Megha Engineering and Infrastructure Limited (MEIL) was a little-known infrastructure company before March 15, 2024. But on that day, as State Bank of India released list of electoral bond (EB) donors, MEIL was propelled into the public eye. The company emerged the second-highest EB purchaser between 2019-23 at ₹966 crore and is the top donor to BJP (₹584 crore) and BRS (₹195 crore), and second-largest donor for DMK (₹85 crore) and YSR Congress (₹37 crore).

 But what does Megha Engineering do? How do its financials look?

From a fabrication unit to an infra major

Starting as a small fabrication unit in 1989, MEIL is now a top-rung infrastructure company with over 40,000 employees with operations spanning 20 countries. Per the 2023 Burgundy Private Hurun India rankings, MEIL is the third-most valuable unlisted company with a valuation of ₹67,500 crore. Originally promoted by PP Reddy, it is now led by his nephew PV Krishna Reddy.

Breaking into the top leagues

MEIL got a boost during 2004 as YS Rajashekar Reddy government launched the JalaYagnam Scheme comprising irrigation projects across undivided Andhra Pradesh. The scheme involved projects to lift flood waters of the Krishna and Godavari rivers and provide irrigation to neglected areas. Per media reports then, MEIL got 28 projects valued at ₹36,916 crore as part of JalaYagnam.

Maintaining good relationships with successive governments in AP and Telangana, MEIL bagged marquee projects such as Kaleshwaram in Telangana and Polavaram in Andhra Pradesh. In 2020, MEIL got national attention bagging the order to construct the Zojila tunnel in Jammu and Kashmir. The company’s name echoed in the halls of the Parliament in 2022 as minister Nitin Gadkari lauded the cost-efficient implementation by MEIL in this project.

Big wins continued with the Thane-Borivali tunnel project in Maharashtra (where it beat rival L&T to bag the order), bullet train station at the Bandra Kurla Complex, and Tuticorin-Nagai Thermal Power Plant in Tamil Nadu. Value of these contracts could not be ascertained by businessline. Per a January 2024 note by Crisil, MEIL has an order book of ₹1.87-lakh crore as on September 31, 2023. Publicly-listed major Larsen & Toubro had an order book of ₹4.5-lakh crore as of September 2023.

An infra major with low debt and high cash

MEIL’s financials make it an outlier in the infrastructure sector. Even as it accelerated project wins and capex in the last three years, MEIL has a sound profitability and low leverage.

The company recorded a revenue of ₹31,776 crore in FY23 on a consolidated basis growing 10 per cent year-on-year (y-o-y) backed by strong order book. With profit after tax (PAT) of ₹2,797 crore for FY23, the PAT margins are at a healthy 8.8 per cent. Growth in profit has been steady, excluding the blip in FY20, when profit declined 38.5 per cent. The credit freeze to infra companies following the IL&FS crisis in that year could have impacted MEIL.

MEIL’s balance sheet appears especially robust. With sufficient cash being generated by operations, the company is not turning to debt much. MEIL’s long-term debt stood at ₹5,979 crore as on March 31, 2023. The debt-equity ratio of 0.71 as of FY23, and 0.69 as of FY22 is lower than the average gearing levels in the sector. For a perspective, L&T reported a debt-equity ratio of 1.14 with debt of ₹118,600 crore as of March 2023. Low leverage has also resulted in robust interest coverage ratio for MEIL at around 7.4 as of March 31, 2023; this was even better at 13 in the previous fiscal.

More than just an EPC firm

The company has also diversified into hydrocarbons, gas distribution, electric vehicles and other sectors, floating subsidiaries for these business lines. Among MEIL’s subsidiaries is Western UP Power Transmission Co, where it owns 73 per cent. Interestingly, Western UP separately donated ₹220 crore via EBs across parties. Further, electric bus maker Olectra Greentech – which has won orders from transport corporations of Telangana, Karnataka, Mumbai and others – is a listed subsidiary of MEIL. 

Analysts highlight MEIL’s push into unrelated businesses and corporate governance measures as a risk factor. 

“The investments and deposits in group companies as on March 31, 2023 was at ₹11,113 crore i.e. 50 per cent of the consolidated net worth... Any substantial increase in investments in group companies constraining return metrics would be a key monitorable,” Crisil analysts wrote in a January 2024 note.

(With inputs from Kurmanath K V, Hyderabad)