SRM Contractors Limited - A niche Infra player

Snowman · July 30, 2024, 10:28am

About Company-
SRM Contractors Limited incorporated in 2008, is into EPC ( Engineering, Procurement, and Construction), PBMC ( Performance Based Maintenance Contract) and sub-contracting assignments. Company majorly operates in Jammu & Kashmir region but recently diversifying into other states like Gujarat, Himachal Pradesh, etc. Company has expertise in constructing roads, tunnels and slope stabilization projects in very difficult terrain. Company has also done joint venture and sub contracting with major EPC players like ECC, Patel Engineering Ltd, Gammon, etc.

Completed & Ongoing Projects-

Reasi slope stabilization project (Completed)

T5 tunnel in J&K (Completed)

Chenani Sudhmahadev Road (Completed)

Tutan Di Khui Road (On-going)

Some other on-going projects are

Multiple road realignment project awarded by Border Road Onganization under project Vijayak in 2023 of value 205.68 Cr.
Bridge construction project awarded by Border Road Onganization in 2023 of value 202.3 Cr.
EPC project for upgradation and strengthening of Nashri-Chenani section awarded by National Highway Authority of India on 15 July 2024 of value 278.48 Cr.
EPC project for construction of slope stabilization and protection of Parwanoo-Solan section NH-55 awarded by NHAI on 22 July 2024 of value 118.53 Cr.
PBMC project for strengthening and maintenance of Jetpur-Somnath section excluding Junagarh Bypass (103Kms) in the state of Gujarat awarded by NHAI on 29 July 2024 of value 171.24 Cr.

As on 31 January 2024 according to their RHP, the order book of company stands at 720.14 Cr. And recently company has been awarded 3 new projects by NHAI whose combined value is 568.25 Cr. Therefore, total order book stands at 1288.39 Cr.

IPO-
SRM Contractors in March of 2024, have brought mainboard IPO to raise 130.2 Cr. Purpose of raising money from market are

31.5 Cr to fund capital expenditure.
10 Cr to fully or partly prepayment of outstanding secured debt.
46 Cr to fund working capital requirement.
12 Cr for investment in joint venture projects.
Rest amount for general corporate purposes.

Financial Health-

SRM contractors ltd have shown healthy revenue growth from 160 Cr to 340 Cr within the span of 3 years, i.e, at the CAGR of 28.8%. Similarly in same time frame, profits have grown from 8 Cr to 27 Cr at 50% CAGR. Operating margin have remained stable within 10-13% range. Historically, company has shown 5-6% PAT margin. But in FY24, PAT margin has jumped to 12% due other income component.

Company’s debt is very sustainable. Recently, company has raised money through IPO and proceeds are going to be used in prepayment of some debt. As of FY24 debt to equity ratio stands at 0.37. ROE and ROCE both are at 28%. Company’s debtor day and cash conversion cycle are 33 and 27 respectively.

For technical analysis I have used vstop and ADX in weekly time frame which can be viewed by clicking given like - #SRM_Contractors All time high breakout for NSE:SRM by TINTIN2718 — TradingView India

Clientele-

Strengths-

Management has a proven track record of executing projects successfully in harsh and difficult terrains like in Himalayas of J&K, Himachal Pradesh.
In past company has done joint ventures and sub-contracting with reputed player like HCC, Patel engineering Ltd, Gammon,etc.
As government is pushing for infrastructure projects especially in border areas. This presents a huge opportunity for future revenue potential.
They have a very healthy order book of 1288.39 Cr which is twice the Market cap of company as on July 2024.
Company has won major projects from the likes of Border Road Organization, National Highways & Infrastructure Development Corporation Limited, Indian Railways, etc.

Weakness-

This type of business requires very high capital expenditure. Various types of equipment and vehicles are required to complete projects on time like drill machines, compactors, excavator, trucks, etc.
Projects are awarded to the company by bidding process, which is very competitive in nature. If company is not able win new tenders, it can be detrimental for future revenue.
Company is highly dependent on government policy of capital expenditure on road, tunnels, bridges, rail tracks, etc. If government changes its policy in future then revenue can get impacted in a negative way.
Highly concentrated in a single geography i.e, Jammu & Kashmir. Though company is trying to expand to other states like Gujarat. Still it’s majority of the projects are from Jammu & Kashmir state.

Disc- Already Invested and not a buy or sell recommendation.

anjeshv4 · July 30, 2024, 3:14pm

This is a big risk IMO. All the road projects in J&K hilly areas have a bad history of delays and cost overruns. Earlier also, projects here have taken a huge toll on financial health of the EPC contractors like Gammon, HCC and Afcons (SP Group). The Chenani Banihal section of the National Highway has been under construction for 15 years now. It was originally stated for completing in 2015 as far as I recall. The company needs to diversify into easier projects in the plains.

PS: I belong to the area

Snowman · July 30, 2024, 4:41pm

Yes earlier projects have been stalled. But recently government’s push for infra in border areas due to hostile neighbours have seen completion of projects in break neck speed. You can also refer to there RHP in page 196 where they have clearly mentioned all the on-going projects as well as, at what stage each projects are. Most of the projects have been completed by the company on time.

Plus geography is an advantage for the company as most of the revenue comes from maintenance and upgradation of road and slope stabilization projects. And in hilly area due to landslide, snowfall, etc. Requirement of constant maintenance and upgradation of existing infrastructures is higher than in plains.

Snowman · February 4, 2025, 9:04am

Update -
SRM is looking into inorganic growth by acquiring 51% stake in Maccaferri Infrastructure Private Limited (MIPL). MIPL is an Indian company and a wholly-owned subsidiary of Officine Maccaferri S.p.A., Milan, Italy.

SRM is going to pay 76cr for 51% stake which will be paid in 4 tranches starting from January 2025. The entire acquisition will be completed by June 2026. SRM has also mentioned of using Internal Accruals to fund acquisition of MIPL.

Document Link - https://www.bseindia.com/xml-data/corpfiling/AttachHis/efffd6e6-4c02-4dfc-8007-61f3f58e303b.pdf

Moonrise · February 11, 2025, 11:54pm

Solid results.

Order book up some 400%

YoY revenue - 150 cr Vs 86 cr
YoY PBT - 21 cr Vs 5 cr
YoY PAT - 16 cr Vs 4 cr
YoY EPS - 6.97 vs 2.30

QoQ revenue - 150 cr Vs 9.5 cr
QoQ PBT - 21 cr Vs 13 cr
QoQ PAT - 16 cr Vs 10 cr
QoQ EPS - 6.97 vs 4.50

Snowman · May 20, 2025, 10:45am

Company has published its result for Q4

Quarterly Results (CONSOLIDATED) -
YoY Sales - 234.27 vs 107.73 cr (up 117.46%)
YoY PAT - 24.08 vs 6.17 cr (up 290.28%)
YoY EBIDTA%- 17.35 vs 11.68 %
YoY NPM - 10.27 vs 5.72 %

Year Ended (CONSOLIDATED)-
Sales - 542.05 vs 350.02 cr (up 54.86%)
PAT - 55 vs 26.97 cr (up 103.93%)
EBIDTA% - 17.59 vs 14.06 %
NPM - 10.15 vs 7.7 %

Link - https://nsearchives.nseindia.com/corporate/SRMCONTRACT_20052025145647_Financial_final_outcome.pdf

ishanpat · May 23, 2025, 2:16pm

Q4 FY25 performance: Significant growth in profitability, robust order book of ₹1,460.57 crore.(sept order book stands around 1600cr)
Tenders in pipeline: Approximately ₹5,252 crore, including ₹1,636 crore under Hybrid Annuity Model (HAM) projects.

arnabdeb83 · May 24, 2025, 4:26am

Fantastic analysis. However few queries come to my mind
What are the inherent capabilities that gives advantage to SRM apart from their track record. Is it the equipment, people, customer relationship. It could be cost effectiveness and adherence to timelines which are the most important KPIs of a project.
Also is there any competition in this niche space. Pardon my limited knowledge in this sector

ishanpat · May 24, 2025, 4:32am

i will be very honest to you in a infra company there is no specific moat,i mean u can get sklled engineers and equipments if you have the capital,so it is more about track record and offering service at a good rate so u can get more orders in ur order book and also maintain your margin while doing so, the company in this case boasts about having their own equipment fleet and maintains it and buys raw materials in bulk at a good price which benefits the operation backed by skilled worker teams.

abhishek_singh11 · May 24, 2025, 7:52am

Fantastic results in Q4 2024.

Snowman · May 24, 2025, 2:11pm

There is selling pressure in the stock price even after extraordinary Q4 results simply due to degrowth in order book from 1668cr to 1461cr.

Which is roughly 14% down from sept orderbook. If the company order book keep declining in future. Then the current revenue and PAT growth rate will not be sustainable. May even see a decline both in revenue and PAT.

Or if in future they manage to win more orders, surpassing 1668cr sept order book, the share price can see a rebound and might make new all time highs. For comparison this scenario is very similar to what happened with Data Patterns few quarters earlier. Decline in order book for few quarters which resulted in sharp decline in stock price of Data patterns and now in rebound when order book is growing.

At this point its a 50/50 scenario for SRM. Need to keep track of order book growth to determine whether Q4 growth is sustainable or not.

Ramamanohar · June 1, 2025, 11:01am

Thank you for the post. There is a 91 cr loan advance mentioned in the balance sheet. ANy idea what is this about. Is it RPT or are they deviating from their core business?

ishanpat · June 1, 2025, 4:32pm

please do attach the source here i think im dumb as im unable to figure out 91 cr loan advances lol, about deviating from core business the company is holding a meeting with managing director of poddar diamonds with its equity research team, as far as i know poddar diamonds is into diamond trading and stuff, so idk they will probably update if they have some other plans

Ramamanohar · June 2, 2025, 4:43am

Yes i should have attached the screenshot.

Looks like it was a technical glitch in screener. Till yesterday it was showing under Loans advances under CFO.

Now its been showing under proceed from shares under Cash from Finance Activity.

Apologies for the confusion.

ishanpat · June 2, 2025, 4:50am

well they do have 91 crore from proceeds from shares, but they purchased around 45 cr of fixed assets and they are also increasing inventory, nothing big sus until now except 2 problems i.e cahs flow from operations vs pat is not good and that diamond trader meeting

Snowman · June 2, 2025, 5:39am

I don’t think Poddar diamond pvt meeting with SRM management is a problem. It is very common in India and everywhere else, that family run business owners HNI or Ultra HNI after making wealth from their own business also invest their wealth in others business.

Earlier, many of these HNI or Ultra HNI used to invest through Venture Capital. But now most HNI have their research analyst team which shortlist all stocks for investing. And instead of going through VC they directly meet with the company’s management in which they are interested to invest.

There is a podcast which discussed this topic in one of their video

Mohit_baid · June 2, 2025, 6:00am

What revenue are we expecting in FY26 ? as per my brief glance on a conservative side it should be around 750 Crores, is the number right or am I missing out on something ?

SITARA · June 28, 2025, 10:43am