Traditionally, Madhucon Projects Limited (MPL) has mainly catered to the roads and irrigation sectors. Currently, it has nine projects in hand including constructing a dam across Penuganga river in Maharashtra at a project cost of Rs100 crore.
Overall, given the irrigation investments by the states of Andhra Pradesh, Maharashtra and Karnataka, among others, this segment was second largest contributor to the company’s topline after the Road segment. Pertinently, the irrigation segment fetches better margins than the road segment.
To ensure future growth and insulate itself from any potential slowdown in a particular segment, MPL has been investing and foraying into different segments including coal and power.
It has also acquired additional exploration license for a coal mine in Indonesia covering 19,000 hectares. However, pending availability of geological/exploration surveys, we have currently not valued the same. The company is also setting up a 540MW capacity power plant in two phases.
We expect MPL to grow at a CAGR of over 39% over FY2008-10 on the back of a robust sector outlook and strong order book position. Based on SOTP methodology, we have arrived at a Target Price of Rs536 by assigning a PE of 12x FY2010E EPS of Rs18.7 (we have redcued P/E multiple on the back of overall turmoil in the Equity markets) for its core construction business.
Further Coal Mining, BOT, Real Estate and Power businesses would fetch Rs166, Rs93, Rs29 and Rs24 per share, respectively. We upgrade the stock from Neutral to BUY, with a Target Price of Rs536.