SRM Contractors Limited - A niche Infra player

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-




SRM client 4

Strengths-

  1. Management has a proven track record of executing projects successfully in harsh and difficult terrains like in Himalayas of J&K, Himachal Pradesh.

  2. In past company has done joint ventures and sub-contracting with reputed player like HCC, Patel engineering Ltd, Gammon,etc.

  3. As government is pushing for infrastructure projects especially in border areas. This presents a huge opportunity for future revenue potential.

  4. They have a very healthy order book of 1288.39 Cr which is twice the Market cap of company as on July 2024.

  5. Company has won major projects from the likes of Border Road Organization, National Highways & Infrastructure Development Corporation Limited, Indian Railways, etc.

Weakness-

  1. 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.

  2. 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.

  3. 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.

  4. 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.

1 Like

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

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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.

2 Likes

Company Overview:

  • Name: SRM Contractors Limited (formerly SRM Contractors Pvt. Ltd.)
  • Industry: Infrastructure and construction, specializing in roads, bridges, tunnels, and slope stabilization.
  • Headquarters: Jammu, India.
  • Established: 2008.
  • Core Focus Areas: Road & bridge projects, tunnel construction, slope stabilization, hydroelectric projects, aerial ropeways, and civil infrastructure work for government and private sectors.

Key Services:

  1. Roads & Bridges: Construction and maintenance of roads, highways, bridges, including their widening, upgradation, and strengthening.
  2. Tunnel Projects: Designing and constructing tunnels, including avalanche protection tunnels.
  3. Slope Stabilization: Applying engineering techniques to stabilize unstable slopes.
  4. Other Civil Construction Activities: Housing, drainage, irrigation, flood control, and other infrastructure projects.

Key Competitive Advantages:

  • Proven Track Record: Successful execution of projects in difficult terrains such as Jammu & Kashmir, Ladakh, Uttarakhand, Himachal Pradesh, and Arunachal Pradesh.
  • Strong Equipment Fleet: Owns over 100 major pieces of construction machinery, reducing reliance on third-party suppliers.
  • Geographical Focus: Concentration on specific regions (Jammu & Kashmir, Ladakh, Uttarakhand) for better efficiency and profitability.
  • Experienced Leadership: Led by Dr. Sanjay Mehta (MD) with over 16 years of experience in the infrastructure sector.

Management Team:

  • Promoters:

    • Dr. Sanjay Mehta: Managing Director, with 16+ years in construction.
    • Ms. Ashley Mehta: Non-Executive Director with a background in Civil Engineering.
    • Mr. Puneet Pal Singh: Whole-time Director, focusing on construction activities.
  • Key Management:

    • Rupesh Kumar (CEO): 28 years of experience in large infrastructure projects.
    • Aashni Mahajan (CFO): Chartered Accountant with finance expertise.
    • Arun Mathur (Company Secretary): Experienced in corporate governance and compliance.

Financial Performance:

  • FY 2024 Highlights:

    • Revenue from Operations: INR 34,242.1 lakhs (YoY growth of 14.03%).
    • EBITDA: INR 4,162.4 lakhs (EBITDA Margin: 12.2%).
    • Profit Before Tax (PBT): INR 3,461.0 lakhs (PBT Margin: 10.1%).
    • Net Profit (PAT): INR 2,696.6 lakhs (PAT Margin: 7.9%).
    • Debt Reduction: Significant reduction in debt post-listing, with a Gross Debt-to-Equity Ratio of 0.16 as of Sep 2024.
  • Q2 FY25 Performance:

    • Revenue from Operations: INR 9,524.7 lakhs.
    • EBITDA: INR 1,518.0 lakhs (EBITDA Margin: 15.9%).
    • PAT: INR 1,034.6 lakhs (PAT Margin: 10.9%).
    • Earnings Per Share (EPS): INR 4.51.

Order Book and Projects:

  • Order Book (as of 30th September 2024): INR 1,668.31 crore.

    • Segment-wise: Roads & Bridges (48.56%), Tunnels (14.19%), Slope Stabilization (37.03%).
    • Geographical Distribution: Jammu & Kashmir (41.4%), Uttarakhand (21%), Himachal Pradesh (16%), Ladakh (10%), others.
  • Ongoing Projects:

    • Roads & Bridges: Akhnoor Poonch Pkg – VII (MoRTH).
    • Tunnels & Caverns: Hanle (BRO), Arunachal Pradesh (BRO).
    • Slope Stabilization & Others: RE Wall in Sumber, J&K.
  • Tender Pipeline: INR 2,743 crore.


Debt Profile and Credit Rating:

  • Long-Term Debt: Reduced from INR 2,573 lakhs in FY24 to INR 2,270 lakhs in H1 FY25.
  • Short-Term Debt: Decreased from INR 2,186 lakhs in FY24 to INR 1,428 lakhs in H1 FY25.
  • Credit Rating: Upgraded from CARE BBB to CARE BBB+ by CARE Edge Ratings (as of September 2024).

Investor Presentation

First - Published on 29/11/2024


Market Cap 773cr

Disclosure: Invested.

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

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