RPP INFRA : A SOLID BASE WITH A SOLID BUILDING, BUY

RPP Infra Projects BUY CMP: Rs286 TP: Rs345
n Strong execution, muted margins: RPP Infra (RPP) reported strong execution with muted margins. Revenues came in at Rs1079.2mn, up 25.9% YoY in Q2FY18,  EBITDA at Rs136.7mn was up 4.8% YoY, while EBITDA margins were down 250bps YoY at 12.7%. Margins were impacted due to a 133% and 50% increase in the Other Operating and Employee Expenses.  PBT was up 14.6% YoY to Rs97.6mn. PAT was up 10.9% YoY at Rs66.1mn. RPP expects to end FY18 with revenues of  ~Rs4.7bn with ~13.5-14.5% EBITDA margins in FY18 and expect to improve the revenue to  ~Rs6.5bn in FY19.
Strong Order Book: Order book at the end of Q2FY18 stood at Rs10.4bn, with 26% from buildings, 43% from Water Management and Irrigation and 31% from infrastructure and is expected to end the year with a book of Rs12bn. RPP received an Order Inflow of Rs3.49bn in Q2 led by a Rs1.9bn order from Tamil Nadu Water Supply and Drainage Board in the Water Management space. RPP is L1 in orders worth Rs1.06 bn. RPP is constantly expanding their reach with mainly Madhya Pradesh and Karnataka. RPP historically been bidding for order ticket sizes in the range of  Rs600-800mn and will now looking forward to bid for orders in the Rs1500-2000mn range.
Concall Highlights: 1) Seeing great traction in Orders due to the Central Government’s focus on Infrastructure Building specially  in Rural Infrastructure Development. 2) Main concentration for the company is Drinking Water and Irrigation Projects 3) RPP can bid for Rs2-2.5bn worth orders post completing Rs1.9bn TWAD order 4) Will have an EBITDA margin of 15-18% in the TWAD order 5)  Aim to reduce Working Capital by 10days in FY18(180 days at end of H1FY18).
Valuation: The stock is trading at 15x FY19E earnings. We expect RPP to deliver Sales and PAT CAGR of 27%/30%, respectively, over FY17‐20E. We believe the company is a good play on government’s increasing focus on improving rural infrastructure. We maintain a BUY with a TP of Rs345.

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