Highway construction was in the slow lane in FY24, with total awards of 8,581 km, as against a planned target of 13,290 km. The general elections, and issues in some areas related to escalated land acquisition costs, slowed down the segment.

But the segment is set for revival, with the Budget reiterating the infrastructure focus. The Minister for Road Transport & Highways recently stated that ₹3 trillion worth of projects would be awarded within the next three months and a total of ₹5 trillion allocation for FY24 is on course.

In this regard, a predominantly engineering, procurement and construction (EPC) player, Ceigall India, has come with its IPO that opened last Thursday and is on till August 5. The company also executes HAM (hybrid annuity model) projects.

Ceigall India’s IPO totals up to ₹1,252 crore, with ₹684 crore being a fresh issue and ₹568 crore coming as offer for sale.

A large, diversified order book with focus on EPC projects that face fewer uncertainties, a strong execution record and healthy financials are positives for the company.

At the upper end of the price band of ₹380-401, the offer asks for 22 times its FY24 per share earnings on a diluted basis. This valuation multiple is in line with or at a small premium to the likes of KNR Construction, HG Infra Engineering and J Kumar Infraprojects that trade at 20-23 times trailing earnings.

Investors can subscribe to the IPO of Ceigall India with a 2-3-year perspective and not with a view of any listing pop.

The company’s revenues grew sharply over the two-year period after FY22 at 63.6 per cent annually to ₹3,029.4 crore in FY24, while net profits surged at a CAGR of 55.3 per cent over the same period to ₹304.3 crore by FY24.

The company’s EBITDA margin of 17.1 per cent in FY24 is among the best in the industry, as is its return on equity of 33.6 per cent.

A large, diversified clientele

Ceigall India is a highways and road construction player with more than 20 years of experience. The company has executed more than 34 projects with 1,700 lane km completed and 2,150 lane km of O&M projects accomplished.

Some of its noteworthy road projects accomplished include Kartarpur Sahib, Delhi-Saharanpur PKG II, Ismailabad-Dhand PKG I and Ramban-Banihal PKG II.

It has projects pertaining to elevated roads, flyovers & bridges, rail overbridges, tunnels, highways and airport runways.

With projects completed or ongoing in 10 States, the company has a fairly wide footprint.

Ceigall India has a track record of executing its projects on or ahead of time. As an indication of its execution capabilities, the company received bonuses for completing the Khemkaran-Amritsar and Ismailabad-Dhand PKG I projects well ahead of time.

Punjab, Jammu & Kashmir, Haryana, Maharashtra, Uttar Pradesh, Bihar and Jharkhand are States where it has ongoing constructions. The firm has 13 EPC and five HAM projects currently under way. Its clients include NHAI, Ministry of Road Transport & Highways, IRCON International, Military Engineer Services, PWD Punjab and Bihar State Road Development Corporation.

For four of its five upcoming HAM projects, the company has already tied up the finances with banks. These projects are worth ₹621 crore to ₹1,656 crore.

Healthy order book and debt reduction

Ceigall India has an order book of ₹9,471 crore as of June 30, at 3.2 times its FY24 revenues, which is among the highest in the industry, and lends considerable revenue visibility.

Around 71.3 per cent of its FY24 revenue came from EPC projects, while 28.4 per cent came from HAM contracts, making for a sound revenue mix. The company’s book-to-bill ratio of 3.05 is, again, one of the best in the road construction segment.

Net working capital days have reduced from 12 days in FY22 to 8 days in FY24, much lower than peers.

Ceigall currently has a high debt-equity ratio of 1.3 in FY24. However, since ₹413.4 crore from the issue proceeds is set to be used for loan prepayment and repayment, the debt-equity ratio would come down to a more manageable 0.5 times.

Going by a NITI Aayog report on the National Infrastructure Pipeline, CareEdge Research estimates a 17.22 per cent annual growth in road sector investments over FY24-FY28 to ₹4,54,800 crore by FY28.

Players such as Ceigall India appear well-placed to take advantage of the opportunities that such a growth in road investments presents.

Related Topics