Era Infra Engineering Ltd

Initiating Coverage Industry Stock Metrics Infrastructure BSE Group S BSE Code 530323 Bloomberg Code ERIE IN Face Value 2 CMP 210.45 Target Price 278 Potential Upside 30% Market Data Market Cap(Rs. Crs) 3835 52 Week High/Low 243.30/195 Sensex 19643.93 Niftty 5888.55 Average Volume 129576 Shareholding Pattern Era Infra Engineering Ltd Era Infra Engineering Ltd is primarily engaged in construction activities of power projects, roads, railways and other infrastructure projects. It has completed projects across various sectors, which include power, highways, railways, airports, urban infrastructure, refineries, industrial complexes, commercial and office buildings and residential complexes. The company is strategically positioned across nine of the fastestgrowing verticals in infrastructure development---construction & Contracts, EPC, RMC, Equipment Management, Pre-engineered buildings, Real Estate, Hospitality & Entertainment. The Era Group comprises 5 dynamic companies - Era Infra Engineering Limited, Era Buildsys Limited, Era Landmarks Limited, Era Power (India) Private Limited and, Era E-Zone (India) Limited We initiate the coverage report on Era Infra Engineering Ltd. with a target of Rs. 278, upside of around 30%. We have evaluated using SOTP valuation method. We have evaluated the EPC-BOT division Using DCF valuation and rest business separately. Others 31% DII 7% FII 3% Research Analysts Divya Kant divya.kant@inventuregrowth.com Ph:+91-22-4075 1515 Ext:562 Anshuman Jain Promoter 59% anshuman.jain@inventuregrowth.com Ph:+91-22-4075 1515 Ext:562 Financials FY09 FY10 FY11E FY12E Net Sales 2350 3378 4054 5189 EBITDA 476 726 828 1045 PAT 203 279 304 364 P E Ratio 18.88 13.69 12.59 10.52 EPS 11.14 15.37 16.71 20.01 EV/EBIDTA 9.5 6.2 5.5 4.3 PBT (%) 10.9 11.8 10.7 10.3 PAT (%) 8.6 8.3 7.5 7.0 ROCE (%) 9.6 10.1 10.0 9.4 Debt/Equity 2.0 1.7 1.5 1.7 Dated January 11,2011

Investment Rationale Order book looks impressive Order Book Break Up 21% 51% 28% Infra Industrial Infra Power Source: Company, IGSL Company has an impressive order book of Rs. 1060Crore, which provide revenue visibility for next two years. Order book is mainly composed of Infra projects which contribute 30%, while social & Building projects, Industrial projects and Power projects contribute 30%, 17% and 23% respectively. Out of the total orders 88% order are from Public sector whereas, 12% orders are from Private sector. The major EPC road projects with the company are: Construction of four-lane Gwalior Bypass highway for a stretch of 42 km on NH-75 in Madhya Pradesh under North-South Corridor. Construction of eight-lane access controlled expressway in Andhra Pradesh. Construction of Delhi-Haryana Border of Rohtak Section of NH-10 from 29.70 km to 87 km including construction of Bahadurgarh and Rohtak Bypasses in Haryana. Diversified business segments Company has mainly three business divisions: 1. EPC Division 2. BOT & EPC Division 3. EMC Division EIEL s order book is well-diversified across verticals of infrastructure space like power, buildings, roads, Airports, etc, and has plans to venture into new business segments like hydro power plant, Multilevel car parking etc. EPC division contributes around 80% of the revenues of the company rest is through other divisions.

Client wise Order book break up Public 88% Source: Company, IGSL Private 12% Equipment manufacturing division is the key driver EIEL s equipment manufacturing division provides services for high end construction equipments for short term and long term. Company has four rental stores at Murthal (Delhi NCR), Kolkata, Mumbai and Hyderabad. Through these four stores company has been able to mark a pan India presence. Company is known for its reliable product line and timely delivery. The business commands high margins and has few large competitors. Construction and Infrastructure sector to report significant growth going forward Indian infrastructure contributes around 6% to the GDP. Government aims to raise contribution up to ~10% by FY14. The Planning Commission has projected that investment in infrastructure would almost double at US$ 1025 billion in the 12th Plan, compared to US$ 514 billion in the 11th Plan. Of the US$ 1,025 billion, 50 per cent is expected to come from private sector, whose investment has been 36 per cent in the 11th Plan. Government aims to convert 10000km of state roads into National highways. This project has been approved by the Empowered group of members. The estimated cost for the project is around US$ 3.3 billion which will be funded over the periods of 5 years. The planning commission is planning to setup multiple Infrastructure debt funds in order to finance part of the funding requirements. It is estimated that India will require $1 trillion over 12 th plan period to fund infrastructure development. In a recent move World Bank has approved $1.5 billion for rural roads in India. This loan has been approved through Pradhan mantri Gram Sadak Yojana (PMGSY) which aims towards improving rural accessibility of roads. This new project will concentrate mainly on states of Himachal Pradesh, Jharkhand, Meghalaya, Punjab, Rajasthan, Uttarakhand, and Uttar Pradesh There are ample opportunities going ahead a lot will depend on execution. It is expected that with timely execution process company willable to generate inflow of funds which will help company improve its margins. Company s order book has 88% exposure to public sector projects and remaining is with private sector. Company has strong client base which includes BHEL, NTPC, DMRC, SAIL etc.

Details Road s Hyderabad Ring road Annuity-EPC Cost 390 Grant 60 Amount 330 Debt 212 Equity 178 Concession Pd. 15 1. Hyderabad Ring Road is annuity based, with concession period of 15 years. The total cost of the project is around Rs. 390Cr of which Rs. 60Cr is the grant. (Debt is around 212Crs + 118Crs Equity). COD is expected to be FY 11. Company will receive 25 semi- annual annuities of Rs. 30.9Cr over the entire concession period. Gwalior Bypass Road Annuity-EPC Cost (Rs. Cr.) 330 Debt (Rs. Cr.) 241 Equity (Rs. Cr.) 89 Concession Pd. 20 West Haryana Annuity-EPC Cost (Rs. Cr.) 586 Debt (Rs. Cr.) 410 sub Debt (Rs. Cr.) 30 Equity (Rs. Cr.) 146 Concession Pd. 25 2. Gwalior Bypass Ltd is annuity based, with concession period of 20 years. The total cost of the project is around Rs. 330Cr. (Debt is around 240Cr + 92Cr Equity). COD is expected to be in FY11. Co will receive semiannual annuity over the concession period for Rs. 26.53Cr. 3. West Haryana is Toll based, with concession period of 25 years. The total cost of the project is 586Cr (with a debt of Rs.410Cr+Rs.146Cr Equity+Rs.30Cr sub-debt). This project is for a concession period of 25 years period.

Dehradun highway proj Annuity-BOT Cost 735 Debt 463 Equity 272 Concession Pd. 20 4. Hardwar-Dehra Dun The second project is to widen (2 to 4 lanes) Hardwar- Dehra Dun stretch (39 km; total cost of Rs 735 crore; 20- year concession period including for construction). It will be implemented on a BOT-annuity basis, which means that the toll revenues will accrue to NHAI and Era will receive annuity payments from NHAI. The debt has been arranged at an interest rate of 10% p.a. Bareily Highway project BOT Toll Based Cost (Rs. Cr.) 1723 Debt (Rs. Cr.) 1206 Equity (Rs. Cr.) 517 Concession Pd. 25 Mnagar- Hway- BOT Toll Based Cost (Rs. Cr.) 1125 Debt (Rs. Cr.) 709 Equity (Rs. Cr.) 416 Concession Pd. 25 5. Bareilly highway project Era also won a project to widen Sitapur-Bareilly stretch (151.2 km, Rs 1,723 crore, 20-year concession period including 30 months for construction) on BOT (toll basis). The estimated cost for the project is Rs.1952Cr. 6. Muzaffarnagar-Hardwar highway project The project is to widen (from 4 to 6 lanes) Muzaffarnagar- Hardwar highway on a BOT-toll basis (80-km stretch, with three Greenfield bypasses; total estimated cost for the project is Rs 1,125 crore. The project is being constructed with 25-year concession period including 30 months of construction period. The other projects in company s portfolio are from different sectors including railways, metro rail, power and social Infrastructure. The projects are spread across India. Power projects include projects from NTPC, BHEL, and Lanco Infratech Ltd.

Margins to be maintained Company s revenue has reported tremendous growth in last few years. Revenue has grown at CAGR of %. There has been tremendous increase in the order inflow. Currently order book has EPC orders from various companies and sectors. Important projects like Muzaffarnagar Dehradun Highway; Dehradun Haridwar Highway and Bareilly Highway project etc. A key factor for company s growth has been timely execution of the project. As per the management the Capital expenditure is expected in FY11 and FY12 to be around Rs. 250 Crore. EIEL s equipment manufacturing division provides services for high end construction equipments for short term and long term. Company has four rental stores at Murthal (Delhi NCR), Kolkata, Mumbai and Hyderabad. Through these four stores company has been able to mark a pan India presence. Risk and Concerns Although economy has picked up after recession but any unexpected change in economic environment could adversely affect the business. The major risk for the company is to complete projects on time as fund inflow depends on these projects. Increased competition in engineering and construction may put pressure on business activities. EIEL is heavily dependent on the EPC projects. Any delay arising from external factors could affect the division s growth trajectory, going forward. s and are dependent on several factors such requisite licenses, approvals, permit, natural disasters, labor disputes and adverse weather conditions. The company may be unable to complete the projects in time. This, in turn, will escalate the cost of the projects. Apart from this company is also constructing power plants for various companies including NTPC, BHEL and LITL.

Valuation: s Hyderabad Ring Road Gwalior By pass Road Con. Pd. Contr. BOT- Annuity 25 4 BOT- Annuity 20 2.6 West Haryana Road BOT-Toll 25 16.91 Mngar- Highway- Road BOT-Toll 25 22 Hard- Ddun- Road BOT- Annuity 20 12.96 Bareilly- Highway-Road BOT-Toll 20 19.7 Total Contribution 78 Company s main source of revenue is standalone EPC business along with its equipment manufacturing divisions. This segment combined together contributes major chunk of revenue. Company has six BOT ROAD of which three BOT Road projects mainly: Hyderabad Ring Road, Gwalior Bypass and West Haryana Highway road are expected to be accomplished in FY12. We have evaluated company on SOTP basis, with EPC and EMC business together and the BOT Road s separately using DCF valuation. Company s six BOT road projects contribute around Rs 78/-. The standalone (EPC & EMC) business is trailing with an earnings of Rs. 20 with an assigned PE multiple of 10. We initiate our coverage report on ERA Infra Engineering Ltd. with a price target of Rs. 278/-. In comparison to Sensex, Era infra has outperformed the Sensex in recent market scenario. The stock is expected to continue its run in future also. Index Comparison

Financials 10 Years at a Glance Particulars FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sales ( Rs. Cr) 61.14 91.63 101.41 109.47 156.24 310.84 763.02 1464.48 2376.9 3415.47 Year end Mkt Cap 1.74 0 1.39 16.67 50.76 547.97 589.47 1371.91 1002.7 3998.63 Year end P/E 0.79 0 0.59 5.89 9.48 20.58 7.51 11.38 4.97 14.37 Year end EPS 5.07 4.03 5.39 6.52 8.21 14.31 42.17 52.2 14.05 15.53 EBIDT/Sales % 9.52 8.7 7.59 8.45 9.77 16.32 20.17 22.39 20.02 21.25 Sales / Total Assets 1.69 2.6 2.88 2.58 2.25 0.94 0.68 0.75 0.89 0.87 EBIDT/ Total Assets% 0.16 0.23 0.22 0.22 0.22 0.15 0.14 0.17 0.18 0.18 PAT/EBIDT % 37.8 21.96 30.39 31.24 35.65 53.53 51.42 37.02 42.58 38.5 Net Assets/ Net Worth 1.58 1.78 1.59 1.73 2.14 1.37 3.67 3.97 3.04 2.7 ROE% 10.15 8.2 11.17 10.93 19.11 19.92 29.03 30.55 25.78 23.92 Other income 0.46 0.44 0.4 0.87 1.23 2.07 13.3 34.8 66.96 73.28 Change in stocks 0.14 0.82-0.25 0.54 2.1 0.56 8.66 33.24 156.27 115.9 PBDIT 5.82 7.97 7.7 9.25 15.26 50.72 153.88 327.89 475.84 725.78 PBDT 3.98 4.72 5 6.08 9.58 40.78 118.87 229.84 303.01 469.36 PBT 2.65 3.17 3.31 4.25 7.42 37.31 111.4 209.72 257.07 397.85 PAT 2.2 1.75 2.34 2.89 5.44 27.15 79.12 121.37 202.61 279.41 Long term debt / equity 0.28 0.41 0.39 0.33 0.47 0.15 1.28 2.05 1.41 1.08 Total debt / equity 0.45 0.68 0.69 0.67 0.97 0.46 1.66 2.85 2.37 1.83 Current ratio 1.29 1.16 1.07 1.1 1.16 1.8 2.45 1.82 1.42 1.55 4000 Performance Chart 3000 2000 1000 0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sales ( Rs. Cr) PAT

Profit & Loss Statement Balance Sheet Statement Particular FY09 FY10 FY11E FY12E Net Sales 2350 3378 4054 5189 Other Income 67 73 70 75 Total Income 2573 3568 4124 5264 Total Expenditure 2097 2842 3297 4220 EBITDA 476 726 828 1045 EBITDA % 20 21 20 20 Interest 173 256 308 400 Gross Profit/ PBDT 303 469 520 645 PBDT % 13 14 13 12 Depreciation 46 72 86 112 Profit Before Tax 257 398 434 533 PBT % 11 12 11 10 Total Tax 54 118 130 169 Reported Net Profit 203 279 304 364 PAT % 9 8.3 7.5 7.0 EPS 11 15 16.71 20 PE Ratio 19 14 12.6 10 Balance Sheet Statement FY09 FY10 FY11E FY12E Share Capital 28.71 35.83 36.36 36.36 Reserves Total 850 1421 1725 2093 Total Shareholders Funds 879 1457 1762 2130 Secured Loans 1264 2107 2250 3070 Unsecured Loans 532 375 338 450 Total Debt 1796 2482 2588 3520 Total Liabilities 2675 3939 4350 5650 Gross Block 1177 1527 1770 2050 Less : Accumulated Depreciation 80 147 230 290 Net Block 1098 1380 1540 1760 Capital Work in Progress 103 99 30 30 Investments 176 285 400 600 Total Current Assets 1939 2888 3150 4110 Total Current Liabilities 550 554 600 700 Net Current Assets 1389 2334 2550 3410 Net Deferred Tax -91-158 -170-150 Total Assets 2675 3939 4350 5650 Cash Flow Statement Cash Flow Summary FY09 FY10 FY11E FY12E Cash and Cash Equivalents at Beginning of the year 426 179 466 588 Net Cash from Operating Activities -173-92 -78-86 Net Cash Used in Investing Activities -396-463 -520-570 Net Cash Used in Financing Activities 322 842 720 680 Net Inc/(Dec) in Cash and Cash Equivalent -247 287 122 24 Cash and Cash Equivalents at End of the year 179 466 588 612

PEER Analysis CO. NAME (FY10) Era Infra Engg. Gammon Infra. IVRCL Infra. J Kumar Infra Net Sales (Rs. Crore) 3378 118 5492 764 PAT (Rs. Crore) 279 14 211 70 Debt-Equity Ratio 1.83 0.00 0.82 0.23 EPS 15.0 0.19 7.78 24.75 ROCE (%) 10.1 3.39 12.05 42.98 EV/EBIDTA 6.2 75.88 9.85 3.99 Price Earning (P/E) 13.69 130.79 21.26 8.12 Comparisons Between PAT & Net Sales 6000 4000 2000 0 Era Infra Engg. Gammon Infra. IVRCL Infra. J Kumar Infra Net Sales PAT

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