Speedy growth

The recent past has seen two major developments at Gayatri Projects. First, the company bagged a Rs 2,200-crore road project on a build-operate-transfer (BOT) model, which gives it the highest revenue visibility among mid-sized construction companies. Its outstanding order book now stands at Rs 8,400 crore, almost eight times its 2008-09 revenue.

This should help sales grow about 25 per cent and net profit 35 per cent annually over the next two years. The second pertains to the stake sale in the power venture, which suggests there is a strong potential for value unlocking.

Gayatri Projects, a Hyderabad-based construction company with a pan-India presence, primarily operates in the irrigation and road projects space. Recently, it forayed into growing segments like urban infrastructure, water and industrial construction. Besides construction, which generates one-time revenue, the company is executing seven BoT projects which will provide consistent revenue flow in the form of toll and annuity in the long run. With five of these BOT projects expected to be operational by the end of 2010-11, revenues will get a boost in the current year as well as 2011-12.
 

SUM OF THE PARTS

Rs/share

Core constr8x FY12E EPS463.00 BOT projNPV37.80 Power proj0.5x P/BV50.00 Total value 550.00 Source: Analysts reports

Powerful gains
Its 100 per cent subsidiary, Gayatri Energy Ventures, is developing a 1,320-Mw coal-based power plant, for which it has acquired land and secured coal supplies. While the financial closure should happen soon, tie-ups for 70 per cent of the debt requirement are in place. On May 25, the company entered into an agreement with Singapore-based Sembcorp Utilities to sell 49 per cent stake in this project for Rs 1,042 crore. While analysts conservatively value Gayatri’s stake on the basis of its book value, they expect it to rise as the project nears completion.

Investment rationale
Gayatri Projects has been growing consistently, generating higher return on equity (of 21 per cent) and has a good dividend-paying record. At Rs 425.75, the stock is attractively priced at a price to earnings of 7.3 times its estimated 2010-11 earnings. The sum of the parts also suggests there is scope for good gains.