Man Infraconstruction Limited is in the process of completing its IPO which had opened on Thursday the 18th of February and closes on Monday the 22nd of February. The company is raising between Rs 137-142 crs.
| Number of Shares | 56,25,150 equity shares |
| Price Band | Rs 243-252 |
| Issue size | Rs 136.69 crs – Rs 141.75 crs |
| Employee Reservation | 2,25,150 equity shares |
| Net offer | 54,00,000 equity shares |
| QIB’s | 32,40,000 equity shares including anchor investors |
| Non Institutional Investors | 5,40,000 equity shares |
| Retail Investors | 16,20,000 equity shares |
| Equity Shares outstanding post issue | 4,95,00,000 equity shares |
| Marketcap post issue | Rs 1202.85 crs to 1247.40 crs |
| Book Running Lead Manager | IDFC – SSKI Limited |
| Edelweiss Capital Limited | |
| Isssue Opening Date | Thursday 18th February |
| Isssue closing date | Monday 22nd February |
| IPO Grade | 3/5 by Crisil indicating average fundamentals |
| Bidding lot size | 22 equity shares |
Business
The company is headquartered in Mumbai and has to date executed projects involved in the construction space in six states of India. The company has executed projects in Maharashtra, Kerala, Gujarat, West Bengal, Goa and Tamil Nadu. Man Infra has done projects involving onshore port infrastructure projects, residential, industrial, commercial construction and road infrastructure projects. It could be said that Man Infra is a contractor and executes projects on behalf of others. Being a contractor itself, there is very limited sub-contracting by Man Infra in the projects they execute.
The company being focused on construction and a contractor owns most of the equipment deployed in the projects. The company needs finance for working capital and performance guarantees and fairly low or almost nil on fund based facilities.
Currently the company has an order book of Rs 2021 crs as of 31st December 2009 of which a dominant portion or roughly 83% comes from the residential sector. The commercial real estate sector is 10.1% while port infra is 4.8% and the balance of 2.1% is from road infra.
Objects of the Issue
| Purchase of Capital Goods | Rs 122.53 crs |
| General corporate Purposes | x |
The main object of the issue is to raise money for the purchase of capital goods. Almost Rs 74 crs of equipment would be purchased in 2010-2011 and about 49 crs in 2011-2012. The balance after netting of expenses for the issue would be for general corporate purposes.
Financials
The company reported a consolidated total income of Rs 236 crs for the year ended March 2008, Rs 594 crs for March 2009 and Rs 381 crs for the nine months ended December 2009. The net profit after tax was Rs 31.9 crs for March 2008, Rs 82.5 crs for March 2009 and Rs 60.3 crs for the nine months ended December 2009. There is one area of concern for this company in the sundry debtors. The sundry debtors seem to be very high. As of 31st March 2008, debtors were Rs 84.7 crs, they increased to Rs 200 crs for the year ended March2009. In the nine months ended December 2009 they have further increased to Rs 230 crs. If one looks at the same period of nine months in the previous year the debtors were Rs 158 crs when the sales were Rs 440 crs.
What this means is that sundry debtors in 2008-2009 were Rs 158 crs on sales of Rs 440 crs which increased to Rs 230 crs while sales actually fell to Rs 381 crs. While the management did try to explain and justify the reason for the same it does become a mention of concern. Also assuming that the value of free material is increasing it does not help or address the issue. The fact that sales have fallen while outstanding debtors have risen does not give any comfort.
The company has reported high margins in the past with profit after tax percentage being 14% in March 2008, 15% in March 2009 and rising sharply to 19% in the nine months ended December 2009. The current rise seems unsustainable and is likely to fall going forward, Whether the previous level of 14 to 15% is sustainable or just lower of 19% is sustainable is a little difficult to predict, the fact that they will fall is certain compared to the current numbers.
Comparisons
The company believes that its business model is different from others and has therefore used a comparison of accounting ratios with players like Gammon India, IVRCL Infrastructure, Nagarjuna Construction, and Simplex Infrastructure. If one were to compare the business model the company is more comparable with an Ahluwalia Contracts and to a large extent with B.L.Kashyap.
The price earnings multiples of the four firms mentioned by Man in the RHP are high with the lowest multiple being 18.6 by Gammon and 73.7 times of IVRCL. Man Infra earned an EPS of 16.66 on a fully diluted basis for the year ended March 09 and an almost similar Rs 16.24 for the nine month period ended December 2009 on an annualised basis.
Based on these earnings the share is being offered at a price earnings multiple of between 14.59-15.13 times on a fully diluted March 09 earnings and between 14.96-15.52 times based on nine months annualised earnings ending December 2009.
Key Risks
The point about high debtors is certainly a key risk and needs to be monitored. Secondly the dependence on one vertical like the residential sector and within that domination by a couple of clients is an area of concern.
Conclusion
A new trend is emerging these days where on road shows the merchant bankers have become very callous. A presentation is normally made which highlights the RHP and based on the presentation invitees to the road show ask questions. A document of 391 pages cannot be read, studied and understood by anybody in a span of ten minutes, which is the time most people reach a venue before the meeting. In case merchant bankers feel that there is no need to show the presentation where about three of 25 slides are shown they should not waste their time and that of the invitees by doing such a sham and just not have such meetings. I believe the organisers and people behind this event owe the prospective investors an apology and must make up the same by calling for an analyst meet immediately after they list the shares.
The share is reasonably priced and offers appreciation in the future. Ignoring the attitude and giving due weightage to the risks mentioned above, I still believe this share offers gains to the investor.
Sebi Disclaimer: – I intend to subscribe to the above issue.
