Marg Ltd  (Rs.19.75): Will Slowly Move towards Rs.89-90

Book Value: Rs.180.91

Market Cap: Rs.75.28 Crore only

MARG Limited (formerly MARG Constructions Ltd) is one of the leading Infrastructure & Real estate Company in south India. MARG was awarded with the prestigious "Excellence in Infrastructure" award at the Construction Industry Awards 2012, Chennai. MARG is focused on achieving holistic regional development, unlocking economic prosperity and creating inclusive & sustainable growth models. 

The Company, by itself and through its subsidiaries, is undertaking the development and operation of infrastructure projects in the areas of marine infrastructure, urban and industrial infrastructure, thereby pioneering the development of economic growth centers. It owns and operates a port at Karaikal, Puducherry with handling capacity of 28 MTPA and is also developing a 612 acre special economic zone (SEZ), as a part of MARG Swarnabhoomi - 'The Land of New Thinking' on the scenic East Coast Road between Chennai and Puducherry. 
MARG’s EPC division provides integrated turnkey solutions by offering a plethora of services including integrated design, engineering, material procurement, field services and construction & project management services for infrastructure sector and real estate projects for its various subsidiaries as well as external customers. The Company also offers quality residential spaces, predominantly catering to the mid segment and affordable segment categories and commercial spaces as developing a multi-use commercial building, in the heart of Chennai's IT corridor, comprising retail space (mall & multiplex), office space, hotel and service apartments. Besides this, the Company is developing and executing various commercial & residential projects in other states, which have gained momentum in recent years.

Positives  

Though concerns continue to exist over the current account deficit scenario, prevailing supply side constraints, inadequate infrastructure investments and long term policy directions, but with INR appreciating against the USD and the newly elected NDA Government likely to give greater impetus to infrastructure development and planning (to double investments in the infrastructure sector, over the period of next five years), is expected to give a major boost to the construction and infrastructure activities. The NDA Government is focused to make major amendments to land acquisition laws, which is hoped to accelerate the process of Land acquisitions.

EPC VERTICAL

The FY12-13 was a challenging phase and emerged as a year of consolidation for project execution and other business aspects. It has an unexecuted EPC order book is at Rs.3,800 Crores as of March 2013 constituted by 19% for Group assets like Port, Mall and others and 81% for external customers including 45% for civil work for group’s projects for residential and external customers and 36% for Government, PSU and other Corporate EPC customers. It is participating in fresh tenders in FY15. 

MARG EPC division has signed agreement with Momentum Group, an Irish-registered Company established in 1983 with its headquarters in Dubai, which qualifies MARG to foray into off and on-shore oil & gas sector. The Momentum Group actively markets well drilling and program engineering services providing total drilling operations management for jack-up, land drilling and pipeline projects all over the world. Some of their most recent projects and services being in the Caspian region (Azerbaijan, Russia, Turkmenistan), Far East (Malaysia), Middle East (UAE, Iraq, Kuwait), Turkey and North Africa (Egypt).

MARG is in the process of building a healthy pipeline of additional EPC contracts - bidding for mega contracts in the specialized areas like marine, industrial projects, urban infrastructure and solar & alternate energy sector.

Apart from this, recent approvals obtained for residential projects, infusion of funds into MARG Junction; Launch of Service Apartments will increase the EPC division’s turnover from MARG in the forthcoming years.

The EPC division which was catering to the need of in-house and external projects has successfully handed over Pushpadrum Residential Project and is in the process of handing over its other residential project MARG Vishwashakthi at Tirupathi. Twin Disk project is completed and full-fledged development of MARG Institute of Technology Science is being done in Swarnabhoomi. 

On completion of Berths & allied Infrastructure, Edible Oil & Molasses Tank farms, Marine Loading & Unloading arms, Truck loading system execution is now focused and is nearing completion on construction of break waters, Stacker Cum Reclaimer, Wagon Loading System, Ship Unloaders and Conveying System in Karaikal Port. 

The external project team has completed wagon fabrication work for Braithwaite Company Limited, Jhansi I & II for Northern Central Railways. Multi Storied Residential project for BHEL is completed & Residential project for HUDA in Rewari, Haryana, as well as 200 bedded Cardiothoracic Hospital for Military Engineering Services is nearing completion in Northern Region.

MARG EPC has been appreciated for safety practices, a notable achievement as the present accident frequency across all project sites is 0.25, as per Indian Standard: 3786-1983.

Some of the prestigious projects include construction of head quarters for Bureau of Police Research & Development (BPR&D), National Crime Records Bureau (NCRB) and allied works at Mahipalpur, New Delhi from NBCC. Other projects include medium format assignments like construction of a school and miscellaneous city beautification work at Mahe, awarded by Government of Puducherry and Construction of Facilities for Research in Experimental Nuclear Astrophysics (FRENA) laboratories for Dept. of Atomic Energy, at Kolkata. 

Port

Karaikal Port – a deep draft, all weather port is owned and operated by Karaikal Port Private Limited - a subsidiary of MARG Limited. The Port is now in the fifth successful year of operations. The Port has handled 6.61 MMT of cargo in Financial Year 2013 as against 6.01 MMT in Financial Year 2012, which is a straight 9.98% increase. Revenue for the Financial Year 2013 went up by 25.14%, from Rs.221.35 crores to Rs.277 Crores. EBIDTA for the Financial Year Rs.2013 is Rs.133 Crores and Rs.100 crores for Financial Year 2012, recording a rise of 33%. 

During FY13, it handled 1,231 rakes as against 1,087 rakes handled in FY12. A total of 3,090 rakes have been handled since the commencement of railway operations. The company has entered into contracts with many major cement companies like Chettinad Cement, Dalmia Cement, Madras Cements and The India Cements for handling their coal imports. 

Karaikal Port added new cargos to the portfolio like Fire clay, Lime Stone, Iron Ore, Wheat and Maize and efforts will continue to bring in additional cargos to the port. With the iron ore mining ban in Karnataka, JSW has started importing domestic iron ore in the forms of fines and lumps for its Mecheri Plant through Karaikal Port. The cargo is expected to continue through the next year as well. 

With the UPA government’s decision to export the surplus  wheat, it has contributed a total volume of 172,000 MT in FY13 and significant volumes is likely to flow in this year (FY15) as well. Maize is another significant addition to the cargo portfolio in the recent times and is expected to add traffic to the port in FY15 too.
Terminalisation opportunities are being explored for Coal Terminal, Liquid cum General Cargo Terminal, LNG Terminal and Container Terminal. Port has created lot of interest among national and international bulk cargo traders.

SEZ

MARG is developing two special economic zones in the field of Engineering Services and Multi Services spread over 612 acres as part of ‘MARG Swarnabhoomi – The Land of New Thinking’.  This Project is developed by New Chennai Township Private Limited, a wholly owned subsidiary. 
MARG Swarnabhoomi is located on the scenic East Coast Road, midway between Chennai and Puducherry.

Engineering Services SEZ is promoted at MARG Swarnabhoomi with the objective of attracting clients in various segments like Auto Components, Fasteners, Valves, Pumps, Power components, Electronic components, Electronic meters, Renewable Energy, etc. M/s Grundfos Pumps, M/s Virgo Engineers, M/s P.H. Hydraulics and Pneumatics, M/s Eswari Electricals, M/s Kwik patch Ltd and M/s Twin Disc (Far East) Pte Ltd are operating in Engineering services SEZ. M/s Tecpro Energy Systems has registered lease deed and is in advanced stages of setting up their premises in MARG Swarnabhoomi. 

Total exports from the engineering SEZ in FY-12-13 was Rs.52.69 Crores The Multi Services SEZ is promoted in MARG Swarnabhoomi to attract clients in various segments like IT/ITES, Knowledge Hub, BPO, KPO, Animation, Medical Tourism, R&D, Publishing etc. 

M/s Biophenolika Polymers Private Limited, an Indian unit of Italian firm Cimteclab, a research and development company with international manufacturing facilities specialized in the field of high performance polymers, biopolymers, protective coatings, and flame retardants have signed an agreement to set up their premises at the Multi Services SEZ. 
Swarnabhoomi Academy of Music (SAM) is the first professional college of music in India offering a range of programs in contemporary music that includes rock, jazz, classical and world music. The students from 6 countries have been in enrolled in SAM. SAM has signed the Initial twining partner agreement with McNally Smith an international music school based out of Minnesota. SAM is also awaiting the international experience agreement from McNally. The construction of the Science & Technology Park with world class amenities is in full swing and 80% of the project is completed.

On the education front, ‘Swarnabhoomi Academic Institutions’ (SAI) is functioning in MARG Swarnabhoomi. The Knowledge based ecosystem is a unique differentiator for MARG Swarnabhoomi wherein it houses institutions catering to basic education, higher education and vocational skills training institutes. 

MARG Navjyothi Vidyalaya School is operational in Swarnabhoomi with a count of 400 students. The school is affiliated with CBSE and fully equipped with Audio/Science and Math lab and offers courses up to 10th Std. 
MARG Institute of Design and Architecture Studies (MIDAS) operating in Swarnabhoomi offers two-five year undergraduate programs - Bachelor of Architecture and Bachelor of Architecture Interior Design and is affiliated to Anna University. 80 students have enrolled in the course offered by MIDAS in 2012-13. MOU with Central Institute of Technology, Australia and ITEES, Singapore is signed for multidisciplinary vocational and and hospitality programs respectively. 

As part of 300 acres Educity- new institutions and programs will be introduced by 2014-15, which include a Management College, an AICTE approved engineering College and an Arts and Science degree college.

Real Estate Development

MARG ProperTies – residential arm of MARG, since its inception from October 2009 has emerged as one of the leading real estate developers in Chennai. MARG’s residential development is moving forward as lot of infrastructure growth is happening in Tamilnadu and the company has a strong presence in Chennai where there is a huge demand for residential space.

To cater to the housing demand and leverage the economic growth drivers, the company has a strong project pipeline and land bank near the suburban micro-markets. The company’s project portfolio is primarily skewed towards mid and low income segment which forms the bulk of the residential demand.

As the South & West Chennai is getting developed rapidly, MARG ProperTies projects which are located in these areas are benefitted more. Second phase of Nemmeli Desalination Plant and the proposed Country’s longest elevated corridor (45km) in OMR augurs well for South Chennai residents. The upcoming industrial parks and the proposal of doubling the Sriperumbudur – Guduvanchery rail line adds spur to the West Chennai residents. Planned satellite cities, improved connectivity and social infrastructure will further drive growth.

MARG ProperTies has further created an avenue to get closer to its customers through ProperTies Shoppe at Kottivakkam, OMR and Ashok Nagar. It is the first of its kind in the real estate industry to create more touch points and offer the company’s wide range of products to customers through experience and consultative selling. Interactive touch screen kiosk is another unique innovation from MARG ProperTies to touch base with its customers.

In FY2012-13 MARG ProperTies registered residential sales of 0.39 million sq ft (369 units) at a sale value of Rs.132 Crores, total sales (ITD) till March 2013 was 1966 units (2.12 million sq ft) at sales value of Rs.552 Crores.

With the revival of the Indian economy, the real estate sector is booming. Families are shrinking and relocating to cities, creating a demand for urban residential space. As per CMDA estimate, the demand for housing in Chennai is estimated to be at 4.0 lakhs in 2011 and it is expected to reach 6.6 lakhs by 2016. 
To capitalize the residential demand and with a clear understanding of the real estate business backed by scale, people, process and technology coupled with innovation, MARG ProperTies is poised to garner a large market share across a wide product range. 

Real Estate – Retail & Commercial, MARG Junction, a 1.8 million sqft. integrated mixed use commercial project comprising of a mall (6.76 lacs sqft), Serviced Apartments (2 towers - 3.2 lacs sqft with 295 keys) and Club (50,000 sq.ft) is being developed by the company’s subsidiary, Riverside Infrastructure (India) Private Limited (RIPL).

As on 31st March 2013 around 267,705 sq.ft of mall space has been leased and received EOI’s from brands for around 119,803 sqft. Over 57%(both signed & EOI’s) of the Gross Leasable Area (GLA) is now finalized, Apart from the anchors signed in FY10-11, EOI’s were obtained from key mini-anchor brands like Blu-O, Time zone, Reliance Trends & Reliance Digital during the year, Top Vanilla brands like Levis, Titan, Nike, Puma, Lee, Wrangler were signed. The average rental achieved of Signed & EOI agreements as on 31st March 2013 is Rs.76/- psft p.m.The hotel component is now being converted to Serviced Apartments with 295 keys along with 50,000 sq.ft business center and 65,000 sq.ft of banquet facility.

Highlights

• MARG Ltd's FY13, Revenue Stands at Rs.762 Crore, including EPC revenue of Rs.748 Crores, with Current order book at around Rs.3,800 Crores-plus. Its 9M-Income comes at Rs.233.47 Crore. It is expected to end FY14, with a total revenue of Rs.300-310 crores. 
• Karaikal Port Private Limited (KPPL), a subsidiary of the Company has successfully handled 6.61 MMT of  multi-cargo in FY12-13 and reported a top line of Rs.277 Crores and EBITDA Rs.133 Crores. The Port has handled 19MMT of Cargo since its commencement.
• MARG Swarnabhoomi has sold 402 apartments (0.4 million sqft) with sale value of Rs.74 Crores during FY12-13, taking cumulative sale booking to 2042 apartments (2.02 million sqft) with sale value of Rs.341 Crores. In FY14, the company is expected to generate around Rs.85-90 crores from the sale of apartments. 
• MARG ProperTies Limited, the real estate arm of MARG has sold 369 units (0.4 million sq ft) in FY12-13, with sale value of Rs.132 Crores, taking cumulative sale booking to 1966 apartments (2.12 million sqft) with sale value of Rs.552 Crores. In FY14, also, the numbers will be along the expected lines. 
• MARG bagged a double at CIDC Vishwakarma Awards 2013: G R K Reddy, CMD – MARG Group was chosen as ‘Industry Doyen’ & MARG Ltd, as the ‘Best Professionally Managed Company’.
• MARG Karaikal Port was Chosen as the ‘Innovative Port of the Year’ at South East CEO Conclave & Awards, 2012.  
• Two awards at 'Construction Week Awards 2012' at Mumbai:
  (i) Excellence in CSR (Winner)
  (ii) Infrastructure Company of the year (Runner up).
• Marg Ltd has total of 58 Subsidiaries as on 31st March 2013, out of which 5 Non Wholly-Owned Companies and 53 Wholly-Owned Companies, including 25 Step-down Subsidiaries.

• JOINT VENTURE: The Company has following major joint venture companies:
• (i) M/s. Future Parking Private Limited (in which MARG holds 51% of paid-up share capital), is a joint venture with M/s. Apollo Hospitals Enterprise Limited for the development of Multi Level Car Parking (MLCP) at Wallace Garden, Chennai on BOT basis, with a provision of right for development of commercial complex along with the MLCP facility for the entire BOT period.
  (ii) Signa Infrastructure India Limited (in which MARG holds 74% of paid –up share capital), is a joint venture with M/s. Housing and Urban Development Corporation Limited (HUDCO) for Techno-Financial collaboration.
  (iii) M/s. Rajakamangalam Thurai Fishing Harbour Private Limited (in which MARG holds 39% of paid-up share capital), is into joint venture with M/s. Rajakamangalam Thurai Development Trust to develop a fishing Harbour at Rajakamangalam Thurai in Kanyakumari District of Tamil Nadu.

Outlook
The infrastructure industry is expecting a MAJOR IMPROVEMENT, this year (FY15), after suffering a repeated setbacks, during the last three fiscals (FY12, FY13 and FY14). 

The outgoing UPA Government of India had taken measures to stabilize the economy and revive the sentiments which are expected to have positive effects for the economy in medium to long term. The slow growth in the infrastructure sector was primarily driven by a range of sector-specific issues, such as land acquisition, environmental clearances, high interest rate regime and macro-economic factors. Marg Ltd is prepared to capture the growth in the high end, focused to meet the challenges and is committed to deliver the best in adding value to the company. Marg Ltd is known for ‘Innovative Thinking’, enjoys strong brand image due to the past performance which will act as a catalyst in ensuring a sustainable growth in future. In addition, the new affordable housing scheme, steady growth in port activities, industrial urban infrastructure services and increased opportunities for EPC shall drive growth prospects to the Company’s business.

The infrastructure sector in India is still in its nascent stage and a lot of development is required in logistics, ports, railways, road connectivity, communications and power. This opens up newer opportunities for the companies like Marg Ltd. 

Caution & Conclusion

While the assets created by MARG are poised for growth and value creation in the long run, due to the present economic situation and allied reasons, there is a temporary cash-flow mismatch. This has put some pressure on the current liquidity situation in MARG and its ability to service debts. Managing this temporary cash-flow mismatch will go a long way in ensuring that the value creation envisaged by all the projects in the mid and longer term are intact.

As part of the initiatives to achieve this, the Company has discussed with all the bankers and bilaterally renegotiated most of the loans with principal / interest moratorium and extended repayment period, matching the cash flow generation capabilities of the Company. Further, Management has also tightened up more the cost monitoring initiatives by ensuring that optimum levels of resources are deployed, leveraging maximum efficiency. These measures have improved the cash flow position and has also allowed the Management to concentrate on the business development and execution.
Marg Ltd (Rs.19.95) is a huge company and slowly its share price would move towards Rs.89-90 mark or may be even higher. Hence, buy the shares of the company whenever it comes out of the circuits and keep holding. Moreover, if SEBI order on OPEN OFFER is enforced in future by the honourable Supreme Court of India, then it could move towards Rs.300 plus mark in the coming days. It is Mega-Bagger in the making, therefore, it is a must for every portfolio.