Marg Ltd - Initiating Coveragebreport.myiris.com/NSBL/MARCONST_20110405.pdf · Tamil Nadu. These...

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INDIA

Institutional Research

Construction & Engineering

Initiating Coverage

Marg Ltd

Anchoring Growth

Initiating Coverage Networth Research is also available on Bloomberg and Thomson

Date: April 5th, 2011 Analyst: Shruti Raut [email protected]

Tel No. : 022 3028 1580

Established in 1994, Chennai‐based MARG Ltd (MARG) is one of the growing breed of infrastructure development companies. Broadly, the company operates in three segments, i.e. Infrastructure (BOT assets), EPC and Real estate. The company focuses not on standalone projects, but on those that provide opportunities to exploit the synergies of its infrastructure and real estate business capabilities. The parent company is largely into EPC contracts, a mix of internal and external projects, while infrastructure projects are under wholly owned subsidiaries as SPVs.

Investment Rationale:

Boost in revenues led by Port segment: The topline is expected to grow at a CAGR of 44% upto FY13E led by port business due to increase in port traffic and its strategic location. Besides, the port has state‐of‐the‐art facilities and is expecting cargo diversion from the adjacent ports as they are running at near full capacities. Also it also enjoys flexibility in fixing tariffs. Therefore we expect its revenue from port business to increase significantly. The segment contributes to 15% of the total revenues.

Urban & Industrial Infrastructure MARG has a huge land bank of 1802 acres which is expected to bring steady cash flow to the company. It is developing a 612 acre integrated township in Kancheepuram near Chennai with focus on light engineering and multi‐services apart from residential and social infrastructure. The company is planning to do a combination of sale and lease of land‐area. The township will be ready in five‐six years and will contribute significantly to the revenues.

Apart from SEZ the company is also developing Junction Mall (7 acres), residential properties in OMR (Old Mahabalipuram Road ‐ the IT corridor of Chennai where the demand has been very strong) and other regions in Tamil Nadu. These projects are located in prime catchment areas of OMR and South Chennai and therefore we expect a strong demand going forward.

EPC division gaining a strong footing EPC division is gaining a strong footing in both internal and external projects as reflected by its robust order book. Its order book increased substantially from Rs. 8.80 bn in FY09 to Rs. 51.5 bn YTD (of which 20% forms external component).

Valuation We have valued MARG using SOTP at a fair value of Rs. 256/share. At CMP of Rs. 126/share, we see potential upside of 103% from current levels. We initiate coverage on the stock with ‘BUY’ recommendation.

Rating BUY Target Price `256 CMP `126 Upside ‐

Sensex 19679

Key Data Bloomberg Code MRGC IN

Reuters Code MARG.BO

NSE Code MARG

Current Share o/s (mn) 27.2

Diluted Share o/s (mn) 38.4

Mkt Cap (`bn/$mn) 4.2/92.3

52 WK H/L (`) 243.9/100

Daily Vol. (3M NSE Avg) 84830

Face Value (`) 10

Beta 1.62

1 USD/` 45.5

Shareholding Pattern (%) Promoters 42.5

FII 18.1

Others 39.4

Price Performance (%) 1M 6M 1yr

MARG 15.2 ‐17.5 ‐31.5

NIFTY ‐3.2 ‐10.6 14.0

Source: Bloomberg; *As on 4th April, 2011

Y/E Mar (` Cr.) Revenue Growth (%) EBITDA EBITDA MARGin (%) Net Profit EPS (Rs) P/E (x)

FY10 3644.40 420.00 827.00 22.69 114.30 4.2 29.3

FY11E 6393.30 75.43 1488.82 23.29 88.48 2.3 53.3

FY12E 12136.13 89.83 2891.74 23.83 296.85 7.7 15.9

FY13E 17622.49 45.21 5820.25 33.03 1278.61 33.3 3.7

Source: Company, Networth Research

2 Initiating Coverage

Boost in revenues led by port segment:

Karaikal Port (KPPL), MARG's key project located on the Eastern coast of India in Karaikal District of Puducherry state is a non‐major port developed under the concession agreement signed with the Puducherry Government through a tendering process on BOT basis. It has an existing port handling capacity of 5.1 mtpa (expected to increase to 21 mtpa by Q3 FY12E and then 47 mtpa by FY17E). The port has a sizeable depth of 14.5 m and is well connected to Tamil Nadu by road network.

Strategic location

Karaikal port is located on the Eastern coast of India in Karaikal District of Puducherry state around 320 Km along the coast south of Chennai Port and around 360 Km along the coast north of Tuticorin Port. The port is envisaged as a deep‐water lagoon‐type harbor (14.5 m depth, to be enhanced to 16.5m by FY13E), connected to sea by an access channel and protected by breakwaters. It is well connected to Tamil Nadu by road network i.e. NH 45A and NH 67 and has end‐rail connectivity. Moreover it is a state‐of‐the‐art‐all‐weather port and is now equipped to receive Panamax vessels also. Thus, Karaikal Port is poised to be the most strategic and efficient port on the eastern coast of India and will unleash the economic potential of central Tamil Nadu and Puducherry. Interestingly, there are a few non‐major ports coming up in the vicinity but all are for captive requirements, which leaves virtually no competition to the port business.

Exhibit 1: Exhibit 2:

Source: Company, Networth Research Source: Company, Networth Research

Karaikal Karaikal


Rich hinterland to drive new opportunities

The vision behind the port is to create a gateway to central Tamil Nadu, a strategic location where a major chunk of the state's industrial belt is located. Karaikal's hinterland is concentrated with cement and power utilities and captive power plants of steel and paper companies. Moreover with the thrust on power generation, there are active plans to add 15000 mw of thermal plants in the hinterland area of Karaikal over the next 4‐5 years. This would translate into coal requirements of ~60 mtpa. Considering the state‐of‐the‐art facilities and proximity of the port to all these upcoming development plans, Karaikal Port is well poised to tap this huge demand.

Faster turnaround time

Currently the average turnaround time at the Karaikal port is 2.52 days and is expected to reduce further due to the new 3x2 railway siding infrastructure for mechanized cargo which will result in faster loading/unloading.

Parameter Chennai Tuticorin Karaikal Average Parcel Size of Coal Vessels (MT) 53,097 39,732 49,844

Average Turnaround time (Days) 2.67 5.6 2.52

Average Discharge Rate (MT/day) 30,029 5,418 26,376


Primary Hinterland

District Industries

Perambalur Cement

Ariyalur Cement & Sugar

Tanjavur Agro based ind & Sugar

Nagapattinam Cottage, Agro ind & power plants

Trichy Textiles, Steel, Engg, Timber & Cement

Karur Paper, textile, sugar & cement

Pudukkottai Straw based ind, agro based & cashew

Namakkal Poultry & Textile weaving

Secondary Hinterland

District Industries

Mettur Power plants

Salem Mineral based ind & Steel

Erode Paper,Sugar mills, textile & leather

Coimbatore Textile, Motor pump sets & engg goods

Dindigul Tannery, lock & safe manufacturing & food processing

Nilgiris Tea

Tirupur Garments



Flexibility in fixing tariffs

Karaikal Port is a non‐major port governed by the Government of Puducherry has the pricing flexibility unlike the major ports, where the tariff for services offered is governed by the Tariff Authority of Major Ports (TAMP) under Ministry of Shipping, GoI based on a fixed RoE methodology. Although the tariffs charged by Karaikal port are relatively competitive compared to neighboring ports, the companies still are likely to prefer Karaikal port due to efficiency in its operations in terms of faster turnaround time and state‐of‐the‐art facilities as well as lower road freight costs due to its strategic location.

Cargo diversion from adjacent ports

Karaikal port is strategically located between Chennai port and Tuticorin port which are major ports and are currently operating at their near peak utilization levels. As a result they have high pre‐berthing and turnaround time. And with the cargo traffic growing at a CAGR of 9%, the incremental traffic is likely to be diverted to the non‐major ports like Karaikal port.

Exhibit 5: Distance Matrix from leading ports (km)

Location District Chennai Ennore Tuticorin Karaikal Madukkarai Coimbatore 526 548 348 357

Karikalli Dindigul 385 407 242 206

Karur Karur 388 410 278 148

Dalmiapuram Trichy 310 332 305 120

Reddipalayam Ariyalur 288 310 372 114

Alathiyur Perambalur 288 310 372 114

Ariyalur Ariyalur 288 310 372 114

Trichy Trichy 318 340 265 139

Sankaridurg Salem 357 359 343 271

Arakonam Vellore 77 99 562 300

Capacity Ramp‐up

India's international trade, ~90% by volume and ~70% by value is undertaken through marine route, port plays a critical role in economic development. The cargo handled at major ports and minor ports has increased at a CAGR of 7.3% and 17.8 %, respectively, over the last five years (FY05 to FY10). During the first half (April‐September) of 2010‐11 major and non major ports in India accomplished a total cargo throughput of 426.5mt reflecting an increase of 7.9 % over the same period last year. This sustained increase during the current year comes on top of more than 14 % growth in cargo traffic at Indian ports in 2009‐10.

Exhibit 6: Traffic growth tilting towards non‐major ports



Exhibit 7: Trend in traffic among peers:

(figures in Mn Tons)

Port FY‐05 FY‐06 FY‐07 FY‐08 FY‐09 FY‐10 CAGR

2 year 4 year Ennore 9.5 9.2 10.7 11.6 11.5 10.7 ‐4% 4%

Chennai 43.8 47.3 53.4 57.2 57.5 61.1 3% 7%

Tuticorin 15.8 17.1 18.0 21.5 22.0 23.8 5% 9%

Cochin 14.1 13.9 15.3 15.8 15.2 17.4 5% 6%

New Mangalore 33.9 34.5 32.0 36.0 36.7 35.5 ‐1% 1%

Total 117.1 121.9 129.4 142.0 142.9 148.5 2% 5%

Source: i‐maritime analysis, IPA, , Networth Research

The existing capacity of Karaikal port is 5.1 mtpa and is operational since June 2009. Currently the development on the Phase II is in progress which will add 15.8 mtpa capacities in Q3 FY12E. Further the company has plans to add a capacity to 47 mtpa by FY17. The port would generate steady cash flows along with expected steady growth in cargo traffic. With no major capex, the port is expected to generate sufficient free cash for debt repayments. The cost of Phase I was ~ Rs. 4.16 bn and Phase II is ~ Rs. 15.69 bn. In order to ensure smooth funding of these expansion plans, MARG has entered into a structured deal, with IDFC's India Infrastructure Fund (IIF), for funding assistance of Rs.15bn in the form of equity participation at SPV (KPPL) level.

Exhibit 8: Valuation ‐ Port Business

Valuation Method DCF

Value (Rs. mn) 9,429.16

MARG Stake 0.80

Value of stake 7,543.33

Per share value (Rs) 196.83

Discount to valuation 20%

Final Price per share (Rs) 157.47

Exhibit 9: Assumptions:

FY10 FY11e FY12e FY13e FY14e FY15e FY16e FY17e

Capacity (mtpa) 5.2 5.2 7.8 21.0 21.0 21.0 21.0 21.0

Capacity Utilisation (%) 30% 104% 100% 70% 83% 91% 95% 95%

Realisation (Rs./MT) 330 330 330 370 370 370 414 414

We have considered a conservative growth in Port traffic and Phase IIB capacity expansion of 47 mtpa is not considered. The realizations have been escalated by 12% every 3 years. We have assumed beta of the project as 1.25 and a 15% cost of equity. We value the port on a DCF basis and the value of the segment stands at Rs. 157 per share.


Urban & Industrial Infrastructure

SEZ

In FY08, MARG launched its 247.67hectare (612‐acre) SEZ ‘MARG Swarnabhoomi’** an emerging satellite township. 79% of the total area would be developable in different units generating 21.12mn square feet built‐up area. Approximately 2/3 of the space would be dedicated towards development of residential units and the balance would constitute light engineering and multi‐services sectors. Surrounded by pleasant green environment, the SEZ is 89 kms away from Chennai on East Coast Road that connects Chennai and Puducherry. MARG plans to develop the SEZ over five to six years time and it will monetize the landed property in the SEZ by out‐right sale on long term lease / short‐term lease/ or develop and lease built up commercial and residential space. (** under New Chennai Township Pvt Ltd)

MARG to‐date has roped in various prestigious clients for its Engineering and Multi‐services. Notable among them are:

World’s biggest pumps manufacturer, Grundfos,

Germany based valve manufacturer Virgo,

Renowned industrial hose maker Polyhose,

Leading pharma company Micro Labs,

Contract research firm Laxai Avanti,

Virginia Tech University, US in education space,

R&D driven Symphony Pharma Life Sciences

The company intends to do plot sales, lease built‐up space along with residential sales of ~14msft. At the end of Q3, 1141 homes (1.3msft) have been sold at Swarnabhoomi.

Exhibit 10: SEZ Schematic

Unit Acre BuA (Mn Sft) CommentLight Engg Services 134.9 2.88 40 acre LTL and 94.89 STL, FSI 0.68

Multi‐Services 118.0 4.46 51 acre LTL and 67 STL, FSI 1.5

IT and Bio‐IT 0.73

Science park 0.88

Knowledge Hub 0.45

Innovation Hub 2.40

Residential 177.0 13.84 FSI 1.79

HIG 10.83

MIG & LIG 3.01

Miscellaneous 181.6

School 16.6

Open Space 62.0

Road 90.0

Utilities 13.0

Total 611.5 21.18

*STL‐ Short Term Lease, LTL‐Long Term Lease, FSI‐ Floor Space Index, BuA‐ Built‐up Area


Exhibit 11: Valuation ‐ SEZ

Valuation Method NAVValue (Rs. mn) 2,053.11

MARG Stake 100%




Final Price per share (Rs) 43

We have valued the SEZ business using the NPV method discounting the future cash flows at a WACC of 16% and a terminal growth rate of 3%. The value of the business comes at Rs. 2053 translating into a price of Rs. 43 per share.

Looking at the huge demand in affordable housing and commercial spaces MARG sketched out real estate development plans across suburbs of Chennai and some part of Andhra Pradesh. Over the years MARG has acquired large land bank of ~1190 acres (excluding SEZ) with foresight of expanding real estate demand. The projects include one major commercial mall cum hotel (MARG Junction), different residential projects in Chennai and Tirupati. With the signs of recovery in the real estate industry, these projects will bring steady cash flows to the company.

Area Land bank (acres)Around Swarnbhoomi 430

Around Karaikal 130

Kodak 200

Krishnapatnam 50

Others 373

Riverside Mall 7

Total 1190

Residential Space ‐ MARG ProperTies:

MARG ProperTies, the residential arm, is one of the fastest growing infrastructure companies. Currently, it is developing various residential spaces in suburbs of Chennai and Andhra Pradesh (Tirupati and Kancheepuram). MARG has both affordable homes as well as high‐end villas thus it offers to a wide range of living spaces. It has already sold 2.39 mn sq. feet residential space by the end of December 2010 and planning to sell another 7 mn sq. feet space in next 3 years. Since most of the residential projects are in the Chennai suburbs, we expect stable demand going forward.

Exhibit 13: Valuation – ProperTies:

Valuation Method NAVValue (Rs. mn) 1,813.67

MARG Stake 100%





The residential projects being currently developed have been valued on a NAV basis assuming a WACC of 16% and a terminal growth of 3% and a terminal growth of 3%. The value of the business stands at Rs. 1814 mn translating into a price of Rs. 38 per share.


Commercial Space

MARG is developing the captioned unique complex which would have a 3‐star hotel, Service Apartments and hyper‐retail chains with a buildup area of 1.8msft in the OMR region of Chennai. Reputed brands like PVR Cinemas, Shoppers Stop, HyperCity are the anchor clients for the building with around 35% of the mall space already leased out. For hotel project the company has tied up revenue sharing agreement with Shangri‐la Hotels. The Mall would be operational by April 2012.

Exhibit 14: The various details of Mall junction are as follows:

Particulars Retail Hotels Commercial Area(mn sq. feet) 1.04 0.51 0.27

Expected Completion 2011‐Oct 2012‐Apr 2012‐Apr

Exhibit 15: Valuation – Junction Mall:

Valuation Method DCFValue (Rs. mn) 887.75

MARG Stake 59%

Value of stake 525.55




We have valued only the Junction Mall (the Hotel business and office spaces have not been factored in) on a DCF basis assuming a Cost to equity of 16.5% and a terminal growth rate of 3%. The value of the business stands at Rs. 526 mn translating into a price of Rs. 11 per share.

Exhibit 16: Valuation ‐ Land Bank

Valuation Method At CostValue (Rs. mn) 832.00

MARG Stake 100%

Per share value (Rs) 39

As mentioned earlier, MARG has a land bank of ~1800 acres out of which construction activities for the ongoing projects occupies only ~1498 acres. The balance ~832 acres has been valued at Rs. 832 mn translating into a price of Rs. 39 per share.

EPC division gaining a strong footing

MARG Foundation India, MARG's EPC division, provides integrated turnkey solutions ranging from providing integrated design, engineering, material procurement, field services, construction and project management services for infrastructure and real estate sector projects. Its EPC division is gaining a strong footing in both internal and external projects and has demonstrated its capabilities across different segments like commercial spaces, living spaces, institutional buildings, industrial clusters, marine infrastructure, urban infrastructure and energy.

MARG has witnessed a multifold growth in its order book. Currently the order book stands at Rs. 51.5 bn and is likely to be executed in the next 18‐24 months. Living spaces form a major chunk i.e. 45% of the EPC order book in the form of affordable housing and high‐end villas followed by Marine Infrastructure and Industrial clusters which contribute to 26% and 14% respectively of the order book in the form of break water, berthing, dredging and SEZ. Majority of the orders have emanated from Tamil Nadu and Puducherry.

MARG has submitted tenders worth Rs.38.3 bn and also has L1 status of Rs. 8.620 bn tenders. Further Rs.35.5 bn tenders are in the process of submission.


India is the second fastest growing major economies with its GDP expanding at 8%+ which has huge scope

of growth in its infrastructure sector. Therefore government has chalked out a very aggressive plan for investment in Infrastructure space. After having planned a spending of USD 500 bn in the current XI FYP, the government now targets to invest around $1 trillion in the XII FYP (FY13‐17). Thus, given the focus on infrastructure spending, we expect the external order book to grow at CAGR ~ 82% to reach Rs. 11.7bn (29% of total) by FY13E.






Strategic tie‐ups

MARG is increasing its focus in external EPC orders backed by its strong execution capabilities. MARG has formed alliance with different companies to jointly bid and to meet pre‐qualification criteria as mentioned below:

International Infrastructure Consultants (IIC) ‐ management, strategy, structure and process.

PYCSA S.L., a Spain based company ‐ jointly developing urban & rural infrastructure projects

LAGAN Construction (Ireland based) ‐ collaboration to strengthen the development on constructions of Roads, Airports, Marine structures, Water & Sewage Treatment Plants

AECOM ‐ master planning the Bijapur Airport

BEFESA, Tecpro Systems Ltd, Jyoti Ltd, MR Vision Pipeline, Yashika Enterprises, Abhav Ocean WJ construction ‐ areas including water systems, material handling, submarine, onshore, offshore pipelines etc.

Joint venture with IVRCL , Valecha Engineering, SREI Infrastructures Ltd and NAPC ‐ exploring opportunities in national highway projects

Technical tie up with SURBANA of Singapore ‐ Township development

Exhibit 21: EPC ‐ Valuation:

Valuation Method P/E Multiple

Value (Rs. mn) 2,192.41

MARG Stake 100%

Value of stake (Rs. Mn) 2,192.41


The EPC business comprises of internal as well as external contracts. The revenue from internal contracts has been hived off from the consolidated financial statements and a business has been valued at a P/E multiple of 4x its estimated earnings of FY11. Thus the value of the segment stands at Rs. 2192 mn translating into a price of Rs. 57 per share.


Financial and Valuation Outlook

We have valued MARG using SOTP at a fair value of Rs. 234/share. At CMP of Rs. 107/share, we see potential upside of 128% from current levels. We think that there is a strong upside from the current levels and recommend “BUY” on the stock.

Port (Rs. In million)

Particulars FY10 FY11e FY12e FY13eSales 548 1819 2611 5474

EBITDA 213 901 1371 2909

EBITDA (%) 39% 50% 53% 53%

PAT (130) 260 (18) 466


Value (Rs. mn) 9,429.16

MARG Stake 80%

Value of stake 7,543




SEZ (Rs. In million)

Particulars FY10 FY11e FY12e FY13e

Sales 1,448.89 1,435.77 3,029.11 3,734.32

EBITDA 518.3 164.8 620.2 1243.6

EBITDA (%) 35.8% 11.5% 20.5% 33.3%

PAT 387.0 7.0 180.7 715.2

Valuation Method NAV

Value (Rs. mn) 2,053.11

MARG Stake 100%


Price er share (Rs) 54


Final Price per share (Rs) 43 EPC (Rs. In million)

Particulars FY10 FY11e FY12e FY13eSales 1,170.00 2,300.00 3,800.00 3,250.00

EBITDA 117.00 184.00 304.00 260.00

EBITDA (%) 10% 8% 8% 8%

PAT (383) (286) (268) (357)

Valuation Method 4x of Earning Multiple

Value (Rs. mn) 2,192.41

MARG Stake 100%

Value of stake 2,192



ProperTies: (Rs. In million)


EBITDA 153 239 596 839

EBITDA (%) 37% 29% 22% 21%

PAT 101 160 398 560

Valuation Method

Value (Rs. mn) 1,813.67

MARG Stake 100%


Price per share (Rs) 47



Junction Mall (Rs. In million)


EBITDA 0 0 0 478

EBITDA (%) 0 0 0 79%

PAT 0 0 0 66


Value (Rs. mn) 888

MARG Stake 59%

Value of stake 525.55

Price per share (Rs) 14



Land Bank (Rs. In million)

Valuation Method At CostValue (Rs. mn) 832.00

MARG Stake 100%


SOTP Valuation:

Total share Value (Rs.) Valuation

Methodology Price per Share

Port DCF 157

EPC 4X Earnings Multiple 57

SEZ NAV 43

Junction Mall DCF 11

ProperTies NAV 38

Land Bank At Cost 39

Total 345

Less: Debt per share 89

Consolidated Per share value (Rs) 256


Risk Factors

High leverage The infrastructure projects are highly geared with a debt‐equity ratio of 70:30. As a result, the consolidated D/E of MARG stands at 5.4 in FY10. This ratio is likely to soften going forward once the projects are operational and stabilized. However the company is currently struggling to manage its cash flows. Any delay in the execution of its projects could adversely affect the balance sheet.

Lower traffic and utilizations in Karaikal Port may affect profitability MARG is likely to benefit from the upcoming power projects and cement plants coming up in the hinterland. Any delay in the commissioning of these plants would have an impact on the coal cargo expected to be handled at the port. This could have an adverse impact on the topline of the port.

Company Profile:

Established in 1994, Chennai‐based MARG Ltd (MARG) is one of the growing breed of infrastructure development companies. Broadly, the company operates in three segments, i.e. infrastructure (BOT assets), EPC and real estate. The company focuses not on standalone projects, but on those that provide opportunities to exploit the synergies of its infrastructure and real estate business capabilities. Co‐creation is a key element of MARG's business model ‐ the people in the impact region are involved in the region development process. The parent company is largely into EPC contracts, a mix of internal and external projects, while infrastructure projects are under wholly owned subsidiaries as SPCs/SPVs. MARG is among the rare league of diversified infrastructure player, owning one of the India's major upcoming private ports in East‐coast. It is also developing a SEZ in Chennai, which will have its own eco‐system of employment generation and allied services. The Company is also having huge parcel of land around Chennai city to develop and market booming affordable housing projects. To capture the rapid urbanization in IT corridors of Chennai, the Company is developing a unique commercial complex to house leading hyper‐retail chain, and one leading hotel. With firm footing on its EPC business in major segments it is gaining strength by developing all it’s infra assets apart from executing external projects. Further it is gearing up with leading international players to develop upcoming regional airport projects, integrated world class township projects, and other upcoming large novel projects.

Exhibit 22:



Bird’s eye view of Company’s Operations –

Business Verticals Investment Owner‐ship Description Project Status Revenue Model

EBITDA MARGin

Marine Infrastructure

Karaikal Port Phase I ‐Rs 4bn, Phase II ‐Rs 15bn, Phase III ‐Rs 14bn

80.7%* 50‐year concession (30 years extendable by 10 years + 10 years) from Puducherry Government. Phase 1 made operational; Phase II is expected to achieve COD by Oct 2011. IDFC equity investment of Rs.1.5 bn for % stake

Phase I operational Annuity Revenue

~60%

Minor Port cum Ship Repair Yard

Rs 9bn 90%** Situated at Mugaiyur‐TN, 5 km from Swarnabhoomi the project can attract private ships due to no competitor in nearby location. Received an approval from the Govt of TN and is currently conducting feasibility studies, land acquisition and master‐planning activity.

MoU signed with Tamil Nadu govt

Annuity Revenue and Job Work Revenue

Not Factored

MARG International Dredging Pte Ltd. Singapore

100% The Company can generate additional revenues by leasing the dredgers to other companies once its engagement in Karaikal Port is over

Captive use Short Term Lease Revenue

Not Factored

MARG Logistics Pvt. Ltd

100% Handles multi‐cargo throughMultimodal transportation (rail, road and sea) of entire logistic management of Karaikal Port. Have plans to set up a logistic hub in different parts of South India

Equipment acquired Cargo Distance

Not Factored

Urban & Industrial Infrastructure

MARG Swarnabhoomi

100% Industrial, Residential &Commercial development in 612 acres land 89 km from Chennai

Development and on‐going sale of land

Annuity Revenue

~65‐70%

EPC 100% EPC for construction ofbuildings, roads and ports for both in‐house and external clients

Order book ~Rs. 36bn (external 20%)

Services Revenue

~7‐15%

Real Estate MARG Junction Rs.4.87bn 68.50% MARG Junction Mall cum Business Hotel

Under construction, agreement signed with well known brands

Annuity Revenue + Sale Revenue

~25‐30% (residential)

MARG ProperTies Residential Projects ~60‐70% (commercial)

Other Businesses Bellary Airport, Karnataka

Phase–I Rs 1.10bn, Phase –II Rs 2.50bn

100% Development of airside and city side commercial amenities over 900 acres green‐field project, Project Development Agreement signed with State Government

PDA Signed Annuity Revenue

Not Factored

Bijapur Airport , Karnataka

Phase –I Rs 1.50bn 100% Development of airside and city side commercial amenities over 727 acres for a period of 30 years on a BOT basis. Expected to be completed by the first quarter of 2012.

PDA Signed Annuity Revenue

Not Factored

Multi Level Car Park

Rs 300mn 51% To develop an automated multi‐level car parking and commercial facility in Wallace Garden, Chennai, on a DBOT basis for 20 years.

To be operational by March 2012

Annuity Revenue

Not Factored


Milestones:

1994 Established as an infrastructure and realty development company by Mr. G.R.K. Reddy, first generation entrepreneur

1995 Raised Rs 120 mn through an IPO and was listed on the BSE

1995 Developed an 8,000 sq.ft. commercial complex in A.P and launched 'Sai Subhodaya', 120 deluxe apartments with built‐up area of 0.2 mn sq. ft

1996 Launched 'Sai Subhodaya Apartments' in Chennai

1998 Completed 'Wescare Towers'

2002 Completed software technology park

2004 Developed Digital Zone‐I, first IT park on the OMR

2006 Bagged concession agreement to develop Karaikal Port on BOT basis

2006 Mobilised FCCBs worth US$12.5 mn. Entered into JV with Housing and Urban Development Corporation Ltd

2007 Issued GDRs listed on Luxembourg Stock Exchange and raised USD 15 mn

2007 Conceived the MARG Junction Mall cum business Hotel

2007 Launched 'Ramlakshmi Enclave'

2007 Launched MARG Tapovan Villas off the East Coast Road

2007 Completed two IT parks in OMR

2007 Received in‐principle approval for SEZ. Envisaged 'Riverside Mall' project

2008 Launched MARG Swarnabhoomi

2009 Launched Pushpadruma and Vishwashakthi

2009 Completed phase I of Karaikal Port ahead of schedule

2010 Raised Rs 1,068 mn through QIP of at a price of Rs 189.9

2010 IDFC agreed to invest Rs 1,500 mn for a stake of 15‐20% in Karaikal Port

PORTS

Karaikal Port (KPPL), MARG's key project, has an existing port handling capacity of 5.1 mtpa (will become 21 mtpa by Q3 FY12 and then 47 mtpa by FY17). EPC

MARG Foundation India, MARG's EPC division, provides integrated turnkey solutions ranging from providing integrated design, engineering, material procurement, field services, construction and project management services for infrastructure and real estate sector projects. Its EPC division is gaining a strong footing in both internal and external projects and has demonstrated its capabilities across different segments like commercial spaces, living spaces, institutional buildings, industrial clusters, marine infrastructure, urban infrastructure and energy. REAL ESTATE

MARG has a huge land bank of 1802 acres which will bring steady cash flow to the company. It is developing a multi‐product SEZ (612 acres), Riverside Mall (7 acres), residential properties in OMR and other regions in Tamil Nadu. With the signs of recovery in the real estate industry, these projects will bring steady cash flows to the company. OTHER BUSINESS

Airport Projects MARG has signed the “Project Development Agreement” with the Government of Karnataka for two greenfield airports namely Bellary and Bijapur on BOT basis. The estimated 1st Phase project cost of Bellary Airport is Rs. 2.32bn and Bijapur is R.1.08bn. These projects have concession period of 30 years + 30 years (renewable). MARG is currently discussing with various international developers for joint development of these Airport projects.

Multi Level Car Park on BOT Basis Under SPV, Future Parking Private Limited (consortium of MARG and Apollo Hospitals Enterprise Limited) the company was awarded the project for the development of multilevel car parking and commercial complex at Wallace Garden, Chennai, in February 2009 on a BOT basis for 20 years. The project is expected to be commissioned by October 2011.


Financial Snapshot (Consolidated)

Income Statement

(Rs. Mn) Year FY09 FY10 FY11E FY12E FY13E Income 701 3,644 6,393 12,136 17,622

Expenditure

Operating Expense 163 2,340 4,144 8,030 10,174

Employee Cost 151 169 283 494 613

Selling & Administration Expense 265 309 477 721 1,016

EBITDA 122 827 1,489 2,892 5,820

Depreciation 67 180 227 560 1,021

EBIT 55 647 1,262 2,332 4,799

Interest expenses 138 445 704 1,523 2,405

Other Income 362 242 0 0 0

Profit Before Tax/Adjustments/EO items 279 444 558 809 2,394

Prior period items/Extraordinary Items 0 0 0 0 0

PBT 279 444 558 809 2,394

Tax 223 325 418 515 1,022

PAT 55 119 140 293 1,372

Extraordinary Items 0 5 0 0 0

Adjusted PAT 55 114 140 293 1,372

Share of associates 0 0 0 0 0

Minority Interest 0 0 52 (4) 93

PAT after Minority Interest 55 114 88 297 1,279

Number of shares outstanding 26 27 33 33 38

Diluted Shares 26 27 38 38 38


Balance Sheet

(Rs. Mn) Year FY09 FY10 FY11E FY12E FY13E Equity Capital 256 272 329 329 384

Reserves 1,988 2,903 4,809 5,106 6,330

Net Worth 2,244 3,175 5,138 5,435 6,714

Loans 10,279 17,248 22,145 27,885 25,984

Net Deferred Tax 62 0 0 0 0

Capital Employed 12,586 20,848 27,761 33,794 33,265

Gross Block 2,785 6,272 4,754 26,647 27,265

Less: Depreciation 147 265 492 1,052 2,073

Net Block 2,639 6,007 4,262 25,595 25,193

Capital WIP 5,422 7,346 15,317 341 0

Investments 26 26 26 26 26

Current Assets

Inventory 2,210 3,300 3,682 4,200 4,368

Debtors 1,403 4,191 4,665 5,294 5,652

Cash& Bank 530 1,415 1,637 688 560

Loans& Advances 2,276 2,148 2,148 2,148 2,148

Current Liabilities & Prov.

Current Liabilities 1,658 3,532 3,925 4,446 4,630

Provisions 262 77 77 77 77

Net Current Assets 4,500 7,444 8,130 7,807 8,021

Misc exp

Total Assets 12,586 20,848 27,761 33,794 33,265


Cash Flow

Year FY09 FY10 FY11E FY12E FY13E

Cash & Cash Equivalents at Beginning of the year 537 530 1,415 1,637 688

Cash Flow From Operating Activities 0 0 0 0 0

Net Profit before Tax & Extraordinary Items 279 444 558 809 2,394

Adjustment For

Depreciation 67 180 227 560 1,021

Interest (Net) (224) 203 704 1,523 2,405

Total Adjustments (PBT & Extraordinary Items) (157) 383 931 2,083 3,426

Op. Profit before Working Capital Changes 122 827 1,489 2,892 5,820

Adjustment For

Trade & other receivables (679) (2,788) (474) (629) (359)

Inventories (1,150) (1,090) (382) (518) (168)

Loans & Advances (1,006) 128 0 0 0

Trade Payables/CL 126 1,690 392 521 185

Total (OP before Working Capital Changes) (2,709) (2,060) (464) (625) (343)

Cash Generated from/(used in) Operations (2,587) (1,233) 1,025 2,266 5,478

Direct Taxes Paid 0 (412) (418) (515) (1,022

)

Cash Flow before Extraordinary Items (2,542) (1,323) 608 1,751 4,455

Cash Flow from Investing Activities

Investment in Fixed Assets (3,979) (5,411) (6,454) (6,916) (277)

Sale of Fixed Assets 0 0 0 0 0

Financial/Capital Investment :

Interest Received 0 242 0 0 0

Cash Flow from Investing Activities (3,757) (5,077) (6,454) (6,916) (277)

Proceeds from Issue of shares (incl share premium) 0 0 1,875 0 0

Proceed from Bank Borrowings 6,606 6,969 4,898 5,740 (1,901

)

Short term Borrowings 0 0 0 0 0

Payments:

Dividend Paid (60) (60) 0 0 0

Interest Paid (138) (445) (704) (1,523) (2,405

)

Net Cash Used in Financing Activities 6,292 7,285 6,069 4,217 (4,306

)

Net Inc/(Dec) in Cash and Cash Equivalent (7) 884 223 (949) (128)

Cash and Cash Equivalents at End of the year 530 1,415 1,637 688 560


Ratios

FY09 FY10 FY11E FY12E ROAE (%) 2.4 4.4 2.1 5.6 ROACE (%) 0.6 3.9 5.2 7.6 Current ratio 3.3 3.1 3.0 2.7 Debtors (days) 553.7 280.1 252.8 149.8 Average fixed assets t/o (x) 0.3 0.8 1.2 0.8 Average working capital t/o (x) 0.3 0.7 1.0 1.8 Average capital employed t/o (x) 0.1 0.2 0.3 0.4 Debt / Equity 4.6 5.4 4.3 5.1


Networth Research: E‐mail‐ [email protected]

Jinal Savla Power & Infra. [email protected] 022‐30281684

Minal Dedhia Midcaps [email protected] 011‐47399803

Shruti Raut Power & Infra. (Associate) [email protected] 022‐30281580

Siddharth Deshmukh Telecom (Associate) [email protected] 022‐30281576

Derivatives & Technical Research Akshata Deshmukh AVP Derivatives & Technical’s [email protected] 022‐30286405 Kekin Maru Derivatives Analyst [email protected] 022‐30286406 Akhil Rathi Research Associate ‐ Derivatives [email protected] 022‐30281685

Institution Sales [email protected] Prakash Diwan Head‐ Institutional Business [email protected] 022‐30286408

Viral Malia AVP Institutional Sales [email protected] 022‐30286407

Key to NETWORTH Investment Rankings Buy: Upside by>15, Accumulate: Upside by +5 to 15, Hold: Upside/Downside by ‐5 to +5, Reduce: Downside by 5 to 15, Sell: Downside by>15

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