MARG – a company with a bright future


Weekly H/L                               95.45    83.50
Monthly H/L                               95.45    72.30
52 Weeks H/L                          242.00    70.20
                                      ( 12 Oct 10 )    ( 19 Aug 11 )
           Delivery / Var+ELM %    40.76    16.95

(in Cr.)                             Jun-11    Mar-11    FY10-11
Revenue                          307.99    360.71    1,084.26
Net Profit                            11.79    18.27    58.95
EPS                                      3.09    5.16    17.84
Cash EPS                             3.75    5.53    17.22
OPM %                                 9.97    12.77    11.70
NPM %                                 3.83    5.07    5.44

Q1 results not good

MARG’s Q1 performance is not good compared to its Q4 performance. Its revenue has declined from Rs.360 crore to Rs.307 crore. Net profit declined from Rs.18.27 crore to Rs.11.79 crore. Operating profit margin declined from 12.77% to 9.97%. Net profit margin declined from 5.07% to 3.83%.

Luxury villa Tapovan nearing completion

MARG ProperTies’ second phase of luxury villa project, called Tapovan, at Pavanjur near Chennai is proceeding as planned. Tapovan is ideal for entrepreneurs and professionals, artists, doctors, musicians and others who are seeking a second home, where they can spend time calmly and quietly to capture ideas in their minds. It is an ideal weak-end retreat for rich people. Under the urban landscape, quiet life and spending time peacefully with family is fast receding. Tapovan offers this lost charm. It has a green eco-system with 5000 fully grown trees in its premises. It is spread across 77 acres of land at Pavanjur, off East Coast Road. It will have 124 customised and exquisitely carved villas in lush green environment and set apart from each other at comfortable distance. The company has already handed over 17 villas to the owners in its first phase of its programme. The price tag for a villa is Rs.1.3 crore. In the second phase now proceeding, MARG will build luxury villas in two duplex variants. One variant is with a quarter acre plot with 2533 sq ft villas and the other variant with half acre plot with 3558 sq ft villas. The price tag will be in the range of Rs.80 lakh to Rs.1.30 crore. The other amenities provided in Tapovan are a club house, squash court, outdoor restaurant, indoor restaurant, gym, ladies lounge, cafeteria, tennis court, business centre, conference hall, basketball court, swimming pool, battery operated carts, sewage treatment plant, badminton court, library, spa and net cricket. G.R.K. Reddy is the Chairman & Managing Director of the MARG group. The shares of MARG are traded in the stock markets at Rs.92.60 now. The share price has been rising for some time now.


Railway wagon fabrication

MARG is foraying into the fabrication of railway wagon by securing a Rs.38 crore order from Braithewaite & Co Ltd, one of the largest wagon manufacturers in India. It includes fabrication and assembly of 247 of BTFLN wagon (frameless Bogie Tanker Wagon used basically for liquid petroleum products) in BCL workshop. This includes supply of consumables and components except raw steel. The time frame to complete the project will be seven months at the rate of 40 wagons per month.

Don’t see only the order book

Most of the construction companies have their order books full. But Crisil Research has taken a view that it is not the order book, but earnings of the company that will drive the valuation of such companies. Investors should make a note of this point. Most of the construction companies are seeing their earnings affected due to hardening of interest rates, execution hurdles and stretched working capital cycle. In the last one year, construction companies’ share prices have plunged, eroding investors’ wealth. The have underperformed the stock indices. But at the same time, Crisis has also stated that at current valuations, which are at historic lows, the risk to reward ratio appears favourable given the growth potential of construction sector.

Good times are ahead of construction industry again

Construction companies registered a 60% growth in their earnings in the period 2005-2008. But in the period 2008-2011, the earnings registered a growth of only 2%. Interest rate cycle may set in at any time which will see rates falling again. If that happens, the earnings of construction companies in 2011-2014 may witness hefty increase.

Nobody can predict the share price accurately

MARG was started in the nineties as a finance and broking company. G. Ramakrishna Reddy (G R K Reddy) lost his younger brother G Madhusudhan Reddy in a scooter accident and named his company after him as MARG (Madhusudan Reddy G). MARG has hired PricewaterhouseCoopers (PwC) to streamline its many verticals and extract benefits out of the synergy besides looking at the potential to unlock the assets and create value for its shareholders. MARG is a Chennai-based company. MARG wants to set up infrastructure assets and provide ancillary services to boost development of the surrounding hinterland. Cash flows from EPC will supply its cash needs for real estate ventures. This is the basic model that will drive the company’s growth. Eldelweiss securities feels that the share price of MARG should be around Rs.377 whereas it was quoting at that time at Rs.118. Now it has come down further to Rs.92.60. The problem with many top research people is that they do very complicated calculations and arrive at the share price whereas stock market moves always in its own direction. It is like particle physics. When many forces are drive particles, which collide with each other, it is difficult to predict the velocity and direction of the particles. Similar is the case with stock market predictions.

Early mover advantage

MARG enjoys early-mover advantage in development of commercial and residential buildings in the Old Mahabalipuram Road near Chennai. It is also Chennai’s famous IT corridor. MARG possesses buildings that are leased to big IT firms like TCS and Mahindra Satyam. MARG has securitised the rentals from these assets and with the help of this capita, acquired land at cheap rates. MARG has built up a land bank. MARG has established many verticals in its business namely marine infrastructure and services, urban and industrial infrastructure, EPC and real estate.

Karaikal Port development a success

MARG commercialised the Karaikal Port and the first vessel entered the harbour. MARG bagged the port from the government for Rs.41 crore. Within one year of operation, Karaikal Port managed 1.6 million tonnes of cargo and 170 vessels entered the port. It attracted attention and MARG received Rs.150 crore private equity from IDFC. MARG will use this fund to finance its second phase of construction of the port that will cost Rs.156 crore. It may be completed shortly as work is in full swing. What is the reason for the company’s success with regard to Karaikal Port? MARG spotted out the potential of Karaikal Port early. It has a sizeable hinterland. It is strategically located in the middle of the 680 km long coast between Chennai Port and Tuticorin Port. It is an all-weather port. It has deep water to enable big ships to anchor. It is a multi commodity port and can handle any type of cargo. It has an operational rail link and good road connectivity and can cater to a broad base of clients across Tamil Nadu and other neighbouring States. It can win traffic from its competing ports easily. Cement, sugar, paper, engineering and steel industries are located in the hinterland of the port. As power generation increases in Tamil Nadu, Karaikal Port will handle coal cargo also. MARG is stamping its mark of quality in the logistics industry with its efficiency of handling vessels in Karaikal Port. Vessels are discharged within 24 hours and sometimes within a quarter of that time. The port can handle a capacity of 5.2 million tonnes per annum of cargo. After the completion of the second phase in 2012, the capacity will shoot up to 21 million tonnes per annum. After the completion of the third phase, the capacity will go up to 47 million tonnes per annum. Three fourths of the capacity will be used to handle coal cargo for the cement and power plants.

Foreign vessels may sail in Indian coastal line

Having gained expertise at port development, it is not a difficult work for MARG to venture into development of a minor port-cum-ship repair yard at Mugaiyur and a fishing harbour at Rajakkamangalam in Tamil Nadu. MARG offers related services like logistics and dredging. Indian coastline with 7517 km of length offers good opportunities to new port development as well as expanding the existing ports. The 12th Plan has fixed a target of $1 trillion on infrastructure development. It is a good news for the company. The Indian government is also considering permitting foreign vessels to sail on coastal lines. This will increase the opportunities and trading volumes of ports.

SEZ coming up

MARG is also putting up two SEZs under the management of a new company New Chennai Township Private Ltd under the brand name of MARG Swarnabhoomi covering 612 acres of land. They will have 14 million square feet of residential units and 6.3 million square feet of leasable space and multi services industrial infrastructure. It will reduce congestion in the city and help migrant workers from rural areas. Many companies are lining up in the queue to establish their bases in Marg Swarnabhoomi. Companies from electronics, auto ancillaries, power and energy, IT and ITES are interested in setting up their shops here. Some companies have even started their operations and are quite happy with the environment here. The SEZ will contribute over 40% of MARG’s sales turnover in 2012. With all major cities saturated, the shift is to tier II and tier III cities for both residential and industrial establishments.

Airport project

In 2008, MARG was awarded a project to develop Bijapur airport over 727 acres for 30 years on a BOT basis. MARG will complete the work in the first quarter of 2012. MARG’s EPC division built ELCOT (Electronics Corporation of Tamil Nadu Ltd) IT Park and its associated facilities in Trichy. MARG has built 127 housing units for PADCO with quality, safety and scheduled completion. MARG aims to be a Rs.6000 crore company by the year 2015.

MARG Junction Mall coming up

MARG has tied up with leading entertainment and retail chains PVR Cinemas, Shoppers Stop and Hypercity to take up space at its 1.83 million sq ft MARG Junction Mall. It is coming up south of Chennai about 8 km from Madhya Kailash Junction on the Old Mahabalipuram Road. It is scheduled to be inaugurated in April 2012. Junction Mall will have over 6.5 lakh sq ft of leasable mall space in addition to a four star Traders Hotel and high end service apartments by Snahgri La, food, court, restaurants and office blocks. Old Mahabalipuram is the IT corridor of Chennai city but it lacks quality entertainment and social infrastructure. MARG Junction Mall will fill up this void. It will attract leading brands and fill this vacuum. MARG Junction Mall is coming up at a cost of Rs.738 crore. Over 50 million sq ft of IT space attracts a huge residential development, which is a major attraction for the Mall to come up. PVR said that they will set up a seven-screen, premium multiplex, the first of its kind at the MARG Junction Mall.

Collaboration with Irish company

MARG was listed in the 11th edition of “India’s top 500 companies 2010” of the global business information provider Dun and Bradsheet. MARG signed a Memorandum of Understanding (MoU) with Ireland-based construction major Lagan Construction. Both the companies will collaborate with each other to strengthen the development of construction of roads, airports, water and sewage treatment plants in India. The Ireland company is an expert in redevelopment and expansion of airports. This expertise will give MARG an edge in India, where more than 66 airport projects are coming up for construction. MARG bagged two awards in the Construction Week Awards 2011 held at Hotel Taj, Mumbai. G.R.K. Reddy, CMD of MARG won the ‘Infrastructure person of the year’ award for innovation in infrastructure. MARG’s Karaikal Port was recognised as the Seaport project of the year for excellence in port operations and cargo handling. MARG has been recommended as one of the best companies by the popular website recently.

Shares offer good returns in medium term

The shares of MARG can be acquired at the current price for medium term holding for decent returns. It can also be accumulated over declines.

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