Mangal Keshav Securities Limited gives Buy Call on Generic Engineering Constructions and Projects Ltd.
Mangal Keshav Securities Limited has given a Buy Call on BSE listed Generic Engineering Constructions and Projects Ltd. (GECPL) with a target price of Rs. 106. The report further said that Generic Engineering’s sweet spot lies in projects with a ticket size of Rs. 25 – 100 crores. As per interactions with the management, there is enough business in this segment for them to sustain growth. Focus on smaller projects and hence smaller developers has allowed payments to be collected faster as according to the Company payments can be easily collected from smaller developers rather than bigger ones. Since they focus only on small orders, they don’t always have to bid for projects like in the case for larger ones. This has led to them having a one on one relationship with builders and hence they don’t always have to quote the lowest price which aids in them getting higher margins.
GECPL said that what makes an industrial project more conservative is that the term loan is tied up and all approvals are upfront compared to a residential project which has to take approvals at regular intervals as the project progresses. Margins are also higher in this segment and hence this will add to the profitability going forward.
With the shift towards organized players, companies such as GECPL will benefit as clients prefer having business relations with organized players. The Company has focused on building internal capabilities by following Standard Operating Procedures (SOPs) and implementing Enterprise Resource Planning (ERP) software and Environment Health and Safety (EHS) norms. Being listed, the Company follows labour laws of the Employees’ State Insurance Corporation (ESIC) and the Employees’ Provident Fund Organisation (EPFO) and hence is a preferred choice among clients (especially MNC ones), the report further added.
GECPL has also made major forays into the construction of special projects such as hospitals, cold storage facilities, educational institutes, and so on. The Company has expertise in constructing cold storage facilities up to the range of – 40o C. GECPL has also started venturing into markets outside its core MMR region. Now, the Company has a geographical presence in Karnataka and Goa. In Sept. 2019, GECPL received an order worth Rs. 15.21 Cr from IBIS Styles located at Goa.
GECPL is currently taking on projects which will help them pre-qualify for bigger projects which will lead to them increasing their bidding capacity from Rs. 200 crore per project to Rs. 400 crore per project in the industrials segment. The Company’s total order book is poised to touch Rs. 2,500 crores by the end of FY 2021. The rise in the book-to-bill ratio from 4x to 6x gives healthy earnings visibility for the near term. With no equity dilution on the cards for the next two years and aided by higher industrial segment margins, earnings are poised to grow. Margins and return ratios have seen a healthy improvement over the past two years and based on interactions with the management are poised to go higher given the rise and change of mix in the order book.
