Rs. 520bn in the 2014-15 Finance Bill. Financing for the road projects is done through modes such as government
budgetary support, borrowing via bonds and from international institutions, private financing, toll revenue etc. The
government is encouraging higher private sector contribution through various public private participation (PPP) operating
models likle BOT (build-operate-transfer), EPC (engineering, procurement and construction), toll collection and OMT
(operate, maintain and transfer).
Indirect PPP models (toll collection and OMT), which evolved in 2009, are asset light business models with a steady revenue
generation capacity. Both toll collection and OMT contracts are won through competitive bidding, with the right to collect
toll and maintain/provide necessary toll infrastructure. Additionally, maintenance of road is the integral part of the OMT
contract. Third party toll collectors are characterized by their efficient toll collection operations and technological
advancements. Awarding more such contracts is likely to lower the project cost to the developer/government, and thus
there is a significant growth opportunities for toll operators.
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MEP Infrastructure Developers Ltd.
IPO Update
April 21, 2015
Overview of Road Sector (Contd…)
Summary of Toll Collection projects bid out by NHAI
FY11
FY12
FY13
FY14
Number of projects
~ 5,000
~ 4,500
~ 4,800
~ 5,250
Length of Road Network (kms)
~ 90-92
~ 75-80
~ 84-88
~ 98-102
Annual Potential Collection (Rs. bn)
~ 18.5
~ 21
~ 27
~ 27
Choice Broking Research
Summary of OMT projects bid out by NHAI
2009-11
2012-14
960
1,400
6
8
Number of projects
Length of Road Network(kms)
Choice Broking Research
According to Crisil Research, the toll collection projects are expected to increase by around 1.3 times and 1.5 times by 201718 by both National Highway Authority of India (NHAI) and various state governments, respectively, while, OMT projects are
to double by 2017-18 from the current level.
Company Introduction:
MEP is one of the leading pan-India road/highway tolling operators, mainly engaged into toll collection and operations &
maintenance of roads/highways built by third parties. Prominent toll collection projects handled by the company are the
five Mumbai Entry Points and Rajiv Gandhi Sea Link Project (Worli Sealink). As on 19th Mar. 2015, MEP has completed 75
projects with aggregate 133 toll plazas and 841 road lanes in 12 states in India. As on 19th Mar. 2015, MEP has 18 toll
projects with 33 toll plazas, five OMT projects with 15 toll plazas and one BOT road project under operations.
Image of One of the Five Mumbai Entry Points: Airoli Toll Plaza
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MEP Infrastructure Developers Ltd.
IPO Update
April 21, 2015
Company Introduction (Contd…)
Image of Rajiv Gandhi Sea Link (Worli Sealink)
Choice Broking Research
Investment Rationale:
1) Established Player in Road Tolling Project: MEP is one of the leading toll operators in India with 12 years of experience
in the business. As on 19th Mar. 2015, the company has completed 75 projects with 133 toll plazas across India. MEP has
bid for won around 50%-55% of the total toll projects put forth by NHAI between FY12-14. Prominent toll collection
projects currently handled by the company includes the five Mumbai entry points, which is also the first OMT contract
and Rajiv Gandhi Sea Link Project.
2) Continued Net Loss on Consolidated Basis: Despite reporting 37.9% CAGR growth in consolidated top-line over
FY10-14, MEP has reported net loss during the same period. Falling operating profit (EBIT) margin coupled with higher
financial charge has impacted the bottom line since FY12. For seven month ended 31st Oct. 2015, the company reported
over the 947bps contraction in EBITDA margin to 7.8% as compared to 16.2% in FY14. MEP reported a net loss Rs.
973mn on a top-line of 11,143.2mn.
Financial Performance over FY10-14
15,000.0
10,000.0
5,000.0
0.0
17.2%
8.6%
1.7%
1.5%
-0.4%
4,493.8
3,283.1
-17.0%
FY10
FY11
32.3% 12,800.3 11,979.1
28.5%
11,143.2
10,801.1
26.8%
20.8%
17.3%
23.5%
16.2%
40.0%
20.0%
7.8%
-4.4%
-7.3%
-10.1%
-8.7%
0.0%
-20.0%
FY12
FY13
Total Operating Revenue (Rs. mn)
EBIT Margin (%)
FY14
7M FY15
EBITDA Margin (%)
Reported PAT Margin (%)
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MEP Infrastructure Developers Ltd.
IPO Update
April 21, 2015
Investment Rationale (Contd…)
3) More Concentration of Short Term Toll Collection Projects: MEP has combination of short term and long term projects
in its toll collection project portfolio. Normally, toll collection projects are short term in nature with project span of max
12 months. Post expiry, the company is supposed to approach regulatory authorities for renewals. As on 29th Sept.
2014, the company had 16 short term toll collection projects and seven long term toll collection projects. Higher
concentration of short term projects indicates poor revenue visibility for the company in addition to the risk towards
renewal of contract.
4) Political Uncertainty Towards Continuation of Toll Collection Projects in Maharashtra: On 17th Apr. 2015, Maharashtra
government has announced the closure of 12 toll plazas and proposed toll exemption at 53 toll plazas across the state
for state transportation buses and private light motor vehicles. MEP has indicated that none of its operational toll
plazas, comes under the proposed closure list. However, revenue from its three toll projects will be affected from the
exemptions proposed by the government. We expect this to have contagion effect on other toll projects in the
state/other states and thus leading to uncertainties and risks future earnings.
Risk and Concern:
1) Low Entry Barrier due to Asset Light Model: MEP mainly engaged into the toll collection and maintenance of road toll
infrastructure, which is less capital intensive. Moreover, the toll infrastructure is built on roads constructed by third
party, thereby avoiding risk associated with delay in construction activities and gestation of projects. Thus owing to
asset light business model and less entry barriers, it is likely to be easily replicated by other players, putting pressure on
the performance of the company.
2) Performance Highly Dependent on the Traffic Volume: While bidding for a certain toll project, MEP does a study on the
anticipated traffic volume over the period of time for the road. The company has its own traffic survey team, which
carries out the traffic forecasting exercise. Any significant decline in the traffic volume as against anticipated is likely to
put pressure on the company’s operating and financial performance.
3) Limited Business from the Mumbai Projects to Affect the Business: MEP is responsible for the collection of tolls and
operations & maintenance of five Mumbai entry points. This project contributed around 28.5% of the consolidated
revenue in FY14 and 18.9% in the first seven months of FY15. Thus fall in the traffic volume is likely to affect the
performance of the company.
4) Risk Associated with the Termination of Solo BOT Project in Baramati, Maharashtra: In 2010, MEP has entered into an
agreement with state government to design, built, finance, operate and maintain four lane road project in Baramati
under BOT operating model. Additionally, the company was entitled to use certain tract of the land for commercial
purpose. Pursant to the agreement, the company has paid a payment of Rs. 6,500mn and also provided irrevocable
bank gurantee to the nodal agency, Maharashtra State Road Development Corporation (MSRDC). Due to delay in
handing over the procession of land, MEP has approached MSRDC for the termination of the contract demanding
termination payment. However, the termination has not being accepted by MSRDC, the company continues to operate
the project. In case the termination is not accepted, MEP will be required to complete the project as per the agreement
and incur losses, mainly on account of non-commercialization from the development of certain tract of land.
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