, despite having completed Diamond Bourse Surat project, which made them eligible for bid on larger projects. More than Adani buying it, why they sold it despite having two of his youngs supporting the business?
Definitely PSP had better valuation, than GPT. GPT’ valuation were attractive, and still attractive, operating parameters still good, that’ why I have been invested and have increased the investment in recent past (disclosure).
There is no question on integrity, given the balance sheet health and dividend distribution record. But anticipating challenges and objective evaluation of preparedness for the same, we will be able to have better allocation.
Agreed @Gupta Very well said. PSP did have some rough patch. I quite liked it to be honest, but like you, did not find it attractive enough for investment especially when there is uncertainty around growth. I am looking at Chavda and Capacite which I like better than PSP and will make a post shortly.
The budget presented on Sunday by Nirmala Sitaram did not contain any specific push for the infrastructure except for 7 railway corridors and a modest increase in CAPEX which was as guided in my budget overview from 11.2Lcr in 2025-26 to 12.2Lcr for 26-27.
That said, I am also particularly disappointed by the direction in which GPT Infra is now headed. Their Debt has seen a considerable uptick to about 150-160cr and will further go up and there are no signs of this coming down.
Key Risky Developments
Alcon Builders and Engineers Acquisition at 154cr
Their rationale for acquisition is to use their longstanding relationship with the Railways to pivot into the high margin business of Railway Signalling. Alcon has stagnated revenues of 100cr for the last 3 years and their acquisition cost is 154 cr with an excuse of 45cr cash on their balancesheet.
Management plans to double this revenue in 3 years which is seriously unimpressive for the cost they are paying. Given GPTs backing, if Alcon would let them bid for larger projects say 500cr+ and merge it with the company should have made sense.
How do they plan to fund it? They say Debt plus some accruals! and the cash on Alcon (45cr). I simply do not understand how this will work and believe will stretch their liquidity problem.
Alcon is a 22-25% EBITDA business and no debt and they claim a 20% PAT level for them but that is on revenues which won’t make much difference.
Debt Position, Working Capital Cycle, and Dividend.
Currently at 150-160cr
Plan to use 80cr debt / working capital limits for Alcon acquisition which will take the debt ~230cr.
I never expected GPT to venture into HAM but they did, which will also require another 35cr of equity commitment this year for their recent 669cr Jodhpur contract, again they will largely rely on debt.
With all that, their Q4 is expected to be heavy with management estimates of about 500cr-ish revenue - how will they fund it? Which will be 1400cr revenue about 15% growth you and PAT will likely stay flat because of increasing debt for that was the only driver after fundraise.
With all this, I expect a potential downgrading in Debt and a 250cr debt level in the coming quarters which means a potential 40+ cr interest expense every year.
They also are gradually cutting down on dividends with the upcoming dividend at 0.75rs for the first time in their history - now this is obvious as they won’t be able to continue cash distribution if they have to sustain the growth.
Larger Projects
GPT Infra became eligible to bid for 1500+cr projects after their last fund raise and they were constantly guiding to win a big project which should have been a potential game changer as that builds their profile for contesting in even larger projects.
This has never happened since 2023 in October when they won their single largest order of ~800cr.
This is strange and their claims to have evolved from a small player to a mature one is not playing out well for we are only observing a lot of JVs.
Now with JVs although bigger projects and shared risk, value distribution across various projects may be their thought, I am not sure though.
They have increased their orderbook guidance to 2500cr in this order from 2000cr. Yes, large orderbook, but how will it play out?
With increasing working capital requirements and invitations for more requirements of funds for various reasons as above, I have started to become a little worried about their path forward. Last year after the fundraise at a 2000cr+ valuation of 175crs they said that will bring their debt from 190cr to 50cr after a 125cr repayment and eventually either stay there or further reduce which was the reason for the company becoming more attractive and also enhanced ability to bid for larger projects. However, the debt immediately increased to 100cr in the subsequent quarter which I assumed was their capacity enhancement and was okay with it then, but I am not now as they have dishonoured their statement. They also advised that their pledge would come to zero by this year end but there is absolutely no movement there instead their limits are further stretched.
Unless there are any new fund raise plans or they announce a partnership with a financial partner to fund their project participation or even execution, I am beginning to revisit my optimism.
However, the company is clearly growing with increasing orderbook, and also their african operations picking up. Their capex led backward integration is also making them stronger with their operational leverage. How they really fund so many things is a challenge and something to watch, will be quite a feat if they manage to pull it off. However, we will see a similar monsoon this year, maybe even worse thanks to climate change and the festivals will remain with more labour traversing as their incomes increase.
I am now not sure if GPT deserves a stronger valuation for it is now at a fair valuation.
