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Anand Rathi Research India Equities
India I Equities
Manish Valecha
+9122 6626 6552
manishvalecha@rathi.com
Jaspreet Singh Arora
+9122 6626 6727
jaspreet@rathi.com
Construction
Result Update






























`

















19 August 2014
Supreme Infrastructure
Poised for growth; Buy
Key takeaways
Results below expectations. Supreme Infrastructures (Supreme) 1QFY15
revenue grew 13.7% yoy, lower than our estimates, due to non-availability of
work fronts and delay in release of funds from certain clients. EBITDA
margin improved 50bps yoy, at 16.8%. However, on high interest cost, PAT
came in below our estimates at `114m and declined 48.5% yoy.
Orderbook remains stable. There was no order inflow during the quarter
and the order book remained stable at `55.3bn (2.6x TTM revenue). The
company has L1 projects of `7.8bn, and the orderbook predominantly
comprises buildings (37%) and roads & bridges (44%).
BOT projects update. Toll collection from the four operational projects is
currently at `353m vs `351m qoq. For 11 BOT road projects, the company
has equity commitment of ~`9.24bn over FY12-15, of which, it has infused
`8.1bn (~`2bn is infused by 3i India Infra Fund); the rest will be invested
through internal accruals in the next 15 months.
Balance sheet comfortable. The company had raised ~`1bn by diluting at
the parent level, to infuse as equity in the BOT projects. This equity issuance
has reduced gearing to 1.3x from 1.8x. We expect further reduction in gearing
to 1.2x in FY16e.

Our take. We expect revenue growth to bounce back in 2QFY15 as
procedural hurdles ease. With the equity funding for BOT projects in place
and reduced leverage on balance sheet, the company is poised for growth in
2-3 years. We retain Buy, with target of `512. Our SOTP target of `512 is
based on 5x FY16e PE of the construction business (`389, a 50% discount to
midcap target multiples) and 1x Mar14 P/BV (`115). Risk. Rise in interest
rates.
Rating: Buy
Target Price: `512
Share Price: `352

Key data SPII IN / SIIL.BO
52-week high / low `438 / `149
Sensex / Nifty 26400/7885
3-m average volume US$0.12m
Market cap `7.7bn / US$125m
Shares outstanding 20.1m
Shareholding pattern (%) Jun 14 Mar 14 Dec 13
Promoters 55.0 55.0 55.0
- of which, Pledged 21.4 21.4 21.4
Free float 45.0 45.0 45.0
- Foreign institutions 13.8 13.2 13.2
- Domestic institutions 3.3 1.2 1.3
- Public 27.9 30.6 30.5
Year-end: Mar 1QFY15 1QFY14 % yoy FY13 FY14 % yoy
Sales (`m) 3,811 4,415 (13.7) 19,870 21,586 8.6
EBITDA (`m) 639 720 (11.3) 3,195 3,113 (2.6)
EBITDA margin (%) 16.8 16.3 45bps 16.1 14.4 (166)bps
Interest (`m) 380 316 20.0 1,192 1,350 13.3
Depreciation (`m) 103 87 18.1 336 365 8.7
Other income(`m) 12 11 12.6 41 61 49.0
PBT (`m) 169 327 (48.5) 1,708 1,458 (14.6)
Tax (`m) 55 106 (48.5) 501 558 11.3
Reported PAT (`m) 114 221 (48.5) 1,096 900 (17.9)
Adj. PAT (`m) 114 221 (48.5) 1,206 900 (25.4)
Source: Company
Year-end: Mar FY15e FY16e
Sales (`m) 23,992 27,591
Net profit (`m) 1,113 1,302
EPS (`) 50.4 58.9
Growth (%) 23.6 17.0
PE core (x) 3.4 2.9
P/B(x) 1.0 0.9
RoE (%) 16.0 16.1
RoCE (%) 18.7 19.0
Dividend yield (%) 1.0 1.3
Net gearing (%) 131 124
Source: Anand Rathi Research


19 August 2014 Supreme Infrastructure Poised for growth; Buy


Anand Rathi Research 3
Quick Glance Financials and Valuations

Fig 1 Income statement (`m)
Year-end: Mar FY12 FY13 FY14 FY15e FY16e
Net revenues 15,059 19,870 21,586 23,992 27,591
Revenue growth (%) 64.1 31.9 8.6 11.1 15.0
- Op. expenses 12,624 16,675 18,474 20,442 23,508
EBIDTA 2,435 3,195 3,113 3,551 4,084
EBITDA margins (%) 16.2 16.1 14.4 14.8 14.8
- Interest expenses 915 1,192 1,350 1,500 1,700
- Depreciation 284 336 365 450 500
+ Other income 28 41 61 60 60
- Tax 346 501 558 548 641
Effective tax rate (%) 27.4 31.4 38.3 33.0 33.0
Reported cons.PAT 918 1,096 900 1,113 1,302
+/- Extraordinary items - 110 - - -
+/- Minority interest - - - - -
Adjusted cons. PAT 918 1,206 900 1,113 1,302
Adj. FDEPS (`/share) 54.8 72.1 40.7 50.4 58.9
Adj. FDEPS growth (%) 20.9 31.4 (43.5) 23.6 17.0
Source: Company, Anand Rathi Research

Fig 3 Cash-flow statement (`m)
Year-end: Mar FY12 FY13 FY14 FY15e FY16e
PAT 918 1,206 900 1,113 1,302
+Non-cash items 304 333 246 470 520
Cash profit 1,222 1,539 1,146 1,583 1,822
- Incr/(Decr) in WC 1,820 1,629 491 2,009 1,500
Operating cash flow (599) (90) 655 (426) 322
-Capex 516 519 181 962 900
Free cash flow (1,115) (609) 473 (1,389) (578)
-Dividend 69 69 90 90 216
+ Equity raised 44 (81) 675 277 (0)
+ Debt raised 2,106 2,298 (658) 1,100 1,100
-Investments 619 924 708 571 -
-Misc. items - - (92) 92 -
Net cash flow 348 615 (216) (765) 306
+Opening cash 335 683 1,298 1,082 317
Closing cash 683 1,298 1,083 317 623
Source: Company, Anand Rathi Research

Fig 5 PE band
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Source: Bloomberg, Anand Rathi Research
Fig 2 Balance sheet (`m)
Year-end: Mar FY12 FY13 FY14 FY15e FY16e
Share capital 167 167 226 246 246
Reserves & Surplus 3,544 4,601 6,027 7,307 8,393
Net worth 3,711 4,768 6,345 7,552 8,639
Minority interest
Total Debt 7,489 9,787 9,129 10,229 11,329
Def. tax liab. (net) 108 104 (15) 5 25
Capital employed 11,308 14,660 15,460 17,787 19,993
Net Fixed assets 2,884 3,068 2,884 3,396 3,796
Investments 1,321 2,245 2,952 3,524 3,524
- of which, Lliquid 48 - 17 17 17
Net Working capital 6,420 8,049 8,541 10,550 12,050
Cash and bank balance 683 1,298 1,083 317 623
Capital deployed 11,308 14,660 15,460 17,787 19,993
Net debt 6,759 8,489 8,030 9,895 10,689
WC (days) 134 133 140 145 149
Book value (Rs/sh) 222 285 281 307 351
Source: Company, Anand Rathi Research

Fig 4 Ratio analysis @ `352
Year-end: Mar FY12 FY13 FY14 FY15e FY16e
P/E (x) 6.4 4.9 8.6 7.0 6.0
P/E Core (x) 4.2 3.2 4.2 3.4 2.9
P/B (x) 1.6 1.2 1.2 1.0 0.9
EV/EBITDA (x) 5.2 4.5 5.1 5.0 4.5
RoE (%) 28.1 28.5 16.2 16.0 16.1
RoCE (%) 22.0 22.0 18.2 18.7 19.0
Fixed Asset turnover (x) 4.3 4.8 4.8 4.8 4.7
Dividend yield (%) 1.0 1.0 1.0 1.0 1.3
Dividend payout (%) 6.4 5.3 8.6 7.0 7.6
Interest exp./Sales 6.1 6.0 6.3 6.3 6.2
Debtors (days) 94 108 123 128 126
Revenue growth (%) 64.1 31.9 8.6 11.1 15.0
PAT growth (%) 20.9 31.4 (25.4) 23.6 17.0
EBITDA growth (%) 56.1 31.2 (2.6) 14.1 15.0
EPS growth (%) 20.9 31.4 (43.5) 23.6 17.0
Source: Company, Anand Rathi Research

Fig 6 Orderbook vs book-to-bill
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Source: Company, Anand Rathi Research

19 August 2014 Supreme Infrastructure Poised for growth; Buy
Anand Rathi Research 3

Result highlights
Fig 7 1QFY15 Results vs Expectations
Year-end: Mar 1QFY15 1QFY15e % var 1QFY14 % yoy 4QFY14 % qoq
Sales (`m) 3,811 5,518 (30.9) 4,415 (13.7) 7,994 (52.3)
EBITDA (`m) 639 800 (20.1) 720 (11.3) 1,040 (38.6)
EBITDA margin (%) 16.8 14.5 227bps 16 45bps 13.0 376bps
Interest (`m) 380 400 (5.1) 316 20.0 427 (11.1)
Depreciation (`m) 103 100 2.7 87 18.1 99 4.0
Other income(`m) 12 11 7.8 11 12.6 11 8.3
PBT (`m) 169 311 (45.8) 327 (48.5) 525 (67.9)
Tax (`m) 55 106 (48.3) 106 (48.5) 255 (78.6)
Reported PAT (`m) 114 205 (44.5) 221 (48.5) 270 (57.8)
Adj. PAT (`m) 114 205 (44.5) 221 (48.5) 270 (57.8)
Source: Company, Anand Rathi Research
Fig 8 Revenue-growth trend
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Source: Company, Anand Rathi Research
Fig 9 Interest-cost trend

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(`m) (%)

Source: Company, Anand Rathi Research





19 August 2014 Supreme Infrastructure Poised for growth; Buy
Anand Rathi Research 4
Fig 10 OPM and NPM trend

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Source: Company, Anand Rathi Research
Fig 11 Orderbook break-up segment-wise

Bridges
4.4%
Road BOT
23.3%
Road EPC
16.8%
Water
13.4%
Power
4.3%
Railway
1.1%
Building
36.8%

Source: Company, Anand Rathi Research








Fig 14 Details of BOT projects (`m)
Project Project Cost Supreme Stake Debt Equity Equity Invested till date
Manor Wada Bhiwandi 5,540 74% 3,942 1,597 1,597
Kasheli Bridge 3,014 10% - 100 100
Haji Malang Ropeway 800 98% 500 300 280
Jaipur ring road 10,450 40% 7,900 1,020 1,090
Patiala-Malerkotla 930 100% 650 280 280
Ahmednagar Karnala Tembhurni 5,400 51% 4,050 1,350 1,350
Panvel Indapur 12,060 26% 9,000 2,290 2,123
Nagar Kopargaon 2,340 51% 1,750 590 590
Sangli Shiroli 3,300 46% 2,475 825 825
Kotkapur Muktsar 1,080 74% 800 280 280
Vasai Bhivandi 2,140 100% 1,540 600 600
Source: Company
Fig 12 Orderbook break-up, by type
BOT
25.0%
Non BOT
75.0%

Source: Company

Fig 13 Orderbook break-up, by region
North
45.0%
East
20.0%
West
35.0%

Source: Company

19 August 2014 Supreme Infrastructure Poised for growth; Buy
Anand Rathi Research 5

Valuations
We expect revenue growth to bounce back in 2QFY15 as procedural
hurdles ease. With the equity funding for BOT projects in place and
reduced leverage on balance sheet, the company is poised for growth in 2-
3 years. We retain Buy, with target of `512. Our SOTP target of `512 is
based on 5x FY16e PE of the construction business (`389, a 50% discount
to midcap target multiples) and 1x Mar14 P/BV (`115).
Fig 15 12-month-forward PE: Mean and Standard deviation

Mean
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Fig 16 Sum-of-parts valuation
Basis of Valuation Driver Value (`m) Multiple (x) Value (`m) Value/ share (`)
Core Construction P/E FY16 1,302 5 6,511 389
Supreme Infra BOT Pvt Ltd P/BV FY12 1,924 1 1,924 115
Rudranee Infra P/BV FY12 180 0.8 144 8.6
Fair Value 512
Source: Anand Rathi Research
Risks
A significant rise in interest rates.
Slowdown in order inflows/execution.








Appendix

Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange
Board of India (hereinafter SEBI) and the analysts compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have
no bearing whatsoever on any recommendation that they have given in the Research Report.

Important Disclosures on subject companies
Rating and Target Price History (as of 19 August 2014)
Supreme
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Date Rating
TP
(`)
Share
Price (`)
1 09-Mar-12 Buy 333 232
2 04-Jun-12 Buy 350 259
3 01-Oct-12 Buy 436 293
4 09-Apr-13 Buy 360 212
5 14-Nov-13 Buy 366 217
6 03-Jun-13 Buy 512 337











The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking
revenues.
Anand Rathi Ratings Definitions
Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%

Anand Rathi Research Ratings Distribution (as of 19 August 2014)
Buy Hold Sell
Anand Rathi Research stock coverage (182) 61% 27% 12%
% who are investment banking clients 5% 0% 0%

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Additional information on recommended securities/instruments is available on request.