MSK is a domestic construction company, which does EPC projects in roads, industrial construction and public private partnership (PPP) projects.
Welspun Gujarat Stahl Rohren (WGSRL) announced on Thursday that it has acquired 75% equity stake in MSK Projects India through its 100% subsidiary Welspun Infratech. The acquisition is subject to relevant approvals and is expected to be completed in three months.
MSK is a domestic construction company, which does EPC projects in roads, industrial construction and public private partnership (PPP) projects. It also owns some build, own, operate and transfer (BOOT) assets, most of which are nearing completion and tolling is to start shortly. MSK’s current order book is around Rs 500 crore. Three-fifth of the orders are from oil & gas related projects and the rest come from road projects.
Total investment for this deal is estimated at Rs 400 crore. Out of this, Rs 200 crore would be raised through preferential share issuance and the remaining would be promoter buyout and open offer. The deal would be funded through WGSRL’s existing cash flows. The consideration for the deal appears reasonable, valued at a price-to-book valuation of 0.9 times for MSK. The deal is expected to be earnings per share accretive in FY2011.
Post this deal; WGSRL would be able to enter the infrastructure space and foray into laying of oil & gas and water pipelines. It would also help leverage the project execution skills of both WGSRL and MSK to forward-integrate into pipe-laying projects in the oil space. Bigger balance sheet of WGSRL would help MSK bid for bigger projects, particularly in the road sector.
The company’s order book stands at Rs 6,600 crore, which offers decent near-term earnings visibility. Analysts maintain that WGSRL’s revenue visibility is the best among its peers. The company won orders worth Rs 600 crore on Friday and is expecting better order inflows in the days to come. The company anticipates some big tenders to be up for bidding in the next few months in global as well and domestic market, which augurs well.
At Rs 283.05, the stock trades at 9 times its estimated earnings for 2011. Most analysts are positive on it and investors could consider it on declines.
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