Ramky Infrastructure Limited (Ramky) is tapping the capital markets with an IPO which has opened on Tuesday the 21st of September and closes on Thursday the 23rd of September. The issue is in a price band of Rs 405-468 and comprises of a fresh issue of 350 crs and an offer for sale of Rs 180 crs. The company had allotted 20.38 lakh shares to anchor investors at a price of Rs 425.

Business

Ramky is an integrated construction and infrastructure development and management company in India. Ramky commenced its business in 1994 and has since then serviced a diverse range of construction and infrastructure projects in water and waste water, transportation, irrigation, industrial parks including SEZ’s, power transmission and distribution, residential, commercial and retail property.

The company operates in two principal business segments of construction which is operated by the company and a developer business which is operated through 10 subsidiaries and four associates. A majority of the development projects are public private partnerships and are operated by separate special purpose vehicles promoted by Ramky and the Government. The company owns a large fleet of sophisticated construction equipment like crushing plants, hot mix plants, wet mix plants, asphalt batching plants, concrete batching plants, excavators, rock breakers, graders, pavers, compactors, tower cranes, dozers, bar bending and cutting machines. The company employed 1742 full time employees on a standalone basis as of 31st March 2010.

The company has a very strong order book and as of 31st March 2010 had a pending order book of Rs 7431.71 crs. The order intake in the first four months of the current year upto 31st July has been Rs 3147.31 crs taking the order book to over Rs 10,500 crs. Over the last eight years the company has completed 266 projects worth close to R 1700 crs. The current order book comprises of orders from water and waste water projects, irrigation, transportation projects, power projects, industrial projects and building construction projects. Ramky has a pan-India presence and the projects being executed are spread across the country and not any state or region specific.

Objects of the issue

The objects of the issue are as follows: –

Financials

Ramky has reported standalone revenue of Rs 1468.77 crs for year ended March 2009 and Rs 2009.33 crs for the year ended March 2010. The net profit for the same period has been Rs 67.97 crs and Rs 104.23 crs respectively.

On a consolidated basis the revenue for March 2009 is Rs 1600.57 crs and for March 2010 is Rs 2251.29 crs. The net profit after tax and minority interest is Rs 83.32 crs and Rs 128.85 crs respectively. This translates into earnings per share of Rs 16.86 for March 2009 and Rs 26.07 for March 2010 on the pre-IPO capital of 4.94 cr shares and an equity capital of Rs 49.4 crs.

Comparison

The company has compared itself with players like Consolidated Construction Consortium (CCCL), IVRCL and Nagarjuna Construction who are comparable in nature of business. In terms of size IVRCL and Nagarjuna are substantially bigger in size but scaling up is not too difficult in this business. The comparison has to take into account the strong order book and the fact that the order visibility for the next 24-36 months takes into account a good growth rate of anywhere between 40 and 50% as well. The opportunity and the growth being witnessed by almost all players ensure that there is opportunity for all.

Valuations

The company is having a fixed size issue in terms of amount to be raised of Rs 350 crs. There is also an offer for sale of Rs 180 crs. The dilution at the lower end of the price band of Rs 405 would increase the post IPO equity to 5.81 cr shares and at the upper end of the price band of Rs 460 to 5.69 cr shares. The earnings per share on a fully diluted basis would be Rs 22.18 at the lower end and Rs 22.64 at the upper end of the price band. The price earnings ratio would be 18.26 at the lower end and 20.67 at the higher end of the price band.

Growth drivers and strategy

Ramky has been continuously increasing its order book and has a diverse order book to boast off. The growth in order book has been matched by a consistently increasing average order size for the construction business and the fact that the company has a pan-India presence. Public-Private Partnerships will be the focus model going forward and Ramky wants to leverage execution capabilities by undertaking larger and more complex projects going forward.

Conclusion

The opportunity in the infrastructure space is well known and Ramky is present in almost all of them particularly the water and waste water segment which is going to become a big opportunity going forward. The company is well poised and has reached a level from which the next stage of growth is set to take off. The share is reasonably priced offering opportunity for growth and price appreciation in the medium and long term. The price band is big with the same being Rs 405-468. Anchor investors have been currently allotted shares at Rs 425 and the bunching of issues could see the price discovery happening at some midway level of the price band.

Retail investors should subscribe to the issue at cut-off without trying to figure out the probable price discovery and expect medium term gains.

In conclusion an opportunity to share growth in a company which is poised to enter the next level of growth and continue its strong showing. Subscribe at cut-off.

SEBI disclaimer: – I intend to subscribe to the above issue.