VA Tech? No way!
A few points where he has put some concerns. In summary he says it looks expensive and he finds that comparison with IVRCL or Nagarjuna mentioned in RHP is incorrect. Also money received thru ipo will not go into any development.
1. The fresh fund infusion will not augment the company’s financials significantly. Only Rs. 125 crore will flow into the company’s books, which are to be used to fund working capital of Rs. 65 crore, to implement IT systems at a cost of Rs. 11 crore and to build a corporate office at Chennai worth Rs. 35 crore. It is silly that the company has to tap the investors for building a fancy head-office, when it already has cash and bank balance of Rs. 219 crore, as on 31st March 2010. The company’s claim of using the present cash surplus for strategic needs appears a mere eye-wash.
2. The promoters claim that they are not selling a single share in the IPO. However, page 85-86 of the RHP states that between 20th to 24th August 2010, the 4 promoters, employees and existing PE investors have, in aggregate, already sold 10.2% stake in the company to a couple of funds and to their merchant bankers Enam and IDFC, at Rs. 1,231.55 per share (close to lower end of price band) for cash. This transaction, just a month before IPO opening, shows the confidence (or lack of it) and the vested interest of all the parties involved.
3.Even on the business front, the company does not provide much comfort. Order book, as on 30th June 2010, was Rs. 2,778 crore, comprising 88% of municipal clients and balance industrial clients. Also, it has large dependence on few clients as 66% of revenues in FY10 came from top 5 clients, while 82% of order book as on 31st March 2010, are from top 5 clients.
4.Page 96 of the RHP, which states the basis for issue price, has compared the company with other listed players, including IVRCL Infra and Nagarjuna Constructions. This comparison is erroneous and mis-leading as it has a footnote that the figures are on consolidated basis, where infact, standalone numbers of peers have been stated. The company and merchant bankers cannot get away with such wrong deeds by quoting a private publication, atleast not in the offer document!
5.There needs to be an apple to apple comparison. IVRCL Infra’s consolidated revenue for FY10 Rs. 5,830 crores with PAT at Rs. 215 crores, on equity base of Rs.53.40 crores,translating into an EPS of Rs.8.05. This leads to a PE multiple of 21 times for IVRCL (in place of 63.2 stated in RHP) based on CMP of 167. On the other hand, Nagarjuna Constructions’ consol revenue, PAT and EPS are Rs. 5,897 crore, Rs.282 crores and Rs. 11 on equity base of Rs. 51 crores, respectively, leading to PE multiple of less than 15 times, as against the stated PE of 19.2 times.Even at the lower end of the price band, the issue seems expensive.
Zerodha (Trading & Demat Account)
RHP
