Stock watch: Gammon India

Gammon India is riding high on the infrastructural boom. The counter has witnessed hectic activity in the recent past. 96301 shares were traded on Thursday on the NSE. The stock closed at Rs 380, up 0.37 per cent on Thursday.

The counter has also been attracting a lot of institutional interest of late. UTI Mutual Fund, HSBC global Investments Funds and a Japanese fund bought close to total of 28 lakh shares at Rs 365 on November 14, 2005.

Analysts expect Gammon's revenues and earnings to grow at a CAGR of 26 per cent and 37.5 per cent over FY05-FY08. Gammon is a well diversified construction company executing transportation, hydro-energy, pipeline, tunnel and irrigation projects with a pan India presence.

The operational and geographical diversification is expected to protect the company's operating margins. It is one of the first companies in India to take up BOT (build operate transfer) projects through its wholly owned subsidiary- Gujarat Infrastructure Projects Ltd (GIPL).

The company is negotiating with foreign investors for an equity stake in GIPL. This along with the possibility of a public offer by GIPL may also lead to a re-rating of the stock, say analysts. Gammon is mainly into hydel and pipeline projects.

However, its foray into infrastructure business though GIPL is expected to fetch sizeable returns and at the same time protect its core operations from the risks of infrastructure business. The company has an order book of over Rs 520 crore. The company trades at 5.4 times its expected CY05 book value.

In Q3CY05, net sales was up by 10 per cent and net profit was up by a whopping 235 per cent at Rs 289 crore and Rs 25 crore respectively. Analysts expect the stock to give a return of 10 per cent in the next 12 months.