New Intermed Uptrend!!
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Valecha Engineering-Speeding up the Expressway
BSE 532389; CMP Rs 260; BUY
12 M price target: Rs 400
Upside: +73 per cent
The Rs 140 crore Mumbai based Valecha Engineering, is all set to enter the big league. This small cap construction company which has hitherto focussed on building roads and highways in the past, is now scaling up business operations to include Airport runways, flyovers, bridges, tunnels and pile foundation.
For the last segment, Valecha Engineering is one of three project contractors in the country other than Simplex and Punj Lloyd to own as many as 10 specialised drilling rigs which are required to execute force pilings that go into the setting up of massive underground power plants and hydel projects.
More importantly for new investors, Valecha Engineering fetches a market capitalisation of a mere Rs 103 crore, as against which the corporate holds nearly 11 lakh shares of Jyoti Structures worth Rs 30 crore on its book, and owns 100,000 square feet of real estate in Bombay conservatively valued at Rs 37 crore. Thus the Equity value of the corporate works out to just Rs 40 crore.
If this part alone did not convince you about the under-valuation of the stock, read on. The current order book with Valecha Engineering exceeds Rs 500 crore, which is about 3.5 times its last reported Revenues of Rs 145 crore for Financial 2005.
The business is being scaled up
Considering that in the first half to September 2005, VLCE reported revenues of Rs 61 crore and after tax profits of Rs 3 crore, the second half should see more business contracts being completed and the over-all business profile itself being scaled up.
Thus Financial 2006, should conclude with Revenues in excess of Rs 160 crore and after tax profits of Rs 10 crore. For the fiscal 2006, EPS should work out to Rs 22 crore, which gives VLCE stock a PE of just over 10 against the peer group that fetches a PE in excess of 25. So ideally speaking this scrip should quote closer to the Rs 400 mark over a period of time.
Funds are being infused in
VLCE would be issuing 20,48 900 convertible warrants on Preferential basis to Promoters and other investors of the face value of Rs 10/- each, convertible into Equity at a premium of Rs 189.55 aggregating to Rs 40,88,57,995. That apart, Equity Shares in the form of Global / American Depository Receipts upto Rs 60 crore with Green Shoe option to retain 10 per cent over and above Rs 60 crore will bring in,combined, nearly Rs 110 crore as cash in hand with the company.
The funds would be used to carry out large scale construction projects
The Rs 110 crore planned to be raised, as aforesaid would totally transform the scale and business profile of VLCE. Recent order wins of Rs 330 crore bagged by VLCE are the starting blocks.
These six highway projects include:
A. Road projects
1.Construction of the 4 / 6 lane access controlled Chittorgarh Bypass-Km. 159.0 of NH-79 to Km. 213.0 of NH-76 in the state of Rajasthan by the National Highways Authority of India, New Delhi with a contract value of Rs 133 crore and completion within a period of 24 months from ground zero.
2. Improvement, Raising & Strengthening of Dakha-Halwara-Rajkot-Barnala Road:Km. 50.60 to 75.60 in the state of Punjab by Public Works Department, Barnala, Punjab with a contract value of Rs 12.4 crore ,and completion within a period of 10 months.
3. Rehabilitation and Strengthening of Sagar-Rehli SH-37:VLCE has turned out to be the lowest bidder for the SH37 project Road No. 12-Length 42.2 Km in the state of Madhya Pradesh, awarded by the Madhya Pradesh Road Development Corporation Ltd, Bhopal, with a tentative contract value of Rs 24 crore and completion period of 24 months.
4. Construction of Balance Work of Six Laning in the State of Haryana:this is the Km. 44 to 66 Km stretch on the NH-1 (Civil Contract Package No. NS-27/HR-Bal) in the 'State of Haryana" by National Highways Authority of India, New Delhi with a contract value of Rs 75 crore and completion period of 18 months.
5. Construction of Katni Pawai Amanganj and Panna Ajaygarh Road Project: This 99.73 Km road project has been awarded by the Madhya Pradesh Road Development Corporation Ltd, Bhopal with a contract value of Rs 50 crore and a completion period of 24 months.
6. Construction of Lukwasa Isagarh Chanderi Road Project: This 73.41 Km road project comes under the aegis of Madhya Pradesh Road Development Corporation Ltd, Bhopal with a contract value of Rs 35 crore and a completion period of 24 months.
B. Flyovers and Underpass Projects worth Rs 75.6 crore
1. Construction of Flyover at Suman Nagar, Mumbai, between the Eastern Express Highway and V N Purav Marg at Suman Nagar Junction, Mumbai in the state of Maharashtra by Mumbai Metropolitan Region Development Authority at the contract value of Rs 16.07 crore and a completion period of 12 months.
2. Construction of Flyover at Phagwara, Punjab at the Phagwara Junction on NH-1 (Ludhiana - Jalandhar section) at Phagwara in the state of Punjab under National Highways Authority of India, New Delhi, at the tentative contract value of Rs 16.07 crore with a completion period of 12 months.
3. Construction of Flyover at Rao Tularam Junction in the vicinity of Palam Airport, New Delhiwith a contract price Rs 24.5 crore with a completion period of 15 months.
4. Construction of Underpass on the Ring Road-Road No. 37 intersection near Prem Bari Pul, Delhi (SH: Construction of Underpass and Surface level Roads)" in the city of Delhi by Delhi Tourism & Transportation Development Corporation Ltd, Delhi at the contract value of Rs 15.61 crore,with a completion period of 15 months.
The icing on the cake is the Chittorgarh Bypass
Initial project size was Rs 113 crore which has been scaled up recently. The project under implementation by NHAI is a dream project, which is an integral part of National Highway Development Project (Phase- 2).The project comprises of Construction of 4 Lane divided carriage-way partial access controlled highway by widening with rigid pavement for new carriage-way and strengthening of existing carriage-way with flexible pavement, centre median, service roads, open and covered drains footpath etc. along the existing / realignment portion of the Nation Highway. This 30 km project will feature, one major bridge, one Railway Over Bridge, One Flyover, 14 Underpasses, and one Toll plaza, to be executed within 24 months.
VLCE has taken up the project with sophisticated state-of-the-art equipment, such as concrete paving train of 8.5 mtr. width with DBI and TCM imported from USA, Cone crusher 200 TPH capacity, BL-pegson make, imported from UK and batch type Hot-Mix plant of 120 TPH capacity- imported from China and having vast experience of recently completed a identical project of Satara Kolhapur.
Maharashtra, the home state offers huge opportunity
VLCE is already executing Rs 64 crore worth of Pune Municipal Corporation sanctioned projects that are needed to to improve the infrastructure in the city, under the work of Integrated Road Development Project (IRDP). Under the IRDP programme, Pune Municipal Corporation will be taking up construction of Roads, and junction, development works, bus bays, footpaths, provisions for laying services and various cables, culverts, bridges, flyovers, tunnels, elevated roads, subways.
While Phase I comprised tenders worth Rs 87 crore, Phase-II, Pune Municipal Corporation tenders would spew out orders worth Rs 5000 crore .
This is the opportunity
In 2 years from now a Rs 145 crore organisation could very easily have become a Rs 500 crore outfit with a substantive increase in profitability. This when the Equity would have merely doubled up to Rs 10 crore after the already announced equity placements are undergone.
I think the current price of Rs 260 is a good entry point for this stock.
BUY.
BSE 532389; CMP Rs 260; BUY
12 M price target: Rs 400
Upside: +73 per cent
The Rs 140 crore Mumbai based Valecha Engineering, is all set to enter the big league. This small cap construction company which has hitherto focussed on building roads and highways in the past, is now scaling up business operations to include Airport runways, flyovers, bridges, tunnels and pile foundation.
For the last segment, Valecha Engineering is one of three project contractors in the country other than Simplex and Punj Lloyd to own as many as 10 specialised drilling rigs which are required to execute force pilings that go into the setting up of massive underground power plants and hydel projects.
More importantly for new investors, Valecha Engineering fetches a market capitalisation of a mere Rs 103 crore, as against which the corporate holds nearly 11 lakh shares of Jyoti Structures worth Rs 30 crore on its book, and owns 100,000 square feet of real estate in Bombay conservatively valued at Rs 37 crore. Thus the Equity value of the corporate works out to just Rs 40 crore.
If this part alone did not convince you about the under-valuation of the stock, read on. The current order book with Valecha Engineering exceeds Rs 500 crore, which is about 3.5 times its last reported Revenues of Rs 145 crore for Financial 2005.
The business is being scaled up
Considering that in the first half to September 2005, VLCE reported revenues of Rs 61 crore and after tax profits of Rs 3 crore, the second half should see more business contracts being completed and the over-all business profile itself being scaled up.
Thus Financial 2006, should conclude with Revenues in excess of Rs 160 crore and after tax profits of Rs 10 crore. For the fiscal 2006, EPS should work out to Rs 22 crore, which gives VLCE stock a PE of just over 10 against the peer group that fetches a PE in excess of 25. So ideally speaking this scrip should quote closer to the Rs 400 mark over a period of time.
Funds are being infused in
VLCE would be issuing 20,48 900 convertible warrants on Preferential basis to Promoters and other investors of the face value of Rs 10/- each, convertible into Equity at a premium of Rs 189.55 aggregating to Rs 40,88,57,995. That apart, Equity Shares in the form of Global / American Depository Receipts upto Rs 60 crore with Green Shoe option to retain 10 per cent over and above Rs 60 crore will bring in,combined, nearly Rs 110 crore as cash in hand with the company.
The funds would be used to carry out large scale construction projects
The Rs 110 crore planned to be raised, as aforesaid would totally transform the scale and business profile of VLCE. Recent order wins of Rs 330 crore bagged by VLCE are the starting blocks.
These six highway projects include:
A. Road projects
1.Construction of the 4 / 6 lane access controlled Chittorgarh Bypass-Km. 159.0 of NH-79 to Km. 213.0 of NH-76 in the state of Rajasthan by the National Highways Authority of India, New Delhi with a contract value of Rs 133 crore and completion within a period of 24 months from ground zero.
2. Improvement, Raising & Strengthening of Dakha-Halwara-Rajkot-Barnala Road:Km. 50.60 to 75.60 in the state of Punjab by Public Works Department, Barnala, Punjab with a contract value of Rs 12.4 crore ,and completion within a period of 10 months.
3. Rehabilitation and Strengthening of Sagar-Rehli SH-37:VLCE has turned out to be the lowest bidder for the SH37 project Road No. 12-Length 42.2 Km in the state of Madhya Pradesh, awarded by the Madhya Pradesh Road Development Corporation Ltd, Bhopal, with a tentative contract value of Rs 24 crore and completion period of 24 months.
4. Construction of Balance Work of Six Laning in the State of Haryana:this is the Km. 44 to 66 Km stretch on the NH-1 (Civil Contract Package No. NS-27/HR-Bal) in the 'State of Haryana" by National Highways Authority of India, New Delhi with a contract value of Rs 75 crore and completion period of 18 months.
5. Construction of Katni Pawai Amanganj and Panna Ajaygarh Road Project: This 99.73 Km road project has been awarded by the Madhya Pradesh Road Development Corporation Ltd, Bhopal with a contract value of Rs 50 crore and a completion period of 24 months.
6. Construction of Lukwasa Isagarh Chanderi Road Project: This 73.41 Km road project comes under the aegis of Madhya Pradesh Road Development Corporation Ltd, Bhopal with a contract value of Rs 35 crore and a completion period of 24 months.
B. Flyovers and Underpass Projects worth Rs 75.6 crore
1. Construction of Flyover at Suman Nagar, Mumbai, between the Eastern Express Highway and V N Purav Marg at Suman Nagar Junction, Mumbai in the state of Maharashtra by Mumbai Metropolitan Region Development Authority at the contract value of Rs 16.07 crore and a completion period of 12 months.
2. Construction of Flyover at Phagwara, Punjab at the Phagwara Junction on NH-1 (Ludhiana - Jalandhar section) at Phagwara in the state of Punjab under National Highways Authority of India, New Delhi, at the tentative contract value of Rs 16.07 crore with a completion period of 12 months.
3. Construction of Flyover at Rao Tularam Junction in the vicinity of Palam Airport, New Delhiwith a contract price Rs 24.5 crore with a completion period of 15 months.
4. Construction of Underpass on the Ring Road-Road No. 37 intersection near Prem Bari Pul, Delhi (SH: Construction of Underpass and Surface level Roads)" in the city of Delhi by Delhi Tourism & Transportation Development Corporation Ltd, Delhi at the contract value of Rs 15.61 crore,with a completion period of 15 months.
The icing on the cake is the Chittorgarh Bypass
Initial project size was Rs 113 crore which has been scaled up recently. The project under implementation by NHAI is a dream project, which is an integral part of National Highway Development Project (Phase- 2).The project comprises of Construction of 4 Lane divided carriage-way partial access controlled highway by widening with rigid pavement for new carriage-way and strengthening of existing carriage-way with flexible pavement, centre median, service roads, open and covered drains footpath etc. along the existing / realignment portion of the Nation Highway. This 30 km project will feature, one major bridge, one Railway Over Bridge, One Flyover, 14 Underpasses, and one Toll plaza, to be executed within 24 months.
VLCE has taken up the project with sophisticated state-of-the-art equipment, such as concrete paving train of 8.5 mtr. width with DBI and TCM imported from USA, Cone crusher 200 TPH capacity, BL-pegson make, imported from UK and batch type Hot-Mix plant of 120 TPH capacity- imported from China and having vast experience of recently completed a identical project of Satara Kolhapur.
Maharashtra, the home state offers huge opportunity
VLCE is already executing Rs 64 crore worth of Pune Municipal Corporation sanctioned projects that are needed to to improve the infrastructure in the city, under the work of Integrated Road Development Project (IRDP). Under the IRDP programme, Pune Municipal Corporation will be taking up construction of Roads, and junction, development works, bus bays, footpaths, provisions for laying services and various cables, culverts, bridges, flyovers, tunnels, elevated roads, subways.
While Phase I comprised tenders worth Rs 87 crore, Phase-II, Pune Municipal Corporation tenders would spew out orders worth Rs 5000 crore .
This is the opportunity
In 2 years from now a Rs 145 crore organisation could very easily have become a Rs 500 crore outfit with a substantive increase in profitability. This when the Equity would have merely doubled up to Rs 10 crore after the already announced equity placements are undergone.
I think the current price of Rs 260 is a good entry point for this stock.
BUY.
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