GREMACH INFRASTURE

Religare has initiated coverage on Gremach Infrastructure with a BUY rating. Engaged in the business of leasing out construction and mining equipment. Strong government thrust on infrastructure development coupled with Gremach's timely equipment acquisition (capex of Rs 1.3bn) will drive a revenue CAGR of 62% CAGR over FY07-FY09. Aggressive forays into onshore oil rig rentals, SEZ development and coal mining would fuel the next phase of growth for the company.

Orders placed for 40 onshore oil rigs for an amount of US$ 1bn to be delivered in the next three to four years by Bomco, China's biggest oil and gas rig manufacturer. This would make Gremach the biggest onshore rig rental player in India. Investing Rs 2bn to establish an SEZ in Kolhapur, Maharashtra and a further Rs 2.3bn to construct a saw pipe manufacturing facility within the zone. About 250 acres of land already acquired for the proposed SEZ.Coal mining rights acquired in Mozambique with estimated coal reserves of 200mn tonnes, which if proven, will place Gremach in the select club of Indian companies operating mines outside India. We expect this business to be extremely profitable for the company, but have not valued the same due to the absence of information.

Valuation and Recommendation:
Sum of the part valuation of Gremach Infrastructure
Rs 242/share for the core business based on a P/E of 12x on FY09E (20% discount to larger peer Sanghvi Movers).
Rs 195/share for the rig business based on FCFE approach and assuming 10 rig acquisitions in FY08 and FY09.
Rs 92/share for the SEZ foray (250 acres of Kolhapur land valued at Rs 7.5mn/acre).

Hence a Target Price of Rs 527 with upside of 47% from current levels in 6-12 months