GR Infra - Delay In Appointed Date To Impact Revenue Growth: Axis Securities

Axis Securities Report

With a robust bidding pipeline in engineering, procurement and construction and hybrid annuity model projects from National Hightway Authority of India along with railways, ropeway, and transmission and distribution projects, we believe GR Infraprojects Ltd. is well-positioned to take advantage of growth opportunities in this sector.

However,delays in appointed date in existing projects and new order inflow remains a key concern. The stock is currently trading at 16 times and 15 times FY24/FY25 earnings per share.

We value the company at 10.5 times FY25E EPS and HAM assets at one time book value and maintain our 'Hold' rating on the stock with a target price of Rs 1,210/share, implying a downside of 0% from the current market price.

Risks and Mitigation

• Project execution risk: This is the risk that the company faces while executing projects, which could affect operational efficiency and result in delays.

• Mitigation: The company has an experienced management team, project management systems and a well defined project execution plan to mitigate this risk.

• Geographical risk: The company is operating in multiple states and is exposed to risks on account of different site conditions, labour requirements, and related regulatory compliances

• Mitigation: The company has mitigation strategies in place that perform a detailed risk assessment of each site. It has robust manpower planning, site mobilisation and de-mobilisation standard operating procedures, and a compliance checklist to mitigate such risks.

• Disruption of operations risk: This risk could occur due to various factors such as supply chain disruption, dependency on sub-contractors, and unavailability of plant and equipment.

• Mitigation: The company has adopted a backward integration model to ensure the availability of plant and equipment and key materials, modern technologies, best-in-classsupplier assessment, contracting and performance evaluation procedures to minimise disruptions in the supply chain.

• Regulatory risk: The infrastructure sector is highly regulated and changes in existing rules and regulations can impact the company's operations.

• Mitigation: To mitigate this risk, the company has a strong regulatory and compliance team that keeps track of changes in regulations and ensures that the company complies with them.

• Counterparty or fraud risk: The company is exposed to counterparty risk, which occurs when a party fails to fulfil its contractual obligations.

• Mitigation: To mitigate this risk, the company conducts due diligence on its partners and suppliers. It also has a robust contract management system in place and it assesses the fraud risks to identify loopholes. The company has put in place several rules, SOPs, controls relating to IT systems and a code of conduct, among other measures, to address these risks. Additionally, the company has internal auditing procedures for various processes and IT systems that are designed to deal with these risks.

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