Bharat Road Network IPO review (Avoid)

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Review By Dilip Davda on August 30, 2017

Bharat Road Network Ltd (BRNL) a road sector infra arm of SREI group is a road BOT company in India, focused on development, implementation, operation and maintenance of roads/highways projects. It is involved in the development, operation and maintenance of national and state highways in several states in India with projects in states of Uttar Pradesh, Kerala, Haryana, Madhya Pradesh, Maharashtra and Odisha through partnerships with experienced EPC players in the local space where the project is located. At present, all of its projects are implemented through special purpose vehicles, either through Subsidiary or in partnership with other infrastructure players.

BRNL perform a range of project management functions, including design, engineering, EPC management and quality control. It also provides project advisory activities including, project management consultancy, project conceptualization, commissioning, operation and management of the projects during the entire life cycle of its projects. BRNL also undertakes debt syndication, refinancing and financial restructuring of its projects. Currently it has a project portfolio consisting of six (6) BOT Projects, of which two (2) are Projects operational under Final COD, three (3) are Projects operational under Provisional COD and one (1) is a Project under Construction. Its Projects operational under Final COD and Projects operational under Provisional COD are located in the states of Kerala, Madhya Pradesh, and Haryana, Uttar Pradesh and Odisha, respectively. BRNL’s Project under Construction is located in the state of Maharashtra. Its Projects operational under Final COD and Projects operational under Provisional COD cover approximately 1,622.44 lane kms, including major and minor bridges and approximately 12 lane kms and 60.72 lane kms are under construction at the GAEPL Project and SJEPL Project, respectively for which the company is awaiting final COD. Company’s Project under Construction involves development of 400.24 lane kms, including major and minor bridges. Further, as of March 31, 2017, the average residual Concession Period of its BOT Projects (based on concession agreements as of March 31, 2017) was approximately 18 years and six (6) months in comparison with average debt maturity profile of approximately 10 years, as on March 31, 2017.

To part finance its (1) Advancing of subordinate debt in form of interest free unsecured loan to its Subsidiary, STPL, for part financing of the STPL Project (“STPL Sponsor Investment”); (2) Acquisition of the subordinated debt in the form of unsecured loans/OCPIDs/warrants/OCDs, advanced/held by SREI to/in STPL, KEPL and MTPL (“Identified SPVs”); and (3) General corporate purposes funding needs the company is coming out with a maiden IPO of 29300000 equity shares of Rs. 10 each via book building route to mobilize Rs. 571.35 cr. to Rs. 600.65 cr. (based on lower and upper price bands). Price band of the issue is Rs. 195-205 per share. It opens for subscription on 06.09.17 and will close on 08.09.17. Minimum application is to be made for 73 shares and in multiples thereon, thereafter. Post allotments, shares will be listed on BSE and NSE. BRLMs to this issue are Inga Capital Pvt. Ltd., Investec Capital Services (India) Pvt. Ltd. and SREI Capital Markets Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 34.90% of the post issue paid up capital of the company. Issue has reservation of 75% for QIBs, 15% for HNIs and 10% for retail investors. Since incorporation till October 2016 it issued equity shares as par and raised further equity by issuing 26650000 equity shares at a price of Rs. 205 per share in November 2016. This issue helped company in showing positive net worth with premium collected. Post issue its current paid up equity capital of Rs. 54.65 crore will stand enhanced to Rs. 83.95 crore.

On performance front, BRNL has (on a consolidated basis) reported turnover and losses of Rs. 41.49 cr. / Rs. – (8.38 ) cr. (FY15), Rs. 4.25 cr. / Rs. – (49.84) cr. (FY16) and Rs. 14.93 cr. / Rs. – (36.74) cr. (FY17). It has posted inconsistency in top and bottom lines for all these years. Company has been incurring losses and has carried forward losses too. However, premium collected in preferential issue to promoters in November 2016 has helped company to show positive net worth as on 31.03.17. It has posted average negative EPS of (Rs. 22.13) and (Rs. 48.51) on standalone and consolidated basis for last three fiscals. Average RoNW for last three financial years stands at – (7.29%) and – (159.46%) on standalone and consolidated basis. With the help of premium on preferential issue made in November 2016, it’s NAV as on 31.03.17 stood at Rs. 77.17 (standalone) and Rs. 78.64 (consolidated). Thus asking price has a negative P/E which is not measurable.

On BRLMs front, Inga Capital Pvt. Ltd., one of the BRLMs, associated with the issue has handled 3 public issues n the past 3 years, out of which 1 issue closed below the issue price on listing date. Investec Capital Services (India) Pvt. Ltd. and SREI Capital Markets Ltd, other BRLMs associated with the issue have not handled any public issues of equity shares in the past 3 years.

Conclusion: Company has carried forward losses that will take time for wiping off. Hence there is no harm in giving this IPO a miss.

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