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Ashoka Buildcon Limited is tapping the capital markets with an IPO to raise Rs 225 crs in a price band of Rs 297-324. The issue has opened on Friday the 24th of September and closes on Tuesday the 28th of September. The company has allotted shares to anchor investors at Rs 324.
| Price Band | Rs 297-Rs 324 |
| Issue size in Rs | Rs 225 crs |
| Offer size in shares | 75,75,758 Equity shares at Rs 297 to 69,09,722 Equity shares at Rs 324 |
| QIB’s | 45,22,727 Equity Shares at Rs 297 to 41,45,833 Equity Shares at Rs 324 |
| Non Institutional Investors | 7,53,788 Equity Shares at Rs 297 to 9,90,972 Equity Shares at Rs 324 |
| Retail Investors | 22,61,364 Equity Shares at Rs 297 to 20,72,917 Equity Shares at Rs 324 |
| Marketcap post issue | Rs 1580.92 crs to 1704.29 crs |
| Book Running Lead Manager | Enam Securities Private Limited |
| IDFC Capital Limited | |
| Co-Book Running Lead Manager | Motilal Investment Advisors Private Limited |
| Syndicate Member | Sharekhan Limited |
| Isssue Opening Date | Friday 24th September |
| Isssue closing date | Tuesday 28th September |
| Anchor Investors | 12,43,750 Equity shares allocated at Rs 324 per share |
| IPO Grade | 4/5 by CRISIL Limited indicating above average fundamentals |
| Bidding Lot | 21 shares |
Business
Ashoka Buildcon builds and operates roads and bridges in India on a build, operate and transfer (BOT) basis. The company believes that it currently operates one of the highest numbers of toll-based BOT projects in India. In addition to BOT projects we also (1) engineer and design, procure the raw materials and equipment for and construct roads, bridges, distribution transformers, electricity substations, commercial buildings, industrial buildings and institutional buildings for third parties as well as perform maintenance for third parties. (2) Manufacture and sell ready-mix concrete (RMC), bitumen and pre-cast poles and (3) collect tolls on roads and bridges owned and constructed by third parties.
The company began way back in 1976 and till 1997 was engaged solely in the engineering and construction of buildings in all the segments whether it is residential, commercial, industrial or institutional. Since 1997 it entered the business of construction of toll roads and was awarded its first BOT project the Dhule bypass project which was completed in the same year.
Currently the company operates or has an interest in 23 BOT road projects totalling approximately 3498.35 lane kms in Maharashtra, Madhya Pradesh, Chhattisgarh, Karnataka and Orissa. !7 of the above are in operation and six are under construction. OF these 17 projects, four are operated by the company, 11 are operated by the subsidiaries of the company/joint ventures controlled by the company, and 1 is operated by an associate company having 50% interest and operated as a joint venture in which the company has a 5% interest. Of the six under construction, four are being developed by subsidiaries of the company; one is being developed by a JV in which the company has a 26% interest and one JV in which the company has a 13.76% stake.
The order book which includes the unfinished and uncertified portion of projects that have been awarded is Rs 1615.36 crs as of 31st Amy 2010. The order book does not include a fixed fee order of Rs 1638 crs which has been given to the company for constructing two toll roads. These orders are from its subsidiaries and are for the Sambalpur – Baragarh road on NH 6, and Belgaum – Dharwad section on NH 4.
Objects of the issue
The objects of the issue are as follows: –
| 1. | Investment in capital equipment | Rs 25 crs |
| 2. | To meet working capital requirements | Rs 45 crs |
| 3. | Prepayment/repayment of project loans of the company | Rs 55 crs |
| 4. | Funding certain Subsidiaries for prepayment/repayment of their loans | Rs 60 crs |
| 5. | General corporate purposes | |
| 6. | Issue Expenses |
Financials
On a standalone basis Ashoka Buildcon reported revenues of Rs 756 crs for the year ended March 2009 and Rs 1037.33 crs for the year ended March 2010. Its net profit for the same period was Rs 47.80 crs and Rs 75.69 crs respectively. On a consolidated basis the revenues for the same period were Rs 533.36 crs and Rs 814.20 crs while the net profit was Rs 34.81 crs and Rs 80.37 crs respectively.
The pre-IPO capital is Rs 45.69 crs or 4.569 cr shares. This would result into an EPS of Rs 10.46 for Marc h 2009 and Rs 16.57 for the March 2010. At the lower end of the price band of Rs 297 the share is being offered at a PE multiple of 17.92 times based on historical earnings for March 2010 and at 19.55 times at the upper end of the price band.
The company follows AS-21 and AS-27 and as a result of the same the consolidated numbers present a slightly different picture than what we are used to.
Comparisons
The company Ashoka Buildcon has compared itself with IRB, ILFS Transportation Networks Limited, Gammon Infrastructure, Gayatri Projects and Madhucon Projects Limited. The comparison is fair in terms of companies as on a consolidated basis the company is an EPC contractor and a BOT operator which is similar to what IRB and ITNL do. On a standalone basis where it is by and large an EPC contractor comparisons with Gammon, Gayatri and Madhucon is fair. The valuations compared to the peer group make the investment attractive at the current price band, offering appreciation and a steady income flow from the BOT projects which would earn toll over the next 10-20 years.
Valuations
If one were to look at the post-IPO capital of 5.32 cr shares at the lower end of the price band of Rs 297, the EPS for March 2010 on a standalone basis would be Rs 14.22 and the PE would be 20.89 times. At the upper end of the price band of Rs 324, the EPS would be 14.39 and the PE would be 22.52 times. The share is being attractively priced and considering the sector, the growth and the order book in hand makes the investment worth it. Valuations are attractive and there is money on the table for investors in the medium and long term. I recommend that investors should subscribe to the above issue.
SEBI Disclaimer: – I intend to subscribe to the above issue.
