🏅India's Olympic Sized Investing Opportunity
In Issue #005, we examine a) Gujarat's infrastructure push with the 2036 Olympics as a catalyst & b) taking advantage of forced selling opportunities aka Bajel Projects Limited
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Story 1 of 2 (Reading time: 3 mins)
🏆 Ahmedabadમાં આપનું સ્વાગત છે
Saal 2036 mein Bharat mein Olympics ka safal aayojan ho, iske liye Bharat apne prayaason mein koi kami nahi rakhega
In October of 2023, when PM Narendra Modi announced the country’s bid for hosting the 2036 Olympics (video), he chose not to name a host city – inviting speculation that Ahmedabad in the state of Gujarat could be the chosen one
In what can be dubbed the “worst poker-face” ever, the Gujarat government recently formed a company named “Gujarat Olympic Planning and Infrastructure Corporation Limited” (duh!) – to which ₹6,000 crores has been earmarked (news)
Infact Ahmedabad has been in the news too many times in the past year, hasn’t it?
Host of 2023 World Cup finals in the world’s biggest cricket stadium
Close proximity to GIFT City (Int’ Financial Services Centre)
Under-construction Sardar Vallabhbhai Patel Sports Enclave (largest in India)
The city is poised to be India’s next Silicon Valley
Nodal point for India’s two high-speed rail corridors (MUM-AHM & DEL-AHM)
With a not-so-secretive ambition of replacing Mumbai as the commercial hub of India over the next 2 decades, Ahmedabad & Gujarat’s unquenchable thirst for infrastructure with new stadiums, bullet trains, Sabarmati Riverfront, ports, metro, Statue of Unity, Surat Diamond Bourse etc. is clear & visible
To benefit from this theme, I’ve picked two mid-sized developers that are an apt proxy to the state’s infrastructure push:
1. PSP Projects Limited
Headquartered in Ahmedabad, PSP Projects’ biggest claim-to-fame is the recently completed Surat Diamond Bourse - the world’s largest office building
With a growing & outstanding order book of ₹4,898 crores, the company has 54 on-going projects as of Sep 2023 which are equally split between the government & residential segments
83% of the order book is for projects based in Gujarat but notably, the company has started diversifying its portfolio taking up a few projects in Uttar Pradesh (another BJP stronghold with massive infrastructure aspirations)
In all, the company is bidding for ₹6,500 crores worth of projects (excl. Delhi Railway Redevelopment project which is an additional ₹4,800 crores)
The management expects an order inflow of ₹3,000 crores for FY24 and is projecting a 15 - 20% revenue growth every year assuming an order inflow growth of 20 - 25%. The company also aims to maintain EBITDA margins in the 11 - 13% range
On the valuation front, the company doesn’t seem expensive when compared to others in the space. Personally, I have been an investor in this company since 2021 when I picked shares at ₹427 & have averaged up over time
2. Ganesh Housing Corporation Limited
Ganesh Housing has ~550 acres of land bank in many prominent & promising areas of Ahmedabad
The company recently posted a fine set of numbers for Q3FY24 which prompted a 48% jump in it’s share price
But things aren’t what they seem and more than 90% of the revenue booked in Q3FY24 was on account of sale of land
This is not an isolated event and for H1 of FY24, about 88% of the company’s revenue has come from land sales rather than building projects
Per their latest presentation (here), Ganesh Housing has 2 on-going projects that are to be completed by March of 2026. The company has planned for 3 additional projects which’ll take a further 10 years to complete wherein it’s targeting a cash flow of ₹9,350 crores
On the financial side, this land-sale business model ends up showing us a high EBITDA (70%+), no debt and no depreciation — which can be really deceptive
But inspite of a low PE ratio of just 14.4 (inspite of the recent spike), I’m not pretty kicked because generally land sale companies don’t receive premium valuations. If you have a different point of view, then please let me know in the comments box below
My Viewpoint
It’s on! Ahmedabad is taking on Mumbai and is already setting-up the pieces on a chessboard. The Gujarat administration clearly realizes the importance of having world-class infrastructure within the state and the Olympics 2036 bid is an appropriate catalyst
With these tailwinds, regional developers & construction companies are likely to benefit .. and investors should definitely keep an eye on them
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Story 2 of 2 (Reading time: 3 mins)
✂️ Some Wires Are Meant to be Cut: Bajel Projects
“Forced Selling” refers to a situation where a shareholder has no option but to sell its shares
For example -
In Jan 2019, institutional investors sold shares pledged by promoters of Zee Entertainment resulting in a 33% intraday drop in share price (news)
In Mar 2020, the CEO of IDFC First Bank (V. Vaidyanathan) sold shares worth ₹93 crores to close an ESOP loan. The bank’s shares cracked 10% that day (news)
In Aug 2023, Pfaudler Inc. (held by private equity player DBAG) sold most shares in GMM Pfaudler to bring its shareholding down to 1%. The reasons for sale aren’t clear but GMM Pfaudler’s share price tanked by over 11% in early trade (news)
While the reasons vary, these special situations always result in a drop in share price often presenting investors with a unique & timely opportunity to profit
Here’s a related story
In early 2022 — Bajaj Electricals Limited (the big market leader in consumer appliances & electricals) announced it’s plan to demerge its engineering, procurement & construction business into a separate company - Bajel Projects Limited (scheme of demerger)
As you can imagine, it was a case of a big, exciting, high margin consumer durable company carrying the burden of a small, boring, low margin EPC business. It was never going to work!
Now per the terms of arrangement - shareholders of Bajaj Electricals, for every fully paid-up equity share held by them, shall be allotted 1 fully paid-up equity share in Bajel Projects (announcement)
OK. But where does “forced selling” feature here?
You see, Bajaj Electricals is owned by a number of institutional investors whose “investment framework” allows/mandates them to invest in certain types of businesses while ignoring others
In our case, a consumer durable business is a YES while a boring, low margin, high investment business like EPC might be a resounding NO
So when Bajel Projects got listed on the stock exchanges on the 19th of December, it was inevitable that certain institutional investors would start liquidating their positions
On 1st of January, Enam AMC sold 7,21,714 shares in Bajel Projects Limited prompting a 5% fall in the share price
Similarly, on the 11th of January, Norges Bank sold 20,45,000 shares
The shareholding pattern, as of December 2023, reveals some prominent FIIs & DIIs like HDFC AMC, ICICI Prudential & others. It’s my assessment that they too might exit this stock owing to the fact that Bajel Projects is a microcap company (~₹2,000 crores m-cap) & their mandate might not allow it
The bigger point is — these forced selling situations often lead to mispricings (a gap between value and price) and that’s something a trained investor keeps an eye for
All right. But what’s happening with Bajel Projects?
Well, you won’t find much info on a screener so here are some key points I gathered from different sources:
The company is currently overseeing 25+ projects and has an order book of ₹2,088 crore to be executed in 18-24 months. This comes to a revenue run rate of ₹1,000 crores as against ₹571 crores in FY23
By FY27, the company is targeting a revenue of ₹2,500 crores, a high EBIT% and ROCE of over 15%
Additionally, there are significant tailwinds with the Government of India having launched initiatives like RDSS and discom modernization. In numbers - 3,57,000 kms of transmission lines are expected to be constructed by FY34 requiring an investment of ₹6,50,000 crores
Having said this, the company does face risks from increased competition, execution risks and we can’t ignore the fact that Bajel Projects Limited is a very small player that’s just coming together on its own
This story has been written in collaboration with Beat the Street. The team there recently wrote an interesting article raising questions on the favourable terms offered in Adani's Ambuja Cement acquisition of Sanghi Cement (read here)
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Wishing you a pleasant week ahead,
Shankar
Nice touch at the end with the zen story. As always, thanks for sharing!!
Really liked this , thank you !