Megha Engg — From a fab unit to infra major

Megha Engineering and Infrastructure Limited (MEIL) was a littleknown infrastructure company before March 15, 2024. But on that day, as the State Bank of India released list of electoral bond (EB) donors, MEIL was propelled into the public eye. The company, it emerged, was the secondhighest EB purchaser between 2019 and 2023 at ₹966 crore and was the top donor to the BJP (₹584 crore) and the BRS (₹195 crore), and the No 2 donor for the DMK (₹85 crore) and the YSR Congress (₹37 crore).

But what does Megha Engineering do? How do its financials look?

Starting as a small fabrication unit in 1989, MEIL is now a toprung infrastructure company with over 40,000 employees with operations spanning 20 countries. Per the 2023 Burgundy Private Hurun India rankings, MEIL is the thirdmost valuable unlisted company with a valuation of ₹67,500 crore. Originally promoted by PP Reddy, it is now led by his nephew PV Krishna Reddy.

MOVE TO BIG LEAGUE

MEIL got a boost in 2004 as the YS Rajashekar Reddy government launched the JalaYagnam Scheme comprising irrigation projects across undivided Andhra Pradesh. The scheme involved projects to lift flood waters of the Krishna and the Godavari and provide irrigation to arid areas. Per media reports then, MEIL got 28 projects valued at ₹36,916 crore as part of JalaYagnam.

Maintaining good relationships with successive governments in AP and Telangana, MEIL bagged marquee projects such as Kaleshwaram in Telangana and Polavaram in Andhra Pradesh. In 2020, MEIL got national attention bagging the order to construct the Zojila tunnel in Jammu and Kashmir. The company’s name echoed in the halls of Parliament in 2022 as

Roads Minister Nitin Gadkari lauded the costefficient implementation of this project by MEIL.

More big project wins followed including the ThaneBorivali tunnel project in Maharashtra (where it beat rival L&T), bullet train station at the Bandra Kurla Complex, and TuticorinNagai Thermal Power Plant in Tamil Nadu. The value of these contracts could not be ascertained by businessline. Per a January 2024 note by Crisil, MEIL had an order book of ₹1.87lakh crore as on September 31, 2023. Publiclylisted major Larsen & Toubro had an order book of ₹4.5lakh crore as of September 2023.

LOW DEBT, HIGH CASH

MEIL’s financials make it an outlier in the infrastructure sector. Even as it accelerated project wins and capex in the last three years, MEIL has a sound profitability and low leverage. The company recorded a revenue of ₹31,776 crore in FY23 on a consolidated basis growing 10 per cent yearonyear (yoy) backed by strong order book. With profit after tax (PAT) of ₹2,797 crore for FY23, the PAT margins are a healthy 8.8 per cent. Growth in profit has been steady, barring the blip in FY20, when profit declined 38.5 per cent. The credit freeze to infra companies following the IL&FS crisis that year could have impacted MEIL.

MEIL’s balancesheet appears especially robust. With sufficient cash being generated by operations, the company is not turning to debt much. MEIL’s longterm debt stood at ₹5,979 crore as on March 31, 2023. The debtequity ratio of 0.71 as of FY23, and 0.69 as of FY22 is lower than the average gearing levels in the sector. For a perspective, L&T reported a debtequity ratio of 1.14 with debt of ₹118,600 crore as of March 2023. Low leverage has also resulted in robust interest coverage ratio for MEIL at around 7.4 as of March 31, 2023; this was even better at 13 in the previous fiscal.

DATA

OTHER INTERESTS

The company has also diversified into hydrocarbons, gas distribution, electric vehicles and other sectors, floating subsidiaries for these business lines. Among MEIL’s subsidiaries is Western UP Power Transmission Co, where it owns 73 per cent. Interestingly, Western UP Power separately donated ₹220 crore via EBs across parties. Further, electric busmaker Olectra Greentech — which has won orders from transport corporations of Telangana, Karnataka, Mumbai and others — is a listed subsidiary of MEIL.

Analysts highlight MEIL’s push into unrelated businesses and corporate governance measures as a risk factor. “The investments and deposits in group companies as on March 31, 2023 was at ₹11,113 crore, that is, 50 per cent of the consolidated net worth... Any substantial increase in investments in group companies constraining the return metrics would be a key monitorable,” Crisil analysts wrote in a January 2024 note.