Edelweiss has the following Recommendation on Marg Ltd,
Marg’s business has transcended from being an asset light model to a mix of light and heavy assets, with high visibility and a sustained earnings model. The company plans to achieve this by setting up infrastructure assets and providing ancillary services to boost development of the surrounding hinterland. Cash flows from short-term EPC business are expected to support initial capital for its real estate and infrastructure assets, which will drive the company’s future growth.
With signs of recovery in India on the back of strong domestic demand, Marg’s real estate business, especially at the Swarnabhoomi SEZ (on the outskirts of Chennai), has picked up through improved land sale and lease rentals. Further, its multi-purpose mall at Karapakkam is first of its kind to address the underpenetrated organised retail in Chennai’s OMR and increasing demand for office space by IT companies. In addition, the company’s strong pipeline of residential project launches should aid valuations.
Marg’s current ~INR 28 bn order book comprises 20% external contracts. It is committed to enhance this share by forging alliances to develop a forte in roads and irrigation by registering itself with various government bodies like Military Engineering Services, Karnataka Housing Board, among others.
Edelweiss has valued Marg using SOTP at a fair value of INR 377/share. At CMP of INR 220/share, we see potential upside of 72% from current levels. Scale up at the port and volumes in SEZ and real estate business will be key drivers for our valuation. We initiate coverage on the stock with ‘BUY’ recommendation.
