Very detailed and well explained Pankaj. After reading this article and reading through the company myself, I understood that this is a construction service type of company. It's biggest advantage is that it is asset light business. However they are just making an ROE of 13%. I want to know your thoughts as to if we should play power and data center theme of India via this construction service type company because I am not sure if they will be getting the explosive side of growth with this business model.
Please share your thoughts on the same. Thank you so much!
As a investor we have to understand the business model and accept the risks in undertaking the investment. The key part of the thesis was that they themselves will not take risks in operating the asset. They use their skillset in building these assets and deliver to the actual project commissioning companies. Along the way with their expertise in the Industry they have started to bid for projects and hence they will take higher risk for higher return but the management's version is that they are equipped well enough to mitigate the risks. So they themselves want a bigger pie now that is a separate story that this strategy has its own pros and cons
Regarding the ROEs there are two factors that are dampening them in near term (1) the cash on the books (2) The investments in data center business is not giving any return yet but capital is being employed....so as these two factors normalise the ROEs shall increase.
Very detailed and well explained Pankaj. After reading this article and reading through the company myself, I understood that this is a construction service type of company. It's biggest advantage is that it is asset light business. However they are just making an ROE of 13%. I want to know your thoughts as to if we should play power and data center theme of India via this construction service type company because I am not sure if they will be getting the explosive side of growth with this business model.
Please share your thoughts on the same. Thank you so much!
Hi Vipul. Thanks for the feedback!
As a investor we have to understand the business model and accept the risks in undertaking the investment. The key part of the thesis was that they themselves will not take risks in operating the asset. They use their skillset in building these assets and deliver to the actual project commissioning companies. Along the way with their expertise in the Industry they have started to bid for projects and hence they will take higher risk for higher return but the management's version is that they are equipped well enough to mitigate the risks. So they themselves want a bigger pie now that is a separate story that this strategy has its own pros and cons
Regarding the ROEs there are two factors that are dampening them in near term (1) the cash on the books (2) The investments in data center business is not giving any return yet but capital is being employed....so as these two factors normalise the ROEs shall increase.
Thank you so much! The explaination was very helpful.