Tantia Constructions Ltd

BSE Code-->532738 CMP: Rs.97

Market Cap: Rs.151.06 Cr

Dividend: 20%

(Dividend of MSK Projects: 10%)

P/E: 9.60 (P/E of MSK Projects Ltd is 16.97) EPS: Rs.10.1 (EPS of MSK Projects Ltd is Rs.5.70)

Introduction: Tantia Constructions builds highways, bridges, railroads and airports. It also develops townships, ports and is into power transmission.The price-earnings multiple is at a discount to that of similar-size players such as MSK Projects Ltd. A strong order-book, a diversified business profile and strategic joint ventures offer visibility to Tantia's earnings growth. Strong order book, superior operating profit margins and well-entrenched presence in the eastern region are positives for this company. At the current market price, the stock trades at about 10 times its expected earnings for FY09 – after factoring in equity expansion due to conversion of FCCBs. This is at a discount to similar sized peers. Tantia’s strong presence in the eastern and north-eastern region has two main advantages. There are fewer players interested in bidding in these regions due to difficult terrain. Tantia with its expertise in tunnelling has had an edge in bagging projects in this region. Further, among the various regions in the country, the eastern region holds much potential for infrastructure spending, as it has seen the least amount of development work compared to the other regions. The likelihood of improved spending is already reflected in the increasing budget allocation for the region in recent times. Tantia’s presence in the above geography and its strength in high margin businesses such as rail and urban infrastructure had enabled the company to maintain superior profit margins over similar sized peers.

Salient Features:

• It was established in 1964 with the objective to provide construction sevices to strengthen Indian railway's infrastructure. Rich domain expertise in servicing the Indian Railways – earthwork, ballast, rail-track linking and welding, bridges, tunnels, electrification and signalling. Its ambit of work has ben extended to the construction of roads and highways, bridges and flyovers and sewerage and drainage networks among others. It is venturing into the attractive marine infrastructure space, power transmission and distribution segment and aviation infrastructure.
• Comprehensive project mapping coupled with resource – man and machines – mobilisation in remote project locations. Track record of having completed every single assignment since inception.
• Tantia Constructions has experience in railway infrastructure; around 30--35% per cent of its orders are from this segment every year. This business profile is slightly varied from a majority of listed construction companies thus placing the company in a better position to bag projects in the space. Tantia Constructions has joint venture contracts with companies such as IVRCL Infrastructures and Subhash Projects, and this is likely to improve its recognition and technical qualification for future projects.
• The December, 2007 quarter results were excellent. The total income for Q3FY08 is Rs.94.64 Cr (Rs.60.4 Cr) and net profits is Rs.6.31 Cr (Rs.3.72 Cr). The Company has a combined order book of more than Rs.1800 Cr at present. Some 1000 Cr orders are on the pipeline.
• This is basically a Core Infrastructure / Construction Company. Hence it will get benefitted due to the additional fund allocation in "Bharat Nirman". The government's thrust on infrastructure development and a favourable Railway budget are positive triggers for the company.
• Tantia Constructions is a Kolkata-based company with a strong presence in the eastern parts of India such as Assam and Mizoram. These areas are relatively less penetrated in terms of infrastructure development and hold potential for more business. The Budget has also increased allocation for the Eastern region. With a presence in these areas, the company holds an edge over its peers for future projects.
• The company has listed its shares in The National Stock Exchange of India Ltd. last month and this has increased the liquidity in the counter, whic could prompt Mutual Funds and FIIs to stake in the company. This is a great positive trigger for the company and could also take the scrip above Rs.170, with this trigger.
• Among others, it is also currently implementing: (i) three construction projects from National Hydroelectric Power Corporation Ltd (NHPC) for construction and maintenance of the road for the five years at Patna in the state of Bihar amounting to Rs 12.50 crones approx. (ii) Two construction projects from World Bank Projects (Roads) U.P.P.W.D, Lucknow for Rehabilitation Road Works under Utter Pradesh Stale Roads Projects amounting to Rs 70.83 crores approx. (iii) A rail work from Eastern Railway for earthwork, blanketing work, construction of RCC bridges between Azimganj Jn station to proposed bridge site across the river Bhagirathi along with the restoration of Rail Link in between Jiaganj (Murshidabad) and Azimganj Ju amounting to Rs 18.77 crore.The total value of work is Rs 102.10 Cr.
• Tantia Constructions Ltd had earlier issued FCCBs to the tune of US$ 7.5 million which had the option to be Convertible at any time on or after July 17, 2007 upto and prior to the close of Business on July 05, 2012 unless previously reduced, converted or purchased and cancelled and except during a closing period.Conversion Price: Rs 140/- per share. It is also expected that the funds raised through FCCBs will ease the level of debt on the balance sheet.

Risks:

• Tantia Constructions is a smaller player compared to frontline infrastructure companies such as Hindustan Construction or Nagarjuna Construction and the company's stock faces the possibility of higher volatility in the event of a market downturn.
• A rise in raw material prices is likely to have a high impact on smaller construction companies such as Tantia Constructions, which cannot command escalation clauses in all contracts. However, the order composition is well-diversified over various segments such as roads, rail and urban development projects. This is likely to mitigate the risk of slowdown in revenues from any segment. Also since the government has come down heavily on the Steel and Cement companies in this week, the prices of these key raw materials, for construction companies, are expected to either come down or remain stagnant.

Conclusion: The INVESTORS with a penchant for risk can consider investing in the scrip of this infrastructure player. The Srip should trade at a minium price of Rs.150--Rs.160 with the current fundamentals in place. With the listing in the NSE, the scrip is expected to shoot above Rs.200 mark.