Among the smaller companies in the infrastructure space, road player MBL Infrastructures is well placed to gain from the improving outlook.

For one thing, MBL Infra has not followed an aggressive strategy unlike some of its peers. In the build-operate-transfer segment, the company has four road projects under implementation.

Two of these have a relatively lower risk, being on an annuity model, where the road developer receives fixed half-yearly payments from the state or national highways authority and is not subject to the volatility of traffic flow.

MBL has one completed BOT project on which it is collecting tolls.

The other BOT projects will become operational over the next 15 months.

The second reason MBL is well placed to grow is because it simultaneously undertakes pure construction of roads on a contract basis, or as EPC (engineering, procurement and construction) projects for third parties.

Thirdly, MBL is an early mover in operations and maintenance of completed roadways, a segment with strong potential and accounting for 17 per cent of its order book.

Fourthly, MBL has diversified from roads into segments such as railways, where there are now many opportunities.

Industrial and residential buildings are the final segment MBL operates in. The company is now looking into booking construction contracts in port development and connectivity through joint ventures.

Thanks to its EPC business, MBL sales have been growing. Over the past three years, revenues have grown 21 per cent on a compounded annual basis. In the six months to September 2014, sales were up 14 per cent.

Cost concerns

However, higher labour and raw material costs capped the company’s profitability during this period.

Operating profit margins dropped from 14 per cent in the 2012 fiscal year to 11 per cent now.

Margins are, however, on par with most peers.

But interest costs take up 4-5 per cent of sales and interest cover is not high at 2.5 times.

But MBL managed to raise ₹117 crore in equity through institutional placements last month, balancing its heavy debt to an extent.

At ₹438, the stock has soared in the past year, taking price-earnings multiples from around three times the trailing 12-month earnings to 9.9 times now. This is still well within the upper level of its five-year band, and is also partly due to the sudden equity expansion.

On estimated earnings for 2015-16, the stock trades at a PE of 7.2 times. Investors with a two-year perspective can buy it. But given that it is a small-cap, a higher risk appetite is warranted.

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