Maytas Infra: Buy

Maytas Infra's well-diversified business operations, strong financials, ability to forge the right partnerships for complex projects and sound management band width may elevate it to the status of a key infrastructure player despite its current mid-sized position.

Investors with a perspective of at least three years can consider investing in this stock. At the current market price, the stock is likely to trade at 15 times its expected earnings for FY10. The valuation is at a marginal premium to similar sized peers. However, the company's well-established presence across high-margin verticals may justify such a premium. Given the present volatility in the market, investors can accumulate the stock on declines linked to the broad market.

Maytas Infra has emerged as a highly diversified mid-cap player in the infrastructure space. The company holds an enviable portfolio mix spanning segments such as roads, ports, airports, water and irrigation, power and civil structuring.

While Maytas has had a well-established presence in road and water segments, its timely moves into sectors such as ports, metro rail and airports (where the State and Central Government's spending activity has more recently gathered momentum) has helped it bag lucrative projects in this space. Maytas' size would have proved to be a limitation for bidding in these sectors, but for its ability to forge tie-ups and form consortiums.

The increasingly large ticket size of orders in the public-private partnership domain coupled with stiffer qualification norms and higher complexity of projects involved would warrant relatively smaller companies to go for tie-ups in order to qualify for bids.

Maytas has therefore adopted the joint venture/consortium route for projects where it lacks the technical expertise or financial strength. We view this as a positive as such partnerships would not only provide technical qualification to Maytas but more importantly diversify the risks involved in public private ventures in new sectors.

The company's order book of over Rs 5,600 crore as of March 2008 is about three times its FY08 revenues. More recently, the company bagged the Rs 12,000-crore Hyderabad Metro through a consortium; the `design, build, finance, operate and transfer' project has an initial concession period of 35 years. With a basket of construction projects and BOT projects, Maytas' portfolio lends itself to strong medium and long-term earnings visibility.

Maytas has further strengthened its balance sheet post its IPO in 2007. The company has demonstrated efficiency in utilising capital with a return on equity (20 per cent) that is superior to most other infrastructure players in the industry. Operating profit margins, hovering in the 12-15 per cent range, although superior, may take a hit in the event of a continued spike in raw material costs.