Maytas Infra

The acquisition of a 20 per cent stake by the $4.36 billion Saudi BinLaden Group (SBG), the approval of the corporate debt restructuring package and a recent order win from an IL&FS associate company augur well for Maytas Infra. Though the company, which is into infrastructure development, was being run by IL&FS which is the single largest shareholder with 37 per cent stake, Maytas has been struggling to win major orders post the Satyam scam. Nevertheless, the recent developments suggest better times could be ahead.

New promoters, open offer and CDR

To comply with Sebi regulations, SBG has come out with an open offer on Monday to buy a further 20 per cent stake in Maytas Infra at Rs 195.72, which is at a 6 per cent discount to the current price. Though it looks unlikely given the current market price, if the offer is successful the new promoter will be single largest holder of Maytas stock with over 40 per cent stake. SBG has an agreement with IL&FS to jointly run the company. In addition to the Rs 290 crore cash infusion from the preferential issue which will be used to fund expansions and repay debt to the tune of Rs 110 crore, the key benefit from this strategic stake in Maytas is the fact that the company can access the Saudi parent's expertise in the EPC space as well as bid for contracts outside India. The financial backing of SBG, the largest construction and development contractor in Saudi Arabia, could also be critical as it would help the company bid for larger projects in the booming infra space in the country.

In addition, the CDR approval last week through which part of the debt has been converted to equity (and allotted to banks which now own 3.54 per cent) will help reduce the debt burden to Rs 800 crore from Rs 1,800 crore before the arrangement. Interest costs which were at Rs 168 crore in 2008-09 and likely to be in the same region in 2009-10, could come down substantially in the current financial year.

Order wins from IL&FS group

Though the order book stands at roughly Rs 8,000 crore which is about six times its 2008-09 sales, there has been adrought of new orders for the company. Over the last seven months, the company won two orders worth roughly Rs 1,000 crore, both from IL&FS Transportation Networks and its associates.

Earlier this month, the company bagged an order from ITNL ENSO Rail Systems worth Rs 185 crore to design and construct elevated viaducts and six stations for Rapid Metro Gurgaon to be completed in 21 months. Its last major order was in November 2009, when it landed a road contract worth Rs 790 crore which will involve the laying down of two additional lanes on the Pune-Sholapur section of NH-9. This 100 kilometres stretch coupled with a slew of bridges is to be completed over the next two years. However, given the strategic stake of SBG and IL&FS, expect the company's order book to grow going ahead.

Should you buy?

The recent developments are a major positive for the company and should put it on track to participate in the infrastructure and construction boom that is likely to take place over the next few years. While the future looks much better, the financials don't look too good, (2008-09 loss was at Rs 489 crore), as the company is expected to report aloss for the 2009-10 as well on a lower turnover and high cost base. While the stock has recently touched a 52week high of Rs 253 last week on various news flow before falling to Rs 200 levels and seems to have factored in the positives, investors should await the 2009-10 results before making any decision.