Mitcon Consultancy & Engineering Services Limited (Mitcon) is tapping the capital markets in the SME segment with a fixed price issue. The issue price is Rs 61 and has opened for subscription on Tuesday the 15th of October and would close on Friday the 18th of October. There would be no bidding for this issue and therefore no details of subscription would be available on-line.
| Fixed Price | Rs 61 |
| Total issue size in Rupees | Rs 2501 lacs |
| Issue size in number of Shares |
40,00,000vlac Equity Shares |
| Market Maker Reservation Portion | 2,06,000 Equity Shares |
| Net issue to Public | 38,94,000 Equity Shares |
| Non Retail Portion | 19,46,000 Equity Shares |
| Retail Portion | 23,31,040 Equity Shares |
| Book Running Lead Managers | IDBI Capitl Market Services Limited |
| Keynote Corporate Services Limited | |
| Isssue Opening Date | Tuesday 15th October 2013 |
| Isssue closing date | Friday 18th October 2013 |
| IPO Grade | CRISIL grade 4/5 indicating superior fundamentals in SME |
| Paid -up Capital Pre IPO | 80,00,000 Equity Shares |
| Paid -up Capital Post IPO | 1,21,00,000 Equity Shares |
| Market Cap pre listing | Rs 48.80 crs |
| Market Cap post listing | Rs 73.81 crs |
| Bid Lot | 2000 Equity Shares |
| Bidding Amount for Retail | 2000Equity shares at Rs 61 or Rs 1,22,000 per application |
Business
Mitcon began business in 1982 as Maharashtra Industrial and Technical Consultancy Organisation Limited. The name MITCON is an abbreviation from this name. The company provides consultancy and engineering services through its network of offices in Pune, Mumbai, New Delhi, Ahmedabad, Chennai, Bengaluru and Nagpur. The company is professionally managed and there are no promoters as such. Over the last three decades the company has gained proficiency in providing corporate solutions in power, energy efficiency, renewable energy, climate change and environmental management sectors. Over the years the company has diversified into providing services to banking, infrastructure and biotechnology sectors.
The company also provides and conducts IT based training courses and skilled based training programs. The company’s consultancy activities are spread across seven verticals while training is across two verticals.
The major shareholders include Financial institutions and banks and currently this company is a deemed government company. In all probability post this issue this may cease to be so.
Objects of the issue
The proposed public issue would raise Rs 25 crs. The objects of the issue are as follows Rs in lacs
| 1 | 1. Acquisition of property for setting up new offices in Bengaluru, Hyderabad, Chennai, New Delhi and Ahmedabad and environment testing laboratory at Bengaluru and Ahmedabad |
1613.80 |
| 2 | Purchase of office equipment for new offices | 57.70 |
| 3 | Purchase of furniture and Fixtures for new office and environment testing lab | 291.19 |
| 4 | Purchase of environment testing laboratory at Bengaluru and Ahmedabad | 101.50 |
| 5 | General Corporate Purposes | 81.33 |
| 6 | Issue Expenses | 355.48 |
| TOTAL | 2501.00 |
Financials
The company has been reporting revenues of Rs 5000 lacs or thereabouts for the last three years. There has been a slowdown which affected order intake in the previous year but with cost pressures and rising fuel costs and environment issues, the company is poised to take advantage of the current slowdown and economic conditions. There would be a shift to some extent in the type of consultancy projects and new projects may be reduced in the medium term. However projects concerning energy audit, energy rationalisation and reducing energy consumption are on the increase.
The company reports robust net margins of around 20% which is a fair indication of its standing. It would be prudent to imagine that margins at these levels would be maintained.
| Rupees in | lacs | ||||||||
| 1 month | |||||||||
| Mar-11 | Mar-12 | Mar-13 | Apr-13 | ||||||
| REVENUES | |||||||||
| Revenue from operations | 4810.84 | 5384.11 | 4666.57 | 178.56 | |||||
| Other Income | 107.05 | 127.13 | 153.01 | 12.94 | |||||
| Total Revenue | 4917.89 | 5511.24 | 4819.58 | 191.50 | |||||
| Expenses | |||||||||
| Operating Cost | 1628.05 | 1955.38 | 1397.91 | 22.26 | |||||
| Employee Benefit Expenses | 955.76 | 1172.69 | 1150.88 | 98.65 | |||||
| Finance Costs | 5.35 | 8.62 | 5.30 | 0.23 | |||||
| Depriciation Expense | 102.70 | 128.31 | 126.68 | 10.63 | |||||
| Less transferred from revaluation reserve | -3.90 | -3.90 | -3.90 | -0.32 | |||||
| Provision for amortization | 8.44 | 8.89 | 27.98 | 2.60 | |||||
| Other expenses | 651.54 | 813.45 | 710.00 | 53.43 | |||||
| Total Expenses | 3347.94 | 4083.44 | 3414.85 | 187.48 | |||||
| Profit Before Tax | 1569.95 | 1427.80 | 1404.73 | 4.02 | |||||
| Total Tax Expenses | 479.93 | 451.74 | 407.52 | 0.63 | |||||
| Net Profit after Tax | 1090.02 | 976.06 | 997.21 | 3.39 | |||||
| Net Margins | 22.16 | 17.71 | 20.69 | 1.77 | |||||
| EPS on pre-IPO capital | 13.63 | 12.20 | 12.47 | 0.07 | |||||
| Fully diluted and annualised EPS | 9.00 | ||||||||
| PE AT RS 61 | 4.47 | 6.77 |
Comparison
There are no comparisons available but for the sake of comparison the only name that comes to mind is Engineers India a listed entity. The size of Engineers India is 50 times the revenue of Mitcon and they are into large and ultra-large projects. To give a sense of difference, the ticket size of an assignment for Mitcon could be a few lakhs or even a lakh while for Engineers India it would run into crs. Secondly many state run consultancy organisations which were set up around the same time as Mitconhave simply shut shop or are languishing. In view of this it is best to say that there is no comparison but the business of consultancy is certainly not a unique business. There are a few niche players who offer consultancy restricted to a sector or a couple of sectors.
Key Drivers
Indian economy has grown at an average of over 7% in the last decade. Things are currently bad and the growth rate has dipped to below 5%. This has not impacted Mitcon in terms of total business, except that the typeof consultancy assignments have changed. Going forward there would be demand and growth revival which would drive Mitcon. More importantly there would be increased requirement for consultancy in areas like electricity saving, energy audit, environment related projects and once economy begins to improve expansion related projects would also start. The gestation period for consultancy ranges from a few weeks to maybe 18 months.Business even in these challenging environment is not an area of concern for Mitcon and one could safely conclude that the revenues for the current year would be in the region of Rs 50-55 crs.
Valuations
The shares are being offered at a fixed price of Rs61 per share. Based on the pre-ipo capital of 80 lac shares the EPS for March 2013 is Rs12.47 and the PE multiple is 4.89. The same on the post-ipo capital changes to an EPS of Rs 8.30 and a PE ratio of 7.35. The networth of the company pre-ipo is Rs 54 crs which would increase post issue to Rs 79 crs.
Conclusion
The fixed price issue from Mitcon is a decent issue an offers scope for appreciation in the medium term. The business of consultancy has its entry barriers and credibility to ensure repeat business and prevent start-ups from coming to this field. I would advise investors with a time frame of 8-12 months to apply to this issue. Though it is a SME issue there will be continuous trading unlike some other issue on NSE.
SEBI Disclaimer: – I intend to subscribe to the above issue