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Dalal Street Investment Journal - - CONTENTS -


Ad­di­tion of new rev­enue line Ef­fec­tive gov­ern­ment poli­cies Healthy rev­enue and PAT growth due to new TOT model

MEP In­fra­struc­ture Devel­op­ers Ltd (MEP), founded in 2002 by its cur­rent pro­mot­ers Dat­ta­tray and Jayant Mhaiskar, com­menced its op­er­a­tions with toll col­lec­tion at five en­try points to Mum­bai for six years. Today, the Mum­bai-head­quar­tered com­pany has emerged as one of the lead­ing play­ers in the Hy­brid An­nu­ity Model (HAM), Op­er­ate, Main­tain, Trans­fer (OMT), Build, Op­er­ate, Trans­fer (BOT) and toll col­lec­tion space in In­dia.

The fu­ture of road in­fra­struc­ture in­dus­try looks bright with gov­ern­ment plan­ning to in­vest close to ₹ 25 tril­lion over the next three years in in­fra­struc­ture. The Na­tional High­ways Au­thor­ity of In­dia plans to add around 50,000 km road over the next five to six years.

Given the sig­nif­i­cant mar­ket share of MEP in the HAM space and the fact that NHAI is ex­pected to award 80 per cent road projects through the EPC or HAM routes, we can ex­pect at­trac­tive op­por­tu­ni­ties for MEP in this space in the com­ing years. Also, Toll, Op­er­ate, Trans­fer (TOT) projects pro­vide op­por­tu­nity as gov­ern­ment plans to in­vite bids for projects worth 55,00060,000 crore in near term.

FI­NAN­CIALS : In FY17, MEP'S 48.9 per cent of the rev­enues came from OMT projects, fol­lowed by 37.5 per cent from short-term toll col­lec­tion and 9.9 per cent from long-term toll col­lec­tion. Its EPC projects gen­er­ated 3.3 per cent rev­enue. MEP has posted 13 per cent

CAGR in rev­enue over FY14-17. In FY17, MEP’S rev­enues de­clined 9.2 per cent to 1729.07 crore from 1905.19 crore in FY16 due to the com­ple­tion of RIDCOR, Kini-ta­sawade project and hand­ing over of the Chen­nai and Madu­rai Kanyaku­mari projects to the au­thor­ity. Its EBIDTA also de­creased from 1606.49 crore to 1533.03 crore, due to a cor­re­spond­ing re­duc­tion in turnover and higher op­er­at­ing and main­te­nance costs. The com­pany re­ported a PAT of 108.93 crore im­prov­ing to 6.3 per cent in FY17 from -1.9 per cent in FY16 due to a re­duc­tion in fi­nance costs. Its fi­nance costs re­duced to 493.1 crore in FY17 from 642.2 crore in FY16.

For Q1FY18, MEP’S con­sol­i­dated rev­enue came in at 380 crore, reg­is­ter­ing 17.6 per cent YOY de­cline. Its EBITDA for the quar­ter fell 48.4 per cent YOY to 181 crore with a cor­re­spond­ing mar­gin con­trac­tion of 2842 bps. The EBITDA mar­gin for the quar­ter stood at 47.7 per cent. The mar­gin con­trac­tion was mainly led by sharp jump in op­er­at­ing & main­te­nance ex­penses, up by 115 per cent YOY. The com­pany's PAT for the quar­ter came in at 13 crore with YOY de­cline of 61.4 per cent.

On the val­u­a­tion front, the share price of MEP In­fra­struc­ture Devel­op­ers Ltd is cur­rently trad­ing at PE ra­tio of 20.09x as com­pared to in­dus­try PE mul­ti­ple of 27.15x. The com­pany’s ROE and ROCE stood at 0.94 per cent and 1.45 per cent, re­spec­tively, in FY17.

We ex­pect new HAM or­ders to add new rev­enue line. Also, ef­fec­tive gov­ern­ment poli­cies and new TOT model will lead to healthy rev­enues and PAT growth in the com­ing years. We rec­om­mend our reader-in­vestor to BUY the stock.

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