Madhucon Projects - BUY - Pinc Equity Research

Pinc has initiated coverage with a 'buy' on Madhucon Projects Ltd for a target price.

Pinc has initiated coverage with a 'buy' on Madhucon Projects Ltd for a target price of Rs 93 in 18 months. At the CMP of Rs 56, stock is trading at P/E of 3.1 times and EV/EBIDT of 3.6 times its FY10 earnings estimates.

An impressive order book position, BOT projects across arterial roads of key national highways & strong earnings potential from the new ventures, especially mining offer predictability of revenues for 2-3 years.

Pinc believes the company's proven ability to execute critical projects, thus establishing enduring client relationship with repeat assignments would be vital in unlocking future opportunities.

Madhucon Projects is a Hyderabad-based EPC player having almost two decades of experience in executing large civil engineering projects. The company possesses a strong track record of successfully executing projects across state & national highways, bridges, flyovers, irrigation & industrial arena, townships & railways.

Endeavouring to emerge as a considerable player in the Indian infrastructure space, the company has taken multiple initiatives over the past few years. It has secured 4 road BOT projects from NHAI across prominent national highways which are presently under implementation.

Additionally, Madhucon Projects has ventured into the power sector in March '07, by acquiring 48 per cent stake in Simhapuri Energy Pvt Ltd, which is setting up a 540MW thermal power plant at Krishnapatnam in Andhra Pradesh.

Further, the company also forayed into mining space in FY07 post acquiring licenses for coal exploration & extraction across couple of strategic regions in Indonesia.

The company has exhibited continuous revenue growth from Rs 300 crore in FY04 to Rs 740 crore in FY08. A proven track record of implementing large projects in record time, has earned it appreciation & incentives from renowned clients time & again.

Pinc believes the company's well diversified order book of Rs 4740 crore (4.5x FY09E revenues) provides strong earnings visibility. Backed by state-of-the-art bank of equipments and strategic alliances with global construction giants, the brokerage expects the company to substantially ramp up its operational scale over the next couple of years.

The company's foray into diverse infrastructure segments clearly indicates a logical progression from being a mere EPC contractor to a fully integrated infrastructure developer.

Though these businesses are at very nascent stage, the brokerage strongly believes these new avenues indicate enough potential to take the company to a higher league. Further, presence of an in-house execution capability, spanning EPC work for mining, realty & power projects, should enable the company to capture the entire economic value chain.