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Review By Rudra Shares & Stock Brokers Ltd on Sep 17, 2018

 

VALUATION

• IRCON being majorly under railways has managed to perform well over the years.
• Companies reputation for quality, commitment and consistency in terms of performance, as well as local, regional and international presence, have allowed to service the growing infrastructure needs throughout India.
• Further, Foreseeing at the strong order book (Rs 22,406.79 crore as on March 31, 2018) and steady execution, strong financials, proven track record of various domestic and foreign project executions, will help IRCON to grow at a robust pace.   
• On the upper price band of Rs 475  with EPS of Rs 43.78 for FY18, P/E works out at 10.84x, which appears to be low on valuations, but with no direct peer comparison and being Government entity with stable business outlook, we recommend to 'SUBSCRIBE'  the issue for listing gains.

THE OFFER

•  Issue Open : 17 Sep 2018 to 19 Sep 2018
•  Issue Type:  Book Built Issue IPO
• Issue Size: 9,905,157 Equity Shares @ 10 aggregating up to Rs 470.49 cr 
• Face Value:  Rs 10 Per Equity Share 
• Issue Price:  Rs 470 – Rs 475 Per Equity Share 
• Market Lot:  30 Shares 
• Minimum Order Quantity:  30 Shares 
• Listing At:   NSE, BSE 

A Discount of   Rs 10 per equity share is offered in Retail and employee quota.

 

CAPITAL STRUCTURE

The share capital of Company is set forth below:-  (Amount in Rs except share data)

 Authorized Share Capital :-  400,000,000 Equity Shares @10 Aggregate value 400 cr

 Issued, subscribed and paid up capital before the Issue :- 94,051,574 Equity Shares @10 Aggregate value 94.05 cr

 Present Issue:-  9,905,157 Equity Shares @ 10 aggregating up to Rs 470.49 cr

 

OBJECT OF THE OFFER

The objects of the Offer are

• To carry out the disinvestment of upto 9,905,157 Equity Shares, including Employee Reservation Portion, by the Selling Shareholder constituting 10.53% of Company’s pre-Offer paid up Equity Share capital of the Company.

• To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

      Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

 

COMPANY OVERVIEW

Ircon International is a Mini-Ratna public sector undertaking.

It is an integrated engineering and construction company specializing in major infrastructure projects, including railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, commercial and residential properties, development of industrial areas, and other infrastructure activities.

It is headquartered in Saket, New Delhi and has overseas office in Malaysia. It has 26 project offices in India and overseas, including Sri Lanka, Bangladesh, South Africa and Algeria.

The company’s primary focus stays rooted in the railway sector. The total order book of the company as on March 31, 2018 stood at Rs 22,406.79 crore

 

IRCON’S CORE BUSINESS

Company’s core operations are

• Construction: - As on March 31, 2018, it undertook a total of 33 railway projects in two countries internationally and in 13 states in India, with an aggregate length of 1,664.74 km.

The order book for these ongoing projects amounted to Rs 19,425.77 crore as on March 31, 2018, accounting for 86.70% of its total order book.

Under the electrical business, it undertook eight electrification projects in India and abroad and the order book amounted to Rs 1208.39 crores as on March 31, 2018, accounting for 5.39% of the total order book.

Under the building and other business, it undertook three building and other projects in India and abroad. The order book amounted to Rs 494.61 crore as on March 31, 2018, accounting for 2.21% of the total order book.

• Infrastructure development :- As on March 31, 2018, it had completed one road project of 115 km in India. It intends to complete two more BOT toll projects by the end of 2018 and start realizing toll revenues.

     

INDUSTRY OVERVIEW

Over the years 2019-2022, CRISIL Research expects the construction sector to increase 54% to Rs 22.2 trillion. Of this, about 93% would be contributed by infrastructure investments, while the rest would be from industrial sector.

During 2015-18, railways accounted for 11% of the construction sector at Rs 1.6 trillion. Over the next four years, the construction opportunity in railways is expected to double to Rs 3.1 trillion, driven by investments by public as well as the private sector.. CRISIL Research also expects the investments in railway sector to increase by about 77% from Rs 3.9 trillion in fiscals 2015-2018 to Rs 6.8 trillion in fiscals 2019-2022.

 

ROAD MAP AHEAD

    Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Continue expanding geographical footprint within and beyond India.
• Paradigm shift in revenue generation.
• Focus on high value projects in the construction business to benefit from economies of scale.
• Actively bid for new projects .
• Maintain favorable financial risk profile.
• Explore different models of project execution to optimize project portfolio .
• Explore potential ways to capture sectorial initiatives undertaken by the Government to improve economic growth.

 

STRENGTHS

• Construction business operates in diverse sectors covering many countries.
• Excellent execution track record through strong operating systems and controls.
• Strong financial performance and credit profile.
• Visible growth through robust order book and steady execution.

 

FINANCIAL HIGHLIGHTS

       Total Revenues stood Rs 2908.63cr, Rs 3301.34cr and Rs4212.40cr, in Fiscal 2016, Fiscal 2017 and Fiscal 2018 respectively.

       Aggregate revenue from construction business amounted to Rs2418.51cr, Rs 2994.79cr and Rs3896.39cr accounting for 97.48%, 98.58% and 96.75%, for Fiscal Year 2016, Fiscal Year 2017 and Fiscal Year 2018, respectively, of total operating revenue for these periods.

       Revenue from railway projects accounted for 77.12%, 68.26% and 68.95% of total revenue from operation for Fiscal Year 2016, Fiscal Year 2017 and Fiscal Year 2018, respectively.

       PBT was Rs611.60cr, Rs 555.52cr and Rs 558.35cr, in Fiscal 2016, Fiscal 2017 and Fiscal 2018 respectively.

      PAT was Rs 393.10cr, Rs 383.97cr and Rs 411.58cr, in Fiscal 2016, Fiscal 2017 and Fiscal 2018 respectively.

 

RISK FOR THE BUSINESS

• Business is substantially dependent on construction and infrastructure projects undertaken any change in government policies, may adversely affect business. 

• Railway sector projects contribute approximately 86.70% of Order Book as of March 31, 2018. Any change in the sector may adversely affect revenues and profitability. 

• Projects sub-contracted or undertaken through a joint venture may be delayed on account of the performance of the joint venture partner, could lead to material adverse effect on business. 

• Projects are exposed to various implementation and other risks and uncertainties which could lead to material adverse effect on business. 

• Statutory Auditors, in the past, have raised a vigilance related issue in their audit report. 

• Materialization of contingent liabilities may impact financials. As of March 31, 2018, contingent liabilities appearing in consolidated financial statements aggregated to 10,86.77 cr.

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