Markolines Traffic Controls coming with an IPO to raise upto Rs 40 crore

Markolines Traffic Controls

• Markolines Traffic Controls is coming out with a 100% book building; initial public offering (IPO) of 5128000 shares of face value of Rs 10 each for cash at a fixed price of Rs 78 per equity share.
• The issue will open for subscription on September 15, 2021 and will close on September 20, 2021.
• The shares will be listed on SME Platform of BSE.
• The share is priced 7.80 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Gretex Corporate Services.
• Compliance Officer for the issue is Parag Sudhir Jagdale.

Profile of the company

The company is a Highway Operations & Maintenance (O&M) Service providing company. It thrives to make Highway Operations & Maintenance cost effective and easier with the help of Innovation, Technology & out-of-the-box solutions. Its vast experience of 19 years in offering superior services in the Highway Operations & Maintenance (O&M) have earned it name in the (O&M) domain. Its principal business operations are broadly divided into three categories:

• Highway Operations under which the company provide services like Toll operations, Route Patrolling and Incident management.
• Highway Maintenance under which it provide services like Routine Maintenance, Preventive Maintenance and Major Maintenance & Repairs (MMR).
• Specialized Maintenance Services under which it provide services which enhance the life and quality of road, these are Microsurfacing (MS), Base / Sub base Stabilization (FDR) and Cold In Place Recycling (CIPR).

The company who was in the business of road marking envisaged this opportunity & ventured in this business activity Operation and maintenance of these infrastructure projects in 2009. As the same time because of its wear & tear nature of the highways, maintenance of the infrastructure developed also become mandatory. The periodic maintenance of these projects itself became one of the major activities for the various contractors. As the time passing and maintenance of these projects becoming due and the company envisage another opportunity and decided to go in for offering complete array of maintenance services. Over the last few years, it has not only achieved huge credibility based on performance in the market but is also one of the well-known O & M operators in the country and today are one of the trusted service providers in the Highway O&M sector operating pan India basis under the Markolines Umbrella.

Proceed is being used for:

• Prepayment/Repayment of certain debt facilities availed by the company.
• Meeting working capital requirements.
• General corporate purposes.

Industry Overview

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDIs in the construction development sector (townships, housing, built up infrastructure and construction development projects) and construction (infrastructure) activities stood at $26.08 billion and $24.72 billion, respectively, between April 2000 and March 2021. In FY21, infrastructure activities accounted for 13% share of the total FDI inflows of $81.72 billion. The infrastructure sector has become the biggest focus area for the Government of India. India plans to spend $1.4 trillion on infrastructure during 2019-23 to have a sustainable development of the country. The Government has suggested investment of Rs 5,000,000 crore ($750 billion) for railways infrastructure from 2018-30. 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 has the second-largest road network in the world, spanning a total of 5.89 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. Highway construction in India increased at 17.00% CAGR between FY16-FY21. Despite pandemic and lockdown, India has constructed 13,298 km of highways in FY21. In FY21, 13,298 kms of highway was constructed across India. In May 2021, the Ministry of Road Transport and Highways constructed 1,470 kms of national highways compared with 847 kms in May 2020. In October 2020, the foundation stone was established for nine National Highway projects - with a total length of 262 kms-worth >Rs. 2752 crore ($371.13 million) in Tripura. The Government of India has allocated Rs. 111 lakh crore ($1.4 trillion) under the National Infrastructure Pipeline for FY 2019-25. The roads sector is likely to account for 18% capital expenditure over FY 2019-25. In October 2020, The National Investment and Infrastructure Fund (NIIF) is making progress towards integrating its road and highway portfolio.

Pros and strengths

Continue focusing on O&M business in highways sector: The company’s primary focus is to strengthen its market position in India in developing and executing O&M projects in the Highway O&M sector. Over the next few years, it will continue to focus on the operation, maintenance and development of its existing projects while seeking opportunities to expand its O&M projects in the Highways sector. It intends to capitalize on its experience and project execution expertise and continue to selectively pursue other infra segments. Given the Government’s focus on improving infrastructure in India, the roads and highways infrastructure sector has high potential for growth and its experience and track record in the O&M business provides it with a competitive advantage in pursuing future opportunities.

Diversified projects in roads and highways sector: While the company’s primary focus is on Operation and Maintenance projects in highways sector, as part of its business growth strategy, it also intends to diversify in other infra sectors and has secured a large contract for executing water supply projects on turnkey basis in Madhya Pradesh. Due to the increasing levels of the Government’s focus and investment in infrastructure in India, certain segments such as airport runways, and development of smart cities provide it with exciting opportunities to further develop its business and achieve higher profitability. It seeks to capitalise on such opportunities in new functional areas of infrastructure development. As part of its business growth strategy, it intends to diversify into, and shall consider bidding for, projects related to maintenance of airport runways, projects related to railways and metros for Operations and maintenance (O&M).

Selectively expand geographical footprint: The company started its operations in Gujarat and has gradually expanded in other states including West Bengal, Maharashtra, Rajasthan, Uttar Pradesh, Jharkhand, Bihar, Tamil Nadu and Andhra Pradesh, Haryana. It plans to continue its strategy of diversifying and expanding its presence in different states for the growth of its business. It is selective when it expand in a new location and typically look to geographies where it can deliver high-quality services without experiencing significant delays and interruptions on account of adverse climatic conditions or regulatory delays. Its strategy of selective expansion helps it in mitigating diversification related risks.

Risks and concerns

Depends on top 5 and top 10 customer: The company’s top five and top ten customers contribute to a substantial portion of its revenues for the year ended March 31, 2021. Any decline in its quality standards, growing competition and any change in the demand for its service by these customers may adversely affect its ability to retain them. It has maintained good and long-term relationships with its customers. However, there can be no assurance that it will continue to have such long-term relationship with them, also any delay or default in payment by these customers may adversely affect its business, financial condition and results of operations. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Business requires significant amount of working capital: The company’s business requires a significant amount of working capital which is based on certain assumptions, and therefore, any change of such assumptions would result in changes to its working capital requirements. In many contracts, significant amounts of working capital are required to finance the purchase or manufacturing of materials, mobilization of resources and other work on projects before payment is received from clients. Its working capital requirements may increase due to an increase in the size of its operations and the number and size of projects that are required to be executed within a similar timeframe. Since the contracts it bid typically involve a lengthy and complex bidding and selection process which is affected by a number of factors, it is generally difficult to predict whether or when a particular contract it has bid for will be awarded to it and the time period within which it will be required to mobilize its resources for the execution of such contract.

Face intense competition: The company competes on the basis of a number of factors, including execution, depth of product and service offerings, innovation, reputation and price. The company’s competitors may have advantages over it, including, but not limited to Substantially greater financial resources; Greater brand recognition among consumers; Larger customer bases in and outside India; or More diversified operations which allow profits from certain operations to support others with lower profitability. These competitive pressures may affect company’s business, and its growth will largely depend on its ability to respond in an effective and timely manner to these competitive pressures.

Outlook

Incorporated in 2002, Markolines Traffic Controls is a Highway Operations & Maintenance (O&M) Service providing company. The company’s operations are mainly divided into-Highway Operations (including Toll operations, Route Patrolling, and Incident management), Highway Maintenance (including e Routine Maintenance, Preventive Maintenance and Major Maintenance & Repairs (MMR)), and Specialized Maintenance Services (including Microsurfacing (MS), Base / Sub base Stabilization (FDR) and Cold In Place Recycling (CIPR)). The company’s growth is largely attributable to its performance base customer approach which involves careful identification of its projects and cost optimization, which is a result of executing its projects with careful planning and strategy. The company has a team of able and experienced professionals with ability to actively manage funding operations. This coupled with proven promoter track record allows the company to rapidly grow its client portfolio and business. On the concern side, the company requires several statutory and regulatory permits, licenses and approvals to operate its business. Many of these approvals are granted for fixed periods of time and need renewal from time to time. Its business and operations may be affected by seasonal factors which may restrict its ability to carry on activities related to its projects and fully utilize its resources.

The company is coming out with a maiden IPO of 5128000 equity shares of Rs 10 each at a fixed price of Rs 78 per share to mobilize around Rs 40 crore. On performance front, the company’s total revenue decreased by Rs 1,357.97 lakh or 7.92% to Rs 15,796.52 lakh for the financial year 2020- 21 from Rs 17,154.49 lakh for the financial year 2019-20. Its profit after tax decreased by 40.50% to Rs 427.59 lakh for the financial year 2020-21 from Rs 718.62 lakh for the financial year 2019-20, reflecting a net decrease of Rs 291.03 lakh. The company’s primary focus is to strengthen its market position in India in developing and executing O&M projects in the Highway O&M sector. Over the next few years, it will continue to focus on the operation, maintenance and development of its existing projects while seeking opportunities to expand its O&M projects in the Highways sector. It plans to continue its strategy of diversifying and expanding its presence in different states for the growth of its business.