Broking house, Prabhudas Lilladher has recommended an outperformer rating on Gayatri Projects with a target of Rs 343.

Prabhudas Lilladher report on Gayatri Projects:

Gayatri Projects Limited (GPL) is a Hyderabad based construction company with over two decades of contracting experience. GPL has a current order backlog of Rs.23.5 bn, which translates to 5.1x 12 month trailing sales. The order book and strong order intake potential is expected to drive revenue and earnings CAGR of 38.4% & 39.6 % respectively. GPL's execution ability, perceived to be limited, in our view should not be a constraint in expansion as that transition from a small player to a significant one is trajectory plotted by some of the now well-entrenched players like IVRCL Infrastructure and Nagarjuna Construction.

GPL has in a short span been able to build an impressive Build - Own -Transfer portfolio comprising one Toll road and 2 Annuity roads. Going forward, GPL's plans to enter BOT projects as a minority partner with the business focus being more on the contracting side. We view this as prudent as this will reduce BOT risk and well as upfront capital commitment thereby curbing the requirement to constantly raise fresh equity thereby diluting earnings.

At the CMP of Rs 234, the stock trades at 5.9x FY08E and 4.7xFY09E earnings respectively, which is a steep discount to peers. Adjusting for BOT valuations, GPL trades at 4.7x and 3.8x FY08E and FY09E earnings of Rs 39.8 and Rs 49.7 respectively. It trades at 4.9x and 4.4x FY08E and FY09E adjusted EV/EBIDTA.

We set a price target of Rs 343 per share for GPL, which is a 47% upside from the CMP with the cash contracting business valued at Rs 298/share and the infrastructure business valued at Rs 45 per share. However, given the perceived concerns on execution, dilution and the IJM-Gayatri logjam we rate GPL as an 'OUTPERFORMER' with additional upsides to come from new order intake, BOT projects and resolution of IJM-Gayatri logjam.