initiating coverage report on marg ltd - inventure growth

201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 1

Stock details

Shareholding pattern as on 30th June 2010

RESEARCH ANALYSTS

ANSHUMAN JAIN DIVYA KANT

[email protected] [email protected]

BSE Code 530543

NSE Symbol MARG

Bloomberg Code MRGC IN

CMP (Rs) 219.30

Market Cap. (Rs. in Cr) 722.00

Face Value (Rs.) 10.00

Book Value (Rs.) 131.14

52 Wk High (BSE) Rs 220.95 (02 Sep,2010)

52 Wk Low (BSE) Rs 110.50 (21 Aug,2009)

Target Price (Rs) 340

Time Horizon 18-24 Months

Marg Ltd “BUY” 02nd Sep, 2010


Company Profile….

MARG Limited is one of India’s fastest growing EPC and Infrastructure development

companies.

It was established in 1994 and is headquartered in Chennai; MARG has presence in Infrastructure

Development with presence in diverse sectors such as ports, ship repair yards, dredging, marine

logistics, special economic zones (SEZs), airports, power and multi-level car parks. MARG's real

estate business constitutes commercial spaces like malls, serviced apartments, hotels and residential

spaces including villas, row houses and affordable homes.

In addition to infrastructure and real estate development it is also engaged in the EPC space, catering

to both Greenfield & Brownfield projects

The company’s innovative business is centered on the concept of region development. The company

prime focus is not only on standalone projects but on those that provide opportunities to exploit the

synergies of its infrastructure, real estate and EPC capabilities. It triggers growth in a barren tract of

land through infrastructure creation; MARG has special capability to spark off economic activity

those results in rapid region transformation. Co-creation is a key element of MARG's business model

- the people in the impact region are involved in the region development process. Increased

economic activity creates demand for social infrastructure, housing, transportation, power, water and

associated services. MARG, with its in-house expertise, is fully equipped to absorb a significant

chunk of this demand.

A unique feature is its capability of scaling up operations in the shortest turnaround time with strong

focus on quality & combining aesthetics with strong business sense.

Marg has been a pioneer in development on Chennai’s Information Technology corridor and

includes clientele such as Mahindra Satyam, TCS to name a few.


Marg – The Growth Trajectory….

Marg in the first growth phase initially gained domain expertise in the infrastructure & real estatedevelopment

In the second growth phase company organized the company in three different segments,developed processes & strengthened the employee base

In the third phase of growth i.e.2009-2014 the company is to focus on region development &leverage on the strengths of key infrastructure player. The company looking forward to foray intoareas likes power, Logistics Park & port based SEZ.

(Source: Company)


Marg Ltd – Business Segments

Infrastructure Development : Marg has a presence in the segment via Marine Infrastructureand services & Urban and Industrial Infrastructure

Marine Infrastructure and Services

PortsMarg has built a port and is under by its wholly owned subsidiary Karaikal Port Private Ltd(KPPL). It has signed a concession agreement for 30 + 20 years signed with the Govt ofPuducherry in Jan 2006 for the purpose for designing, building & operating the port on BOTbasis. The port is strategically located on the eastern coast of India between Chennai & Tuticorinport. It has ~ 603 acres of leased land for development of which eventual capacity of 47 MTPAfor 9 berths to be built in three phases. The phase I (5.2) MTPA was completed and is operationalfrom April 2009. The port has handled 170 vessels and more than 1.7 MTPA of cargo. The porthas multi cargo handling capabilities. The company is also developing Phase II which is expectedto be operational by Sep FY11 having a cumulative capacity of 21 MTPA & also having liquidcargo handling capabilities. The company has obtained environmental clearances & financialclosure for Phase II has been completed.

Ship Repair Yard cum Minor Port at MugaiyurMARG has obtained a formal approval from the Government of Tamil Nadu for developing aCaptive Ship Repair Yard with a minor port on BOT basis at Mugaiyur, Kanchipuram District,Tamil Nadu. The facility will have dry-docks, afloat berths and wharfs for a minor port. Thisgamut of facilities would serve ships sizing from Handymax to Capesize. The type of cargoenvisaged is machineries, raw materials, agro products, containers etc. The project will go a longway in serving the repairing needs of vessels sailing on /to the entire east coast as there are no shiprepairing facility that is currently available. The current status for the same is port limits have beennotified & land acquisition, feasibility study, master plan and detailed project report are to beinitiated by the company.

DredgingThe company is into the dredging operations through its wholly owned subsidiary MargInternational Dredging Pte Ltd (MIDPL), Singapore. This is currently deployed at Karaikal portPhase II for dredging purposes. Marg Cauvery the suction dredger has completed dredging ofmore than 15 Mn cubic meters. MIDPL intends to acquire three additional dredgers in a phasedmanner in the coming years to meet the growing requirements.

Logistics & WarehousingMarg is also operating in the allied business area like logistics as well as warehousing through itswholly owned subsidiary Marg Logistics Pvt Ltd (MIPL). It is engaged in end to end logisticsmanagement for Karaikal port. The company is planning to set up a logistics hub in different partsof South India in order to consolidate cargo for the Karaikal port. The company is also looking foropportunities in other ports.


Urban & Industrial Infrastructure

MARG Swarnabhoomi is the companies development in the urban & industrial infrastructure

space.It caters to the requirements of business, living as well as knowledge hub. It is spread

across a vast area of 613 acres and includes engineering as well Multi Services SEZ. It is

designed by world’s leading architect HOK, USA.

Light Engineering SEZ

The project caters to industries like Electronics (PCB, LCD Manufacturing), Auto-ancillaries,

Power and Energy equipments, Marine Equipment and General engineering products among

others. Many well known companies have already signed up and companies like Virgo,

Grundfos, Vanspall, Polyhose and a subsidiary of TVS group have commence operations or will

do the same in FY11.

Multi Services SEZ

The Multi Services SEZ is to cater to the requirements of IT/ITeS, Data Centers, Trading,

Logistics, Animation, Education and Healthcare among others. The Science Park here offers

facilities for high end services in the field of life sciences and Agri sciences.The Multi Services

SEZ has its clients as some of the global majors in the BPO and Life Sciences sectors. The

innovation hub has all the necessary elements for the successful R&D.

Living

The residential hub is targeting 14,000 dwelling units for people of all social classes, world class

amenities, hospitality & entertainment and eco-friendly neighborhood and an international school

which is already operational.

Knowledge Hub

The company aims to make a Knowledge hub having a potential of becoming a centre of

excellence for the South Asian region. The world’s top ranked research university like Virginia

Tech is setting up its India Campus at company’s this project and other upcoming world class

institutes in the field of Management, Nursing, Maritime Education, construction technology,

arts, fashion, engineering, logistics and Sound & Animation among others, Virginia Tech MARG

Swarnabhoomi will offer specialized courses in Nano Technology, Bio technology, Automotive

and IT apart from cutting edge research facilities. It will also house BVM global residential

school for children and Swarnabhoomi Academy of Music (SAM) for advanced level music

training.


EPC (Engineering, Procurement & Construction) Sector

Marg Foundation the EPC arm of Marg is focused on providing engineering, construction &

technical services on turnkey basis in multiple business verticals. The company has a consistent

track record in execution of projects and a vast experience of 15 years.

The company has a robust order book of Rs 2800 Cr as on 30th June, 2010.

Some of EPC division Milestones

Ports

Construction of Port Including 1.6 Km of break water,2 berths, yards, storage place, railway

sliding etc.Dredging of more than 15 Mn cm & related marine service

Roads

Completed more than 60 Km of roads, including 2 lane, 4 lanes & ghats

Power

Executed contracts worth more than 100 MW for RCI Power, Enercon, Asian Wind Turbine

Integrated Cities

Townships & SEZ

25 Km of road network, 700 m of water supply, 2500 m of sewage system, residential &

commercial buildings of 1 Mn sqft

Others

Transformer yards 33 kv -104 Nos

Transmission lines for 132 kv and substation work


Real Estate

Marg Junction’s commercial project is first of its kind in Chennai and would lead to generate better

occupancy upfront from various integrated offerings


Others……

SIGNA Infrastructure India Limited, the JV Company floated in public Private Partnership,

between MARG (74 %) & HUDCO (26 %). SIGNA will be benefitted by way of – Technical

know how of HUDCO & MARG’s experience in infrastructure project implementation . The main

sphere of the joint venture would be infrastructure projects like fishing harbors, seaports, airports

and road projects.

Fully Automated Multi Level Car Parking (MLCP) on BOT Basis The concept of MLCP is

popular in several developed countries and provides the optimal solution to meet the growing

parking requirements utilizing vertical space, rather than expanding horizontally. The company

has bagged the order for the construction of the same in consortium with Apollo Hospitals

Enterprise ltd in Chennai through tendering process. The company has received the concession

period of 20 years including 2 years of construction period with a provision of right for

development of commercial facility along with the MLCP facility for the entire BOT period. The

total project is Rs 30 Cr with 300 equivalent car parking spaces and has a space of ~7,201 Sq

meters.

Bijapur Airport the company has been awarded the contract for the development and operation

of a Greenfield airport at Bijapur in November 2008 by the Government of Karnataka, on BOT

basis under the public-private partnership (PPP) model for 30 year concession period. MARG has

to design, develop, operate and manage the airport during the concession period. The total project

cost during Phase I estimated around Rs.150 Cr. The project is spread over 727 acres involving

542 acres for airside development & the balance 185 acres for commercial development consisting

of pilot training institute, engineering college, hotels & cold storage facilities. The current status is

MARG has signed “Project Development Agreement” with GOI & currently is in discussion with

various international developers.


Industry Overview….

The Budget for 2010-11, acknowledging the importance of infrastructure development,significantly raised the allocation for the sector

Rs 1, 73,552Cr (US$ 37.57 billion) provided for infrastructure development which accountsfor over 46 % of the total plan allocation. Allocation for road transport increased by over 13 % from Rs. 17,520Cr in (US$ 3.79billion) to Rs 19,894 Cr (US$ 4.31 billion). Rs 16,752Cr (US$ 3.79 billion) provided for Railways, which is about Rs. 950Cr (US$ 205.81million) more than last fiscal.

Further as per a PWC reports that India offers unlimited opportunities as it neededinvestment of $500billion for infrastructure development in the next three years alone.

The Planning Commission had targeted Rs. 22.5 trillion (USD 500 billion) in investment forinfrastructure development under the Eleventh Five Year Plan (2007-2012), and hopes toachieve this either within the stipulated time period or in the first year of the 12th Five YearPlan.

Port Sector….

Seaports are a sector where investments would grow substantially, especially from the Privatesector. India has more than 7500 kms of coast line serviced by 12 major ports and 187 minor ports.Almost 95% of foreign trade by volume and 70% by value happens via the sea route. Around 75%of the cargo is handled by the 12 major ports today. However, this is expected to change in thecoming years, as the other ports are growing at a faster clip. India still needs to invest a lot inmodernizing, increased capacity and ability to accommodate the larger vessels and increasingcontainer traffic of today. India is expected to double its Ports capacity to 1500 million MT by2011-12.

As per GOI estimates, an investment of around US$13.5 billion in the major ports and around US$4.5 billion in minor ports is needed over the next 5-7 years. The port sector is all set to grow in thecoming years with tonnage traffic likely to increase by around 11 % till 2015 and a 14 % increaseannually in container traffic – significantly higher than the global growth average of about 9%.

The non major ports likely to see traffic CAGR growth rate of ~ 16 % over FY 09-14 V/s 5.3 %CAGR for major ports. Thus the traffic at non major ports is expected like Karaikal is expected togrow their share in port traffic to ~ 41 % in FY 14 as compared to 30 % in FY 09

(Source: Crisil)


Real Estate Overview

The real estate industry is a cluster consisting of industrial and service sectors like real estate

(Housing Construction, Construction of Commercial offices, Retail and industrial buildings and

Infra structure projects), brokerage services, real estate finance services (mortgage banking, real

estate investment), real estate operations, property management, architecture and design. The

Indian real estate sector plays a significant role in the country’s economy. Construction being the

second largest economic activity after agriculture is expected to boom going forward.

~ 5 % of the country’s GDP is contributed to by the housing sector in 2009. In the next five years,

its contribution to the GDP is expected to rise to ~ 6%.

Further India’s property sector should initial signs of recovery after improve from late 2009 and

may attract up to US$ 12.11 billion in real estate investment FY 14. Almost 80 per cent of real

estate developed in India is residential space, the rest comprising of offices, shopping malls, hotels

and hospitals. The revival was led by the demand for affordable residential property.

Several service sectors are also witnessing a revival, with the IT/ITES sector, which accounts for

about 50-70% of demand in India's property sector, ramping up hiring plans and raising salaries

The pan India residential demand is estimated to be over 7.5 million units by 2013 across all

categories, including Economically Weaker Sections (EWS), affordable, mid and luxury segments.

The affordable housing segment is pegged to become a Rs. 300,000 Cr market by 2011.

(Source: Economic Times and Knight Frank report titled, 'Affordable Housing in India,')

With economy growing at a good pace, the country's office space absorption is expected to rise by

23 million sq ft by FY13.

The organized retail market is expected to grow at 25-30% annually and entail greater geographical

spread of organized retail into tier I and tier II cities, and demand for retail space.

The hospitality segment is also growing at a very rapid pace. The visitors extend their stays or

come again as leisure travelers Tourism infrastructure is still developing which will lead to

increased occupancy rates and average room rents. With access to cheaper options to fly and

budget hotels & serviced apartments to stay in, the leisure industry is looking at major growth.

Domestic tourism has also been bolstered by growing disposable incomes.


Airport Space

India’s metro city airports of Mumbai & Delhi have been modernized and are comparable to the

world class standards. The Government of India’s large scale improvisation and expansion in the

Indian airport infrastructure market coupled with active government support for private

participants, particularly in Greenfield projects, has enabled the sector to take huge strides

forward. These initiatives indicate that long term prospects for both private participants & India

are promising

The drivers for the airport infrastructure development in India have been emerging

business places, increased scope for connectivity, operating models of airlines, government

initiatives and the dynamic growth of tourism.

Growth Forecasts 2009 – 2013….

International aircraft movement is 13 % and domestic is 14 %.

The domestic passenger growth is estimated to be 20 % as international is poised to

be at 16%.

The cargo growth is expected to be at 12 % and 10 % for domestic and international

respectively

Source: Company

Another key driver for the airport infrastructure market is the up gradation of 37 non-metro

airports identified by the Airport Authority of India (AAI). These airports are planned to be

upgraded in 3 phases. All these Brownfield airports can have private participants pitching in for

the land side development and some of the areas on the air side development.

The scheduled domestic air services are now available from 82 airports as against 75 in 2006.

The Indian aviation sector is likely to see clear skies ahead in the years to come. Passenger traffic

is projected to grow at a CAGR of over 15 per cent in the next 5 years. The Vision 2020

statement announced by the Ministry of Civil Aviation, envisages creating infrastructure to

handle 280 million passengers by 2020. Investment opportunities of US$ 110 billion envisaged

up to 2020 with US$ 80 billion in new projects

Source: CII


Lucrative Chennai Real Estate Market …..

The real estate sector has one of the most optimistic outlook in Chennai. Its growth in the last

few years ensures that there is always a demand for commercial as well as residential properties.

Apart from office space and housing, there is a demand for shopping malls and hotels, preferably

within a radius of 50 to 80 kms around Chennai. Old Mahabalipuram Road (OMR), Taramani

has remained the center of real estate commercial activity soon after the Government declared

the stretches the IT corridor of Chennai. Sriperumbudur Taluk, 40 kms from Chennai is now

home to top multinationals like Nokia, Ford, Hyundai, BMW and Flexitr. Further there has been

a demand for low cost housing continuously gathering momentum since young people want to

live a modern lifestyle and are focused on spending in malls & other leisure activities and

thereby providing major boost to the retail segment.

Chennai a great Location Advantage …..

India on the global map and amongst the cities Chennai is among the top ten preferred

destinations in the world for IT and BPO companies across the world which is a predominant

factor for Chennai’s real estate boom. Chennai is fast emerging as a major manufacturing hub for

auto components and electronic and electrical industries. Chennai as compared to other

metropolitan cities in India has a distinct cost advantage, positive investment atmosphere, better

infrastructure, young qualified workforce, and lower attrition levels, English language skills

which attract many domestic and multinational companies to set up business centers in Chennai.

The demand is lead by IT& ITES sector, which contributes about 90% of the total demand for

office space in Chennai strongly followed by financial service industry.


KEY DEVELOPMENTS Q1FY11

Two subsidiaries posted good set of results

Subsidiary (Rs in Cr.) Sales EBITDA PAT

Karaikal Port Pvt Ltd 36.76 15.96 4.35

New Chennai Township Pvt Ltd (NCTPL)35.24 2.42 2.15

Healthy EPC order book of Rs 2800 Cr as on 30th June, 2010.

Karaikal Port Major Achievements

i) Handled 1.2 MTPA tones of cargo

ii) Peak Discharge of 33,583 MTPA one of the highest by any non mechanized port

iii) MOU signed with a leading trading company for stock, blend & sale of assuredcargo of 1 Mn MTPA with assurance of ~20 % on y-o-y basis

iv) MOU with a major oil refinery for handling crude oil cargo

v) MOU with two major upcoming power plants with an ~ 14 Mn MTPA cargo off take

Handling of Cape Size vessel of 254 mtrs length during June 2010.

Marg Properties the companies arm for residential projects booked 0.5Mn sq feet for theongoing projects of 3.66 Mn sq feet.

Launch of 3mn sq feet of affordable housing residential space in various strategic locations

Marg having a land bank of 1004 Acres near Karaikal Port, MARG Swarnabhoomi SEZ,Krishnapatnam Port, OMR region ~ 40 Mn sq feet for warehouse, industrial plot,educational institutions, and affordable houses are under various stages of development.

Some companies like Vanspall (UK)have already started operations anda few otherslikeVirgo Engineering, Biozeen are in the process of developing facilities to commenceoperations.

Marg International Dredging Pte Ltd (MIDPL), Singapore has recently acquired a newtrailer dredger to further leverage on its existing dredging facilities.


Risks

High Debt Leverage Company: Marg is a highly debt leverage company putting the

company in a risky position if the business does not perform as per expectations. However

this is mitigated as management is looking forward by equity infusion. The company has

recently allocated 56, 31,648 equity shares of Rs 10/- each at a premium of Rs 179.88 via

QIP in May 2010.

Risk of Economic Growth Slowing down: Marg’s business & its integrated complex ie.

(Malls, office & hotel business are linked with the economic fortunes & growth of the

country. However this is mitigated since the low cost of land acquisition provides cushion in

any slowdown of the economy.

Competition from Major Ports: Marg’s Port at Karaikal is expected to receive competition

from ports like Chennai & Tuticorin. Further any change in major tariffs and improvement of

service levels in other ports to pose a threat. However this is mitigated since Karaikal has

location advantage over its Peers Company is also developing Phase II which is expected to

be operational by FY12 & will be having a cumulative capacity of 21 MTPA & also having

liquid cargo handling capabilities.

Delay in demand for residential units: Sales of the companies various properties is

expected to provide healthy top line and provide cushion to the debt of the company. Any

delay in sale of properties would further increase the dependency on the debt putting further

stretching the debt component in the balance sheet.

Tightening of Liquidity by RBI: Monetary tightening has been pursued by RBI in order to

curb the inflation thereby sucking the liquidity from the markets further monetary tightening

would lead to hike in interest rates going forward thereby increasing the interest payment on

the debt.


Investment Rationale…..

Karaikal Port Location Advantage: The port has lot of location as well as competitive

advantage over Chennai & Tuticorin ports including higher drafts, mechanized operations of

(Phase II) as well as evacuation through railway network. Further the congestion at the other

two ports would lead to shifting of port traffic to Karaikal.

Restructuring of Business: Marg has decided to restructure its diversified business like

air/sea port industrial & urban infrastructure for further improvement the operational

efficiency. The management is in talks with various major consultancy firms. Further the

efficiency at the Karaikal port is improving and the company has handled ~ 1.2 MTPA of

cargo in the very first year of operations.

70 -75 % Retail Space to be leased by Mar 2011: Chennai has few malls as compared to

other metro cities however Chennai being among the top destination for BPO & IT

companies it has created a huge demand for eateries, shops & entertainment space like

malls. Some of the leading retailer’s have already moved in OMR area of Chennai

indicating the huge surge in demand.

Airport Infrastructure: Marg is betting big on the airport infrastructure business in the

state of Karnataka. The company has been awarded the Bijapur Airport for the development

and operation of a Greenfield airport aby the Government of Karnataka, on BOT basis under

the public-private partnership (PPP) model for 30 year concession period. The company has

recently bagged the Greenfield Bellary airport project the airport which will be a key

strategic location in Karnataka after Bangalore. Further the place has abundant mineral

resources and has been attracting investments and accounts ~ 25 % for India’s iron ore.

Healthy Land Bank: Marg having a land bank of ~ 1004 Acres near Karaikal Port, MARG

Swarnabhoomi SEZ, Krishnapatnam Port, OMR region ~ 40 Mn sq feet for warehouse,

industrial plot, educational institutions, affordable houses are under various stages of

development with the rise in the occupancy of the of the SEZ and the land bank near

Karaikal port it will involve twin benefits of low cost monetization of the land as well as

high fold appreciation of the land prices.


Strong EPC Business: Marg has a strong order book of Rs 2,800 Cr as on 30th June,

2010.There has significant focus both on the external business as well as internal projects

within the group. The GOI focus on the infrastructure spend Rs 173,552 Cr (US$ 37.57

billion) provided for infrastructure development in Union Budget 2010-11 provides the

company ample opportunities since it is looking forward wanting to scale the EPC business

in the future. The company has an asset light business model in the EPC business since it

hires the equipments rather than owning the same which prevents the strain on the

financials to a certain extent.

Foray into Power Plant: Company has lined up projects worth Rs 2,760 crore over the

next three years. These include expansion of the Karaikal port, a ship repair facility and

residential and commercial projects. The company was also planning to set up a 200-mega

watt power plant. The Rs 800-crore project would come up near its integrated township

project.

Integrated Infrastructure Player: The company is an integrated infra player being an

infra -structure asset owner as well as a real estate developer. Further most of the

subsidiaries like KPPL & NCTPL are 100 % and wholly owned subsidiaries of the

company.

Mugaiyur Port: Marg also has plans to set up another port at Mugaiyur, about 30 km south

of Chennai. Since the company finds exciting prospects and the initial success of Karaikal

Port has boosted the confidence .The main purpose of this port is for ship vessels having

minor repairs & inspectional purpose.


Financials - Income Statement – (Rs. in Cr except EPS)

Particulars FY 10 FY 11E FY12 E

Revenues 364.44 595.00 990

Other income 24.21 15.00 15.00

Total Income 388.65 610.00 1,005.00

Expenditure 285.38 389.72 643.80

Interest 41.32 75.00 155.00

PBDT 61.95 145.28 206.20

Depreciation 18.03 19.00 56.00

PBT 43.92 126.28 150.20

Tax 32.49 36.00 42.06

Net Profit 11.43 90.28 108.14

Equity Share Capital 27.21 32.40 32.40

EPS 3.84* 27.86 33.38

*Diluted


Balance Sheet – (Rs. in Cr)

Particulars FY 10 FY 11 E FY12 E

LIABILITIES

Share Capital (A) 27.20 32.40 32.40

Reserves and Surplus (B) 218.00 332.00 423.00

Net worth C(A+B) 245.20 364.40 455.40

Loans (D) 1,630.00 2,290 2,545

Total E(C+D) 1,875.20 2,654.40 3,000.40

ASSETS

Gross Block 1,525.19 2,331.69 2,712.69

Less: Depreciation 32.69 51.69 107.69

Net Block (F) 1492.50 2,280 2,605

Investments (G) 2.50 2.50 2.50

Net Current Assets (I) 380.20 371.90 392.90

Total J(F+H+I) 1,875.20 2,654.40 3,000.40


Cash Flow Statement (Rs in Cr)

Particulars FY 10 FY 11E FY 12E

Net Profit before Tax 43.92 126.28 150.20

Net Cash Flow from Operating Activities

(A)

98.57 183.32 296.14

Net Cash Flow from Investing Activities

(B)

(680.79) (791.00) (366.00)

Net Cash Flow from Financing Activities

(C)

565.88 612.20 83.50

Increase/(Decrease) in cash & cash

equivalents during the year (D)

(16.34) 4.52 13.64

Cash and Cash Equivalents at the

beginning of the year (E)

52.73 36.39 40.91

Cash and Cash Equivalents at the end

of the year F (D+E)

36.39 40.91 54.55


Karaikal Port to Unfold Multi Growth & a Brighter Tomorrow …..

The operations at its Karaikal Port will be stabilized and port revenue will contributesignificantly to the company's performance in the near future. Karaikal which is anall weather port is expected to contribute to the fortunes of the company. Marg portexpansion Phase II to be completed by Sept 2011 at Karaikal Port.The presentcapacity of 5 MTPA in place will be expanded to the capacity to 21 MTPA with aninvestment outlay of Rs 1,500 Cr.

Currently the port has two berths for coal & general cargo three more berthsexpected to be added with one berth catering to offshore supply vessels and projectsupply vessels operational now. The other two berths would be in place by September2011.

In Q1FY11 Karaikal Port handled 1.7MTPAof cargoV/s 1.6 million tonnes for thenine month period in 2009-10 which is an impressive performance & the long termprospects of the port business seem to be intact going forward.

Further by FY 2017 it is expected to handle capacity of 46.9 MTPA which indicateshigh exponential growth from current capacity of 5.2 MTPA and the company isexpected to benefit from the growing demand & thriving investments made in theregion.

Karaikal enjoys location advantage since situated midway between Chennai &Tuticorin. Since there are large numbers of industries in close proximity it isbeneficial to get cargo unloaded at this port. It also enjoys a rail linkage for deliveringthe cargo which is cheaper than road transport.

Power capacity of ~12,000MW is coming up in the region and all these plants are in a50-km radius from the port, much closer than they are to the major ports. KPPL hasopportunities to transport ~ 4.1 Mn tonnes of coal.

It enjoys high draft currently 12.7m which is expected to be 16.5m once Phase II iscompleted leading to accommodation of capsize vessels.

Since it is an privately managed port as compared to its peers like Chennai &Tuticorin ports which are government managed its enjoys an high operationalefficiency & with the peers operating at high capacities in order to decongest the porttraffic KPPL expected to benefit from it going forward.

Further south based cement companies in the close by vicinity also provide excellentopportunities since by shifting to KPPL they reduce the time from the port to plantsby ~ 50 % and are continuously approaching the company for business tie ups.


Swarnabhoomni – New Chennai Township (SEZ)…..

SEZ targeting light engineering companies an area ~312 acres

Requirements of the service industry (inclusion school) ~300 acres

Lease revenues to have a exponential rise by sale of land bank & residential units &

would account for ~ 25 % revenues by 2014.The total cost is ~ 421 Cr for the total SEZ

cost which are expected to be recuperate by FY2013 onwards

Co has already received commitments ~ 108,000 sq feet in the light engineering space &

~120,000 sq feet in the science park and the rental revenues are expected from H2FY11 &

H1FY12 onwards and these rentals are expected to take the company in a new growth

trajectory and expected land rentals ~ Rs 300 Cr by 2013 are expected

Margi Junction: Commercial Complex at OMR Chennai……

MARG is developing a commercial space of 1.2Mn sq feet comprising of hotel, mall & office.

The complex is in the neighborhood of various IT majors and has a huge demand for shops,

eateries & entertainment. These projects are progressing well and should be complete by mid of

FY12.

~ 70 %retail space is expected to be leased out and company is expected to start generating lease

rentals which will be in the range of 75 Cr in 2012 - 13 when it will be fully operational

Further the company has development plans of the ~141 acres and saleable land ~2.46 sq

feet is on the cards and there is huge potential for the stakeholders if company can sell at

premium prices through direct sale of the property or residential development of the

project…


Outlook &Valuation

Marg Ltd is expected to benefit significantly from restructuring of the business, port

business along foray into airport infrastructure since revenues are expected to grow

multi fold from FY12 onwards and strong order book of the EPC business to act as

growth drivers.

The company is currently in the process of integrating transporters & typing up with

various warehouse operators for the purpose of value addition to its port facilities.

The company is also looking to foray into new business areas like power near its

integrated township project

Marg has a number of potential value unlocking opportunities in the future since the

company has presence in the entire gamut of infrastructure and real estate since

company holds enormous potential on account huge size of business operations which

makes it an eligible candidate for “Re-Rating”

At current market price of Rs.219/- the stock trades at a PE of 6.56 x times of FY 12

estimated earnings of Rs 33.38/-

We recommend a “Buy” at a CMP with a target of Rs. 340 /- in next 18 – 24 months.


For Any Queries please feel free to contact our Institutional Team

Names Designation E-Mail Id. Contact

Nagji Rita CMD - -

Sales

Ravinder Kasliwal Head Institutional Sales [email protected] 40751565/66

Dealing

Shiv Damani Institutional Dealer [email protected] 22723797

Vinit Rita Institutional Dealer [email protected] 40751565/66

Rashda Ainapore Institutional Dealer [email protected] 40751565/66

Research

Denil Savla Research Analyst [email protected] 40751515

Sheetal Nirmal Research Analyst [email protected] 40751515

Pankti Shah Research Analyst [email protected] 40751515

Divya Kant Research Analyst [email protected] 40751515 * 582

Anshuman Jain Research Analyst [email protected] 40751515 * 581

Sanjeev Haria Research Analyst [email protected] 40751515

Sibayan Banerjee Technical Analyst [email protected] 22723797

Ashok Patel Technical Analyst [email protected] 22723797

Madhu Patel Technical Analyst [email protected] 22723797

Disclaimer

Inventure Growth & Securities Ltd has prepared this Document. The information, analysis and estimates contained herein are based on Inventure’s

assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or

associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its

completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only

Visit us at www.inventuregrowth.com

Please send your Feed Back to [email protected]

initiating coverage report on marg ltd - inventure growth

Documents