Diversified infrastruture

Marg, an Andhra-based company incorporated in 1994, is into development of ports, airports, SEZ and commercial & real estate. It is present both in the realty and infrastructure segments. The company has a well diversified portfolio which includes infrastructure projects, industrial clusters, real estate- Commercial and Residential. The company is into Ports, Marine Infrastructure, Fishing Harbours, SEZs, Industrial Townships, IT Parks, Malls, Serviced Apartments, Integrated Townships, High end Premium and Budget Apartments. Broadly, the company operates in three segments, i.e. Infrastructure (BOT assets), EPC and Real estate. The company focuses not on standalone projects, but on those that provide opportunities to exploit the synergies of its infrastructure and real estate business capabilities. The parent company is largely into EPC contracts, a mix of internal and external projects, while infrastructure projects are under wholly owned subsidiaries as SPVs.

MARG is credited with the pioneering development of several residential and commercial complexes (including the first private IT park on the Old Mahabalipuram Road, Chennai’s arterial hub). It has also constructed some renewable as well as non-renewable power-generating infrastructure. The company was awarded the prestigious Karaikal Port project in January 2006 by Government of Puducherry (GOP). The Karaikal Port project is a BOT project expected to be completed by 2015-16 and will possess a handling capacity of an aggregate cargo in excess of 3 cr. tons annually. Located 280 km south of Chennai Port and 360 km north of Tuticorin Port, Karaikal Port has a strong and a growing hinterland which includes areas like Nagapattinam, Cuddalore, Thanjuvar, Trichy, and parts of southern AP and Karnataka having strong industrial clusters. This would give it an assured supply of orders from these areas. Recently, the company has signed term sheet with the PE firm Jacob Ballas for primary investment of Rs 100 cr. in the port. Jacob Ballas has also acquired ~8% stake for Rs 100 cr. from IDFC, who had invested Rs 150 cr. in September 2010. Marg’s stake in Karaikal Port post this transaction will reduce to ~62% from 70%. They have already commissioned first phase of Karaikal Port with capacity of 5.25 million ton of cargo. They have ship repair yard and two integrated SEZ in townships.

The market sentiment towards infrastructure & realty stock currently is quite negative and many infrastructure stocks including Marg have been battered out of shape. Marg has lost over 86% from its high of Rs.630 during the boom of pre-2008. The negative sentiment is more out of fear psychosis and lack of confidence than anything else. While it is a fact that the fundamentals of the economy have taken a turn for worse than what they used to be a few years back and the fact that many of the infra companies are facing a liquidity crunch, the stock prices have more than corrected for these deteriorated fundamentals and the behavior of the market is as irrational as was witnessed in January 2008, albeit on the downside now. Also, the government is expected to provide impetus to the sector through few policy measures. Liquidity position may ease off over the next few months. However stock prices generally respond much before the action takes place which may well happen in this case too. Infrastructure growth in India will continue to happen; the pace of growth is what could be debatable. The stock prices have more than adjusted to the changed scenario after having fallen over 90% in most cases.

Promoters (Reddy family) hold more than half the equity @54.4% while Reliance MF has about 6% stake. Other significant shareholders of note include Ashish Kacholia (co-founder of Hungama) and IL&FS Securities

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The company at its current market cap of Rs.319 cr. and a price of 83 is going at less than half of its book value of 190. Similar to what Adani did in the case of Mundra port (now called as Adani Ports and SEZ), Marg could also come out with an IPO of this port, unlocking value for its shareholders in times to come. Though there may be short term challenges, the long term potential certainly looks good.