MEP Infrastructure Developers Ltd: Strong play on Road OMT segment – Not Rated
CMP: Rs43
MEP is one of the few established players in the road tolling and operations and maintenance (OMT) segment. The asset light business model has allowed MEP to achieve consistent growth over the years despite industry slowdown. MEP has increased its focus on long-term projects with an aim to create a stable revenue stream. MEP has increased the share of long-term projects significantly to 67% of FY16 revenues (36% in FY12). MEP bid for Mumbai entry point OMT project in 2010, for which, it paid Rs.21 bn upfront. While this dented its balance sheet, the project is likely to be a strong revenue generator for MEP in the coming years. MEP has always been focused on toll collection and OMT projects. However, it has now ventured into the newly introduced Hybrid annuity (HAM) projects.
MEP has won six HAM projects in JV during the past nine months and sits on an order book of a whopping Rs.38 bn (including JV share). Backed by its HAM portfolio, the company's business model is likely to see a sea change. MEP expects HAM project execution to drive future revenue growth. Although MEP established itself in tolling and OMT over the years, it remains to be seen how well MEP executes the HAM projects. Further, MEP would require capital for executing relatively asset heavy HAM projects. MEP has started to assess funding options; however, it is crucial to have funding in place at the earliest to ensure timely execution.
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