Vascon Engineers Limited (VEL) is tapping the capital markets to raise between Rs 178 crs to 200 crs by issuing 1.08 cr shares. The price band is Rs 165-185. The issue opens on Wednesday the 27th of January and closes on Friday the 29th of January.
| Number of Shares | 1,08,00,000 shares |
| Price Band | Rs 165-185 |
| Issue size | Rs 178.2 crs – Rs 199.8 crs |
| Employee Reservation | 1,00,000 shares |
| Net offer | 1,07,00,000 shares |
| QIB’s | 64,20,000 shares including Anchor investors |
| Non Institutional Investors | 10,70,000 |
| Retail Investors | 32,10,000 shares |
| Marketcap post issue | Rs 1485.26 crs to 1665.30 crs |
| Book Running Lead Manager | Kotak Mahindra Capital Company Limited |
| Enam securities Private Limited | |
| Isssue Opening Date | Wednesday 27th January |
| Isssue closing date | Friday 29th January |
| IPO Grade | 3/5 by Crisil indicating average fundamentals |
Business
VEL began operations in 1986 as an EPC contractor. Over the last 23 years the company has been involved with 181 EPC projects spread across India. VEL is engineering, procurement and construction services and real estate Development Company with operations in a number of states and Union territories in India. VEL and other development entities collectively have equity interest in five hospitality projects and an office complex.
VEL has an order backlog of Rs 3227 crs as on 31st December 2009. The company along with other developing entities owns developable area of 55.36 million square feet. The company is focussed in and around Pune, and currently of its order book of 70 ongoing projects, 73.5% is around Pune, while of the land as much as 84.58% is and around Pune.
VEL provides EPC services to its own projects as well as third party projects. VEL has till 31st December 2009 completed an aggregate of 181 projects with a total contract value of Rs 888.87 crs. Of these only 24 projects were for self or other development entities with a contract value of Rs 232.59 crs.
VEL owns directly or through its subsidiaries owns the Vista Do Rio, an interest in Galaxy resorts in Goa, the Golden Suites service apartment complex in Pune, and Marigold Premises which owns and operates the Mariplex Mall and office complex. The company has a re-risked business model with a very strong EPC contract pipeline and also own land development. The own development share of business is roughly one fourth of the total business ensuring that the business is robust and land prices, demand economy do not affect the company due to volatility in prices and market conditions.
Financials
The company had a total operating income on a consolidated basis of Rs 616.86 crs for the year ended March 2008, Rs 519.47 crs for March 2009 and Rs 354.69 crs for the half year ended September 2009. The total income for the same period was Rs 620.53 crs, Rs 524.76 crs and Rs 362.04 crs respectively. The net profit after tax was Rs 59.51crs, Rs 19.26 crs and Rs 23.50 crs respectively. The EPS for the period based on the current share capital of 7.92 cr shares is Rs 7.51, Rs 2.43 and for the half year ended September 2009 on an annualized basis Rs 5.93 respectively.
The margins have been under pressure and EBITDA margins which were at 20% in 2008 fell to 17% in March 2009 and further to 15.1% in the half year ended September 2009. Net margins which were at 9.5% in March 2008 fell to 5.9% in March 2009 and improved to 6.6% in the half year ended September 2009.
Objects of Issue
| Construction of EPC contracts and Real Estate Development | 136.50 crs |
| Repayment of Debt | 41.17 crs |
| General Corporate Purposes (more than 25% of total issue size) | X |
Comparison
The company has tried to compare itself with players like Ansal Properties, Mahindra Lifespaces, Parasvanath Developers, Sobha Developers and Brigade Enterprises Limited. These names are strictly not comparable as VEL is a EPC contractor cum developer. The historical revenue mix has been 75% from EPC and 25% from own contracts. This is likely to change in favour of own contracts going forward. One must also note that the company has paid a sum of Rs 351.52 crs till date to acquire the economic interest in the 55.36 million square feet developable area. A small sum of Rs 7.21 crs is payable on this amount.
Based on the Pre-IPO equity and profits for the period March 2009 the price earnings multiple would be 67.90 at the lower price band and 76.13 times at the higher price band. Similarly for the half year ended September 2009 annualised numbers the same would be 27.82 times at the lower price band and 31.20 times at the higher price band.
Taking these same numbers on the fully diluted equity of 9 cr shares the price earnings multiple based on March 09 numbers would be 77.1 times at the lower and 86.45 times at the higher price band. Compared to half year ended September 2009 the numbers would be better but still expensive at 31.61 times at the lower end and 35.44 times at the higher price band.
This is yet another issue where the Anchor investors have decided to stay away. This will put pressure on the share post listing as almost all the institutional investors would be the short term investors looking to make a quick buck or exiting irrespective of profits or losses.
Conclusion
The company is a strong focused player on EPC having a strong order book. It has a long term investor in the form of HDFC with it. It is in the business of real estate development and has a reasonable land bank which would be developed and completed over the next seven years. The issue is extremely expensive and even considering the NAV (net asset value), the price of the IPO cannot be justified in any manner. The anchor investors not participating is another body blow to the issue and a big enough reason for small investors to just stay away.
Expensive, no appreciation at current levels, look at issue post listing would be available cheaper.
SEBI disclaimer: – I do not intend to subscribe to the issue
