GPT Infra - stand to benefit from MASSIVE Railway Capex plan?

[AyushA]

Hi all, this is my first post, so please excuse my errors. Would love to hear your feedback. For this post I have tried to arrange management commentary in a coherent manner. Most of the points have been sourced directly form Concall transripts, AR etc.

## Short Note:

• GPT Infra is a railway focused infrastructure company, with core capabilities in EPC [mainly varied type of railway bridges] and Sleepers [the slabs used between tracks]. Railways present a large market size opportunity driven by Indian Government’s MASSIVE capex plan for Indian Railways ().
• Operates in two primary segments – Infrastructure [EPC], which is a construction contracts forgovernment agencies, primarily railways, wherein we build bridges and ROBs and coreinfrastructure for railways primarily, also some PWDs and government agencies like MoRTH andothers. That is about 75% of our topline, 25% of the topline comes from manufacture of railway concrete sleepers.

## Other interesting points as per mamangement

1. Healthy order book
* Has an estimated order book of ~1850 cr with an avg execution of 24-30 months as of Mar 2017
* Targets to add 1500Cr orders in FY18 [rough est of booked ~500cr by June 2017]
* Order book estimated to be 2200 Cr; Year end projected at 2600cr [Opening 1850 - FY18 execution of 725cr + 1500 est new order wins]

2. Stable to improving margin

• In India both the businesses [Infrastructure ~80% of order book and India Sleepers business 16% or order book] are almost at the same level; India is about 13%-13.5%. Internationally [African sleeper business], the African businesses [~4% of order book] are between 25% to 30%, at EBITDA level.
• All our contracts, whether it is concrete sleepers or whether it is EPC construction, have a price variation formula. So it does not get affected by the increase or the decrease in the cement andthe steel prices as such because there might be (+/-1) month lag but it does not get effected interms of the margins. In terms of achieving a margin target for the year of 15%, I think it isquite achievable because as we grow the business in terms of volume the overhead do not goproportionately. We should be able to achieve or we have an internal target to do a margin, sofar in the north of 15%. I think 15% is the target we should be able to achieve for the year.

3. Improving working capital cycle

• Working capital cycle from 232 days as on 31st March, 2015, 152 days as on 31stMarch 2016 to 121 days as on31st March 2017 following a quicker payments inflow.
• These contracts have been accompanied by better payment terms, marked bymobilization advances and shorterreceivable cycles.

4. No major capex required

• Most of the major CAPEX for the two factories of almost 25 crore has already been incurred,the balance would be incremental CAPEX to fund some of the newer contracts which wouldnot be anything major, it would be almost 10 crore to `12 crore a year maybe, nothing major.

5. No Major change in debt expected

• We would like to maintainhealthy debt to equity ratio so we don’t want to over leverage ourselves too much as we aregrowing the business 30%-35% every year.
• 200 crore is the short-term debt and 10-12 crore is the long-term debt. We expect the debtto move up may be by 5% to 10%, we don’t expect the debt to move up too much because a lotof the cash flow which was stuck in terms of the working capital cycle is getting freed up sothat will enable us to grow the business further.

6. Low competitive intensity

• The competitive scenario is there obviously. I would not say that there is no competition interms of the railway orders, but the we are bidding in terms of the bridges, especially between100 to 200 crore, there the competition is not too intense so we see may be 3 to 4 bids generally not more than that and in terms of the margins we have a hurdle rate of 14% [13.5% mentioned later] so we don’t bid for contracts below that. I think we have been able to achieve our numbers historically also. There are lots of opportunities in the market and I think that we will be able to maintain our margins at 14%.

7. Potential to bid for 1000cr projects FY20 onwards

• …average ticket size of our orders have improved from 40cr a few years ago to more than 100cr today, translating into project economiesand increased profitability.
• It would be pertinent to communicate that during the course of the yearunder review, the Company received its largest ever construction order of 217cr in its name. This project comprises construction of bridges on the Mathura-Jhansi third line for Rail Vikas NigamLimited and is to be completed within 36 months. On completion of thisproject, the company will be able to bidfor projects in the range of H1,000 crin its independent capacity from 2020onwards.
• Strengthening the business: I am pleased to report that the companystrengthened its business beyond whatmay be evident in the financials of2016-17.Even as the company’s revenues mayhave only been marginally higher thanin the previous year, the direction ofthe company continues to be positive.Besides, the projects are larger, themargins hurdle rate higher and eachof these projects, when complete, willmake it possible for the company toaddress even larger projects.

8. Management does not see any major execution risk

• Ashish Shah: So, the problem then remains in which project now? Would I be right in saying that the entire orderbook now is executable? There is no project which is stuck or non-moving or anything like that?Atul Tantia: Sir, there is no project that will be stuck. The only hindrance was the Manipur, which has beenresolved by March before the new elections happen

##The BIG opportunity in Railways

• Indian Railway has embarked upon a massive 8.56 trillion, with the CAPEX plan for 2015 to 2019, which is 90% more than in the combined CAPEX done in the previous 15 years. The budget 2017 has allocated 1.31 trillion to Indian Railways in 2017-2018, the largest ever allocation increase of 14,000 crore over the last fiscal year. There is a hugefocus on better safety through building in rail over bridges, ending unmanned crossing, etc. IndianRailways is targeting to eliminate all unmanned level crossings from broad-gauge lines by 2020

• The estimated fund requirement for building ROBs and RUBs is 40,000 crore. Further, the fundrequirements for bridge rehabilitation is estimated to be over 3,000 crore. Additionally, thegovernment has announced commissioning of the 3,500 km railway line in 2017-2018, up from2,800 km in 2016-2017. All of these are areas of large opportunity for us in terms of ourinfrastructure business.

• DFC is an additional growth area for us, both in terms of sleeper manufacturing as well as bridgeworks. Project award for DFC has been rapidly progressing over the last 12 months. Thegovernment has also announced to spend around `3.3 trillion to set up 3 new arms of the DFCcorridors. The 5,500 km long new corridor would supplement the existing plans to lay 3,300 kmtwo DFCs

##Quick/Rough Valuation

Disclosure:

1. I have a very small investment, and plan to increase over time.
2. I have used last 1-1.5 year call trancripts

[Korev2004]

as per screener.in 51 % Promoters holding is pledged
debt to equity 1.38

Both signs seems dangerous .

your view on this please

[AyushA]

95% of the debt is working capital financiang, rest 5% is lease financing for equipment.

Major Improvement in working Capital outstanding days; should be helpful reducing pressure.

Promoters hold 74% stake out of which 51% is pledged rest 49% is not also. Not sure how big is this a risk.

From Risk reward perspective this looks interesting. The Railway capex opportunity is BIG (improving passenger infra + building dedicated freight corridors). and their current order book.

[Gorthi]

Hi,
While reading their FY 17 Annual report I came across following thing can someone clarify?

FY 17 they have incurred Capex of 50 Cr( Pg 121, Consolidated Cash Flow Stm), from their FA register following are the details for 50 cr.
Buildings 19 Cr
P&M 13 Cr
Steel Shutters -10cr
Others- 8

It seems they have incurred 19 cr for building … Can any one through some light what would be assets they might be purchased for 19 cr… Will that be General purpose or is it Income generating assets.

If it is General Purpose then I am not sure what would be logic behind to spent 40% of their capex on building?

Dis: Invested.

[radioactive]

anyone tracking. this stock.its available at PE 7 at steep discount

[radioactive]

Mr. Dwarika Prasad Tantia, GPT Chairman said, “While the world continues to adjust to the new normal, every crisis offers opportunities. In India too, the central and state governments are working diligently to bring the economy back on track and we believe that infrastructure development will be one of the key drivers of economic progress. As a testament to our execution prowess and ability to function in challenging times, we are happy to report that we have bagged two orders in the lockdown period worth Rs 2.2 billion and also stand as L1 for orders amounting to Rs 5 billion. With this, our order book of Rs 16.4 billion provides strong revenue visibility in these challenging times. From an operational perspective, we resumed operations from end of April at a lower utilisation but with the gradual “unlocking”, we are seeing improvement at our facilities and project sites, although, labour supply remains a major concern. Going ahead, we are mindful of the fact that there remains uncertainty regarding the impact of Covid-19 and are geared up to withstand challenging period. With our execution capabilities, shored up liquidity position, robust control systems, I am confident that we have the strength to deliver.”

[ca.ankitarathi]

can anyone share the latest update of the company.
They are continuosly bagging orders. How do we see the future of the company?

[Bornwinner_16]

Business Segments:
Infrastructure
Concrete Sleepers (Railways)

The outstanding order book for the Company now stands at approximately 3,182 Cr with total order inflow for Fiscal 2024 of 1,629. (From recent update [06/03/24] from company)
Orderbook value is almost 4X of FY23 revenue.

FY24 Revenue Guidance: 1000 cr with 12-13% EBITDA margin.
-we are on track to achieve our guidance of a growth of 25% in the current financial year.

Company is targeting 20-22% CAGR revenue growth over next 3 years.
Projected closing order book for FY25 will be around 4000cr.
Company will able to maintain cashflow to EBITDA ratio of 0.8-0.9.

Disc: Bullish on the counter and invested.

Read full Q3 concall highlights at: https://twitter.com/Bornwinner_VJ/status/1765626419995107790

[alchemist]

Management had aimed order book at 4000 crore by March 2025 and in June itself its at 3700.

[alchemist]

Sharing my analysis on GPT Infra and why it stands a chance to 2x in next few quarters

1. Management has guided for 28% revenue growth and 45% profit growth in FY25, however the growth was muted in 1Q’25 on account of general elections so to achieve the growth stated by management, PAT is likely to grow by 48-50% for the next 3 quarters of the financial year
2. GPT has maintained order book of nearly 3.6x of its annual revenue and is confident to maintain the same going forward as the governments focus on this sector
3. Management is focussed on maintaining OPMs of 13%+ and only bids for contract which supports the margin profile
4. GPT has successfully raised Rs 175 crore at Rs 175/share which will be used to repay most of the debt which would half the interest cost and also reduce promoter pledging by FY25 and pledge free by FY26

Calculation for GPT to 2x
For FY25,
Revenue - Rs 1300 crore
Profit - Rs 80-82 crore
Shares outstanding - 12.6 crore
EPS - Rs 6.5
PE - 42-45 considering a growth company and previously achieved PE = 42
Price - 45*6.5 = 292 (2X from current levels)

Disc: Invested, biased

[Sandipan_Ghosh]

Auditor resigned, can it impact to stock quality?

[alchemist]

Company secretary/Compliance officer has resigned, not the auditor. Shouldn’t impact the stock quality

[shivomrevankar]

Q2FY26 Reported flat revenues YoY, but disproportionate PAT growth with improved and efficient execution. Their short term debt went up due to some delays which was expected due to monsoon.

What is surprising is that the Co is now at its second inflection point.

1. The Co has begun EPC projects in Africa which were largely untapped for all these years & there is good margin appreciation north of 18% against 13% in India at EBITDA level.

2. Concrete Sleeper Factories are also expected to function close to optimum levels of capacity in Africa and India adding about 15-20crs in PAT to FY26 consolidated.

3. Full PAT I estimate to be 125cr for FY26. Coupled with this, their Indian order book is at a cusp of transformation with the ability to bid now for projects up to 1600crs for the first time in history which has been long awaiting. Their capacity utilisation has been low, and will now not just reach optimum level but do about 900cr or more in revenues in Q3 and Q4 - btw this was their FY24 in full Revenue.

Their last fund raise was at Rs.175 a Share at 2000cr valuation August last year. The co is trading now at 105-115 range /1300-1400cr market cap when the numbers have improved dramatically!

I have personally added significantly averaging at 107 levels.

[shivomrevankar]

GPT Infraprojects - Kolkata based EPC company exquisitely disciplined, handsome dividend paying (rare for a construction company), and very strong growth potential. I have been following this company since 2021 and finally bought it in 2023 March and have been adding ever since. I regularly speak with the management and have developed a certain sense of trust in their enterprising abilities. They are one of the only specialist engineering & construction company which has a hallmark for railway bridges (& ofcourse Highways, Concrete Sleepers & beyond), and their own in-house girder manufacturing facility they recently established focused on Eastern Geographic territory which I consider as a moat.

They are extremely disciplined and do not bid for any projects that do not meet their hurdle rate of 13% - 14% EBITDA Margin. To add these characteristics with their execution - they have a formidable style which one can rarely see where they collect money faster than they pay and execution (working capital & inventory days; (Q2FY26 exception due to very bad monsoon but the co still exhibited resilience) remains at the optimum level of industry standards.

At about 3 times order book of guided FY26 revenues, very conservative debt profile & attractive positioning to take on much larger projects which still hasn’t been appreciated by the markets as they only bid for those when it meets their criteria. My view is this will happen within this year only to change the entire company dynamic catapulting their order book to 4x their revenues as their large order of 1000+ crore has been long pending. Its current hovering ranges of 100-140 within 1500cr market cap is in my view is very attractive. Given these characteristics, sustained growth, and superlative execution, strong balancesheet - I can see one of India’s greatest growth story in GPT Infraprojects.

The stock continues to hover around the same levels, in fact dropped significantly for reasons unrelated but overall market reactions. With time, GPT’s proposition has been compelling. Also importantly, we wouldn’t often find a small cap infra company rated A which is not just quite comforting but indicative for their superior execution, discipline, and integrity.

GPT Infraprojects became eligible to bid for 1000cr singlehandedly in 2023 when they won the largest single order in their history of approx. 800 crores. Orderbook doubled. That changed it all. Last year at their fair value, it raised 175 crores through fresh issue, repaid existing debt, and has been now increased its net worth significantly - today eligible to bid for 1600cr+ projects. This has been long pending since last year. Company is well equipped with its existing base to support revenues of up to 2000crores. But the company doesn’t participate if their financials do not match.

With NHAI, Railways, as their new project bid out was stagnant through 2024 due to land acquisition delays is now picking up and we are seeing new tenders. I see this happening within the next few months. A great time to consolidate. Recent Grant Thornton Report with Government identified key gaps and how other countries during their development spent on infrastructure. It is my firm conviction that India’s Capex should increase dramatically till 2030 to at least 4.5% GDP and hold steady till 2047.

Also, as India continues on its growth Trajectory, Interest Rates will gradually ease. It is then that integrity & discipline of management that becomes critical to not repeat what happened in 2007 & 08 in India when reckless private lending happened in Infrastructure in India and that somewhat transpired till 2019. GPT also as most others, albeit very little, burnt their fingers in couple HAM / BOT projects. Ever since, it is an asset light pure play EPC company.

GPT is mainly focused on Eastern India where there is limited competition and to support its operations has most of its bases there - their management are very disciplined and honourable noting which their Ex Chairman DP Tantia who passed away recently was appointed as Honorary Consul of Ghana. Their second Generation leading GPT Infraprojects is Atul Tantia (ED & Group CFO, now MD) and Vaibhav Tantia (COO) are both very well educated, able, and keep abreast of evolving tech in their sector. Their vision to backward integrate their operations allows them to maintain industry leading margins.

GPT Infraprojects Ltd continues to near the late stages of big order win having been delayed already - meaning we can expect a 1200 to 1500cr order biggest in their history very soon considering NHAI & Railways fast tracking their tenders. It is natural and shows some strength of their disciplined bidding and they do not do HAM projects, only EPC. Their capacity is currently able to facilitate 2000 crores of revenue, but are growing organically, I expect them to close FY26 at 1500 crores and PAT of 120 Cr which makes its PE on current prices around 10 with a dividend payout of 40% which is a 4% dividend yeild!!! at current levels.

Orderbook is currently at 3600cr and management guidance is to close at 4000cr this FY, however, my estimate is that they will close at 5000cr. And this marks an inflection point as it did during 2023 and I see this happening again. They one of few co’s whose collection cycles remain so impressive after LnT and such like who trade at 30+ trailing PEs where as GPT is trading the opposite way.

Q2FY26 Reported flat revenues YoY, but disproportionate PAT growth with improved and efficient execution despite of a very bad monsoon which is also why their short term debt went up.

What is surprising is that the Co is now at its second inflection point.

The Co has begun EPC projects in Africa (Recent Ivory Coast Port Conveyor Belt EPC ~ 195cr project) which were largely untapped for all these years & there is good margin appreciation north of 18% against 13% in India at EBITDA level.
Concrete Sleeper Factories are also expected to function close to optimum levels of capacity in Africa and India adding about 15-20crs in PAT to FY26 consolidated.
Full PAT I estimate to be 125cr for FY26. Coupled with this, their Indian order book is at a cusp of transformation with the ability to bid now for projects up to 1600crs for the first time in history which has been long awaiting. Their capacity utilisation has been low, and will now not just reach optimum level but do about 900cr or more in revenues in Q3 and Q4 - btw this was their FY24 in full Revenue.

Their last fund raise was at Rs.175 a Share at 2000cr valuation August last year. The co is trading now at 100-115 range /1300-1400cr market cap when the numbers have improved dramatically!

I have personally added significantly averaging at 107 levels. The recent industry wide share price drop in infrastructure players is simply affecting the stock of GPT when the reality is very different.

A great opportunity.

[shivomrevankar]

@Malkd Many thanks for your response. Re promoter pledge, this was expected to drop to 35% by Q3 but moved to March end probably as the management have guided; this was mainly due to need for some additional borrowings and delay in execution & payments owing to heavy monsoon last Q. That said, I did raise these concerns before their QIP and also an year before that. The reason is being an efficient construction co - the pledges are only to utilise efficient working capital limits from the banks as against increasing their debt load.

Another key highlight I probably I have missed is that - the co is consciously growing at 20% Y-o-Y when their capacity and possibility to grow at is 40%.

Their reason for this is that growing too fast leads to all kinds of problems mainly for construction co’s the order book exhausting too fast means faster incremental need for incoming orders. For that, you may have to undercut your bid pricing or the chances of winning will be low.

A targeted 20% growth keeps you safe from all angles - super optimal bidding in this case GPT’s 13.5% EBITDA which allows them to maintain growth, reward shareholders / dividends, and at the same time improve co’s strategic pursuits. I am very impressed by this.

[shivomrevankar]

Every passing day continues to make our case stronger for GPT Infraprojects and their incremental order inflow has long been pending and will show results now. If lucky and the company does manage to win a 1000+ cr order, this changes the entire dynamic to push this co to the big game. Operating leverage through their exquisite backward integration capex so far will kick in coupled with African expansion as their concrete manufacturing also picking from this Q.

Which means - the current levels are extraordinary. The company is at an obvious inflection point.

How the market values it is up to extrinsic factors beyond our control. But I see revenue potential, cash conversion, debt reduction, and margin expansion / at least maintenance to prevail from now like never before.

My internal projection base case show net profits at 200cr by FY27 to mid FY28