Gremach Infrastructure Equipment & Projects Ltd - Rs 22.00

Incorporated in 1991, Gremach Infrastructure Equipment & Projects Ltd’s (GIEPL) main activity is to provide rental of construction/earthmoving machineries to medium & large construction companies who are engaged in the business of infrastructure developments like constructing of roads, airports, dams, power projects, mining activities, housing & civil construction and other related activities. GIEPL’s business is flourishing rapidly as it makes business sense for the construction companies to take these costly construction equipments on a rental basis instead of blocking their capital in procuring equipments which may not be used for executing other projects. The other advantage of taking the equipment on rental basis is the availability of quality equipments without the hassle of their maintenance. Thirdly, with rapid technological developments, the cost of replacement of these equipments is also very high and hence the developers now prefer to take equipments on rent rather to own them. Over the year, GIEPL has pursued a strategy of diversifying the selection of machinery/equipment according to different business segments in the infrastructure sector. In addition to renting its owned equipments, company also hires equipments owned by other parties and rent it out to its own clients. Infact, GIEPL has been deriving majority of revenue from renting of equipment which are exclusively owned by third parties. This is possible due to the fact that, company has established a very strong network so as to have a geographical reach as well as a diversified industrial and project segment.

Remarkably, GIEPL is among the handful of large player in the organized sector, which is presently being dominated by small unorganized players. But as the project location are diverse and the equipment requirement at various sites may vary, only bigger companies with strong financial muscle like GIEL can fulfill the requirement. Secondly, company has an edge over its peers as it has huge asset bank of heavy equipments ranging from compacters, rollers, concrete mixers, dozers, forklifts, loaders to excavators, PTR, dumpers, electronic sensor pavers, kerb laying machine, tunneling boomer, concrete batching and mixing plant. Moreover it also has a vast pool of skilled labour that include mechanical engineers, civil engineers, mechanical experts, technicians, and operators etc. who operate and maintain the equipment. Because of all these factors, GIEPL boats of having a very strong clientele base that includes all the major infrastructure players in the country such as L&T, Punj Lloyd, Shapoorji Pallonji, Gammon India, HCC, Gannon Dunkerley etc. Incidentally, company adopts direct marketing approach and has set-up a separate Tender department to procure contracts from public sector undertaking as well as from private clients. As of now, company has a centralized maintenance department & workshop in Kalamboli, Navi Mumbai spread over an area of 450 sq. mtrs each.

As a part of its diversification plan, GIEPL has taken 75% controlling stake in 11 Coal mine licenses in Mozambique having an aggregate 13,520 hectares (appx. 13,52,00,000 sq. mts) of land in prime region of Moatize, Africa. With the global shortage and crisis of hard coking coal, the future prospect of this business looks terrific. To cash on the real estate boom, company has also ventured into setting up of SEZ and has received formal approval for 100 hectares Metal SEZ at Kolhapur & another at Dhule in Maharashtra. Witnessing a sharp jump in E&P activities across the globe, company has planned to enter into the business of renting of oil & gas drilling rigs. Accordingly it has signed the MOU with China's biggest oil & gas rig manufacturer and has placed order for design and manufacture of four rigs. Although in short term both the above diversification looks a risky venture, but in long term it may emerge as a sustainable and profitable business.

To conclude, with govt’s special emphasis on creating physical infrastructure and massive investment being planned in coming years, GIEPLS core business of renting equipment will continue to do exceedingly well. This concept is growing rapidly and gaining wide acceptance as the penetration level in India is quite low at 2%, compared to UK at 80% and North America at 35%. In order increase its equipment bank, GIEPL has raised almost Rs 200 cr in Feb 2008 thru FCCB route to be converted into equity @ Rs 376 per share. However, considering the CMP, the bond holders may not opt for conversion and hence company has to redeem the bond. The only saving grace is that, redemption is due by Jan 2013. Fundamentally, GIEPL has reported an EPS of Rs 24 for FY08 whereas for H1FY09 it has already earned an EPS of Rs 13. Despite such performance its share price which hit a high of Rs 500 in Jan’08 is not finding any buyer even at Rs 25. The share price of its other recently listed group company “Austral Coke” has also fallen sharply from Rs 300 to Rs 100 presently. Even after taking a slowdown into consideration, GIEPL may end FY09 with topline of Rs 300 cr and NP of Rs 24 cr i.e. EPS of Rs 16 on current equity of Rs 15.20 cr. However company has huge debt on its book despite excluding FCCB of Rs 200 cr. Hence although company doesn’t look cheap at an Enterprise Value of Rs 400 cr still the downfall from current level looks minimal. Only aggressive investors can buy at current levels as share price can double in 12~15 months.

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