About B.R.Goyal Infrastructure Limited

BUSINESS OVERVIEW

B.R. Goyal Infrastructure specializes in the construction and development of infrastructure projects, including roads, highways, bridges, and buildings, with ongoing projects in Madhya Pradesh, Maharashtra, Gujarat, Haryana, Uttar Pradesh, Mizoram, and Manipur. The company provides EPC services primarily for government departments, focusing on roads and highways, commercial complexes, industrial parks, housing projects, and Hybrid Annuity Mode (HAM) projects. Additionally, it operates in wind power generation, Ready-Mix Concrete (RMC) manufacturing, Toll Collection Contracts (TCC), and residential plotting projects.

The business is categorized into:

1. Civil construction services, including EPC services.
2. RMC manufacturing, with a facility in Indore (1.80 lakh cubic meters annual capacity).
3. Wind power generation.
4. TCC operations.
5. Residential plotting projects.

Projects are executed with in-house design, engineering, and project management, including procurement, execution, and commissioning. The integrated model supports efficient project delivery and includes over 199 construction equipment and vehicles as of September 2024. A proven track record in the roads and highways sector highlights its expertise, with recognition like the "Captain of Industry" award in 2014 for quality consciousness. Key projects include schools under the CM Rise Scheme, residential buildings under PMAY, ISBT Bus Stand, and an IIT College building. This strong execution capability has established it as a reliable player in the infrastructure sector.

As on September 30, 2024, the Company had 402 employees in their EPC projects and 212 employees at their TCCs. The Bankers to the Company are State Bank of India, Punjab National Bank, Axis Bank Limited, Central Bank of India, Union Bank of India and HDFC Bank Limited.

INDUSTRY ANALYSIS

INFRASTRUCTURE SECTOR IN INDIA
India’s high growth imperative in 2023 and beyond will significantly be driven by major strides in key sectors with infrastructure development being a critical force aiding the progress. Infrastructure is a key enabler in helping India become a US $26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors.

The government’s focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The US$ 1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway. The "Smart Cities Mission" and "Housing for All" programmes have benefited from these initiatives. Saudi Arabia seeks to spend up to US$ 100 billion in India in energy, petrochemicals, refinery, infrastructure, agriculture, minerals, and mining.

The infrastructure sector is a key driver of the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure the time-bound creation of worldclass infrastructure in the country. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. In other words, the infrastructure sector acts as a catalyst for India’s economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure, and construction development projects.

To meet India’s aim of reaching a US$ 5 trillion economy by 2025, infrastructure development is the need of the hour. The government has launched the National Infrastructure Pipeline (NIP) combined with other initiatives such as ‘Make in India’ and the productionlinked incentives (PLI) scheme to augment the growth of the infrastructure sector. Historically, more than 80% of the country's infrastructure spending has gone toward funding for transportation, electricity, and water, and irrigation.

While these sectors still remain the key focus, the government has also started to focus on other sectors as India's environment and demographics are evolving. There is a compelling need for enhanced and improved delivery across the whole infrastructure spectrum, from housing provision to water and sanitation services to digital and transportation demands, which will assure economic growth, increase quality of life, and boost sectoral competitiveness.

In Interim Budget 2024-25, capital investment outlay for infrastructure has been increased by 11.1% to Rs. 11.11 lakh crore (US$ 133.86 billion), which would be 3.4 % of GDP. As per the Interim Budget 2023-24, a capital outlay of Rs. 2.55 lakh crore (US$ 30.72 billion) has been made for the Railways, an increase of 5.8% over the previous year.

Starting with 6,835 projects, the NIP project count now stands at 9,142 covering 34 sub-sectors, as per news reports. Under the initiative, 2476 projects are under the development phase with an estimated investment of US$ 1.9 trillion. Nearly half of the underdevelopment projects are in the transportation sector, and 3,906 are in the roads and bridges sub-sector.

The Indian Railways expects to complete total revenue of Rs. 2,64,500 crore (US$ 31.81 billion) by the end of 2023-24.

India’s logistics market is estimated to be US$ 317.26 billion in 2024 and is expected to reach US$ 484.43 billion by 2029, growing at a CAGR of 8.8%.

India intends to raise its ranking in the Logistics Performance Index to 25 and bring down the logistics cost from 14% to 8% of GDP, leading to a reduction of approximately 40%, within the next five years.

In December 2022, AAI and other Airport Developers have targeted capital outlay of approximately Rs. 98,000 crore (US$ 11.8 billion) in airport sector in the next five years for expansion and modification of existing terminals, new terminals and strengthening of runways, among other activities.

India currently has the fifth-largest metro network in the world and will soon overtake advanced economies such as Japan and South Korea to become the third-largest network. Metro rail network reached 810 kms and is operational in 20 cities.

At almost 20 kms, Mumbai monorail is the third largest route in the world after China with 98 kms and Japan with 28 kms.

FDI in construction development (townships, housing, built-up infrastructure, and construction development projects) and construction (infrastructure) activity sectors stood at US$ 26.54 billion and US$ 33.52 billion, respectively, between April 2000-December 2023 Indian logistics market is estimated to touch US$ 320 billion by 2025.

The overall infrastructure capex is estimated to grow at a CAGR of 11.4% over 2021-26 driven by spending on water supply, transport, and urban infrastructure. Investment in infrastructure contributed around 5% of the GDP in the tenth five-year plan as against 9% in the eleventh five-year plan. Further, US$ 1 trillion investment in infrastructure was proposed by the India’s planning commission during the 12th five-year plan, with 40% of the funds coming from the private sector.

With a 37% increase in the current fiscal year, capital expenditures (capex) are on the rise, which bolsters ongoing infrastructure development and fits with 2027 goals for India's economic growth to become a US$ 5 trillion economy. In order to anticipate private sector investment and to address employment and consumption in rural India, the budget places a strong emphasis on the development of roads, shipping, and railways.

Global investment and partnerships in infrastructure, such as the India-Japan forum for development in the Northeast are also indicative of more investments. These initiatives come at a momentous juncture as the country aims for self-reliance in future-ready and sustainable critical infrastructure.

India, it is estimated, needs to invest US$ 840 billion over the next 15 years into urban infrastructure to meet the needs of its fastgrowing population. This investment will only be rational as well as sustainable, if we additionally focus on long-term maintenance and strength of our buildings, bridges, ports, and airports.

As a result of digitalisation and opportunities that tier II and III cities present for economic growth, the divide between metro and nonmetros is blurring, moving to the new era of infrastructure growth. Commercial real estate properties have witnessed exponential growth in demand across Tier II & III cities as Information technology and Information technology enabled services and banking financial services and insurance focused organizations are increasingly decentralizing their operations to adapt to the new normal.

The residential sector has witnessed good sales, and launches have also shown signs of an uptick during 2022, total sales in the top-7 cities was projected to exceed 360,000 units in 2022. Civil Aviation Ministry’s “Vision 2040” report states that there will be 190-200 functioning airports in India by 2040. Delhi and Mumbai will have three international airports each, while top 31 Indian cities will have two operational airports each. 220 destinations (airports/heliports/water aerodromes) under UDAN are targeted to be completed by 2026 with 1000 routes to provide air connectivity to unconnected destinations in India.

India's Infrastructure forms an integral part of the country's economic ecosystem. There has been a significant shift in the industry that is leading to the development of world-class facilities across the country in the areas of roads, waterways, railways, airports, and ports, among others. The country-wide smart cities programmes have proven to be industry game-changers. Given its critical role in the growth of the nation, the infrastructure sector has experienced a tremendous boom because of India's necessity and desire for rapid development. The expansion has been aided by urbanisation and an increase in foreign investment in the sector.

The infrastructure sector has become the biggest focus area for the Government of India. India's GDP is expected to grow by 8% over the next three fiscal years, one of the quickest rates among major, developing economies, according to S&P Global Ratings. India and Japan have joined hands for infrastructure development in India's Northeast states and are also setting up an India-Japan Coordination Forum for development of Northeast to undertake strategic infrastructure projects for the region. India being a developing nation is set to take full advantage of the opportunity for the expansion of the infrastructure sector, and it is reasonable to conclude that India's infrastructure has a bright future ahead of it.

ROAD INFRASTRUCTURE IN INDIA
India has the second-largest road network in the world, spanning a total of ~6.7 million kilometres (kms). This road network transports 64.5% of all goods in the country and 90% of India’s total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country. In India, sale of automobiles and movement of freight by roads is growing at a rapid rate.

National highway construction in India increased at 5.3% CAGR between FY14-FY23. Despite pandemic and lockdown, India has constructed 10,457 km of highways in FY22. In FY23, the Ministry of Road Transport and Highways constructed national highways extending 10,331 kms. Under the Interim Budget 2024-25, the Government of India has allocated Rs. 2.78 lakh crore (US$ 33.46 billion) to the Ministry of Road Transport and Highways.

National Highways Authority of India (NHAI) spent a record-breaking Rs. 2,07,000 crore (US$ 24.79 billion) on the construction of national highways in the fiscal year 2023-24. This was the highest capital expenditure ever recorded, representing a 20% increase from last year.

India's road network has grown 59% to become the second largest in the world in the last ten years. India has nearly 66.71 lakh km of total road network and the National Highways network alone stood at 146,145 km in CY 2023.

India had a total of 97,830 km of National Highways in 2014-15 which has expanded to 146,145 km by December 2023.

In FY24 approximately 12,300 kilometres of National Highways were constructed. A total of 202 national highway projects worth Rs. 79,789 crore (US$ 9.59 billion) are at the implementation stage in the country and are 6,270 km in length.

In October 2020, the foundation stone was established for nine National Highway projects—with a total length of ~262 kms—worth >Rs. 2,752 crore (US$ 371.13 million) in Tripura.

The Government of India has allocated Rs. 111 lakh crore (US$ 1.4 trillion) under the National Infrastructure Pipeline for FY25. The roads sector is likely to account for 18% capital expenditure over FY25.

As of November 2023, there were 352 PPP projects worth US$ 76.95 billion in India.

In October 2020, the National Investment and Infrastructure Fund (NIIF) is making progress towards integrating its road and highway portfolio. The NIIF has acquired Essel Devanahalli Tollway and Essel Dichpally Tollway through the NIIF master fund. These road infra-projects will be supported by Athaang Infrastructure, NIIF's proprietary road network, assisted by a team of established professionals with diverse domain expertise in the transport field.

The Government, through a series of initiatives, is working on policies to attract significant investor interest. A total of 600+ sites are planned to be awarded by 2024-25 of which 144 Wayside Amenities (WSAs) have already been awarded. In the next five years, National Highway Authority of India (NHAI) will be able to generate Rs. 1 lakh crore (US$ 14.30 billion) annually from toll and other sources.

BUSINESS STRENGTHS

1. Established Expertise in Roads and Highways : Over 20 years of experience in executing road-focused EPC projects, including bridges, highways, and civil construction, with technical proficiency in projects of varying complexity.

2. Efficient Business Model : A well-planned approach to project identification and cost optimization enhances efficiency and profitability, supported by modern construction equipment for timely project completion.

3. Robust Order Book : As of September 30, 2024, 26 ongoing projects across roads, bridges, buildings, and toll collection sectors, with an unexecuted order book of ₹87,339.70 lakhs, diversifying the portfolio for higher business volumes and margins.

4. Technology-Enabled Project Management : Integrated ERP systems and centralized procurement ensure resource optimization, cost advantages, and effective monitoring of construction sites, with in-house raw material production enhancing cost efficiency.

5. Extensive Equipment Ownership : A fleet of 199 construction equipment and vehicles allows optimal utilization and timely project execution, reducing dependency on external resources and maintenance costs.

6. Strong Workforce : A dedicated team of 614 employees as of September 30, 2024, with minimal reliance on contract labor, ensuring better quality control, cost management, and timely project delivery.

7. Experienced Management Team : Led by a seasoned management team with over 37 years of industry experience, driving operational growth and client satisfaction through strategic planning and execution.

8. Financial Stability and Credit Ratings : A strong financial position with long-term borrowings of ₹2,600.00 lakhs and a net worth of ₹12,745.76 lakhs as of July 31, 2024, supported by CARE BBB+ and CARE A3+ credit ratings, ensuring better access to financing.

9. Proven Track Record : Extensive experience in delivering quality infrastructure projects, consistently meeting pre-qualification requirements for government and state authorities, reinforcing reliability and execution capabilities.

BUSINESS STRATEGIES

1. Focus on Roads and Highways Sector : Prioritizing the execution and expansion of EPC and HAM projects in roads, highways, and building sectors. The outstanding order book as of September 30, 2024, valued at ₹87,339.70 lakhs, includes 76.43% roads and highways projects, 19.87% building projects, and 3.70% toll projects. Leveraging expertise, assets, and technology to enhance project delivery and portfolio growth.

2. Enhancing Execution Efficiency : Increasing efficiency through advanced technologies, modern construction equipment, and skilled workforce development. Investing in IT systems to streamline operations and adopting innovative project management tools to improve reliability and productivity.

3. Selective Geographical Expansion : Expanding operations into states with favorable conditions for delivering high-quality projects. Targeting regions that minimize delays caused by adverse climates or regulatory hurdles to ensure smooth project execution.

4. Strengthening Client Relationships : Building strong relationships by delivering high-quality projects on time. Proactively monitoring client needs and focusing on government contracts to maintain a robust order pipeline.

5. Enhancing Brand Recognition : Increasing visibility and business positioning through targeted promotional and branding initiatives to establish stronger market presence.

6. Project Diversification : Expanding beyond roads and highways into renewable energy and construction materials. Current initiatives include a 1.25 MW windmill in Jaisalmer, Rajasthan, and an RMC manufacturing unit with an annual capacity of 1.80 lakh cubic meters.

BUSINESS RISK FACTORS

1. Competitive Bidding Challenges : Projects are primarily awarded through competitive bidding, requiring stringent qualification criteria related to financial, technical, and operational capacities. Failure to qualify or win bids can significantly affect growth prospects.

2. Dependency on EPC Contracts : EPC projects account for a major portion of revenue. Securing new contracts depends on meeting rigorous technical and financial requirements. High upfront costs in bid preparation, combined with price-based competition, add financial strain.

3. Reliance on Joint Ventures : For large projects, partnerships with other firms are often necessary to meet bidding requirements. Inability to form or manage such partnerships may lead to missed opportunities or financial losses.

4. Regional Business Concentration : A significant portion of the project portfolio is concentrated in Madhya Pradesh and Maharashtra, exposing the business to risks like regional policy changes, economic fluctuations, and limited national-level project opportunities.

5. Retention Money Constraints : Government clients require retention money, released only after defect liability periods, typically extending up to five years. Delays in its release increase working capital requirements, impacting liquidity and profitability.

6. Legal Contingencies : The company is involved in a legal matter with limited available details, preventing assessment of contingent liabilities. This adds an element of unpredictability to financial obligations.

7. Delays in Procurement : Delays in procuring vehicles and equipment outlined in the issue's objectives can disrupt project timelines, lead to cost escalations, and affect profitability.

8. Fixed Costs of Equipment : Owning a large fleet of construction equipment leads to high fixed costs. Underutilized equipment or delays in securing contracts could strain cash flow, increase loan defaults, and reduce profitability.

NOTE : B.R. Goyal Infrastructure faces several business risks that could impact its operations, financial performance, and growth. These include challenges in competitive bidding, dependency on joint ventures, geographical concentration of projects, retention money policies, and significant fixed costs related to equipment.