Notwithstanding Intensive Fiscal’s track, excessive dependence on government contracts, risk of geographical concentration, limited scalability of operations, high degree of competition, poor industry-discounting in stock market, etc. make Prakash Constrowell a misfit for portfolio construction.
|
OFFER AT A GLANCE |
|
|
Name |
Prakash Constrowell Ltd |
|
Offer Quantity |
43.5 to 46.2 lakh shares of Rs 10 each |
|
% on Total Equity |
34.6 to 36% |
|
Offer Price |
Rs 130 to Rs 138 |
|
Offer Amount |
Rs 60 cr |
|
Bid Quantity |
50 & Multiples of 50 |
|
Bid/Offer Opens |
September 19, 2011 |
|
Bid/Offer Closes |
September 21, 2011 |
|
Rated By |
CARE |
|
Rating |
2 out of 5 |
|
Lead Managers |
Intensive Fiscal Services |
|
Registrars |
Bigshare Services |
Issue Objective
The present IPO is a fresh Issue of Rs 60 cr by the company consisting of 43.5 lakh to 46.2 lakh equity shares of Rs.10 each in the price band of Rs130 – 138 a piece which would constitute 34.6 to 36% of the company’s post-issue capital.
A significant portion (Rs.35 cr) of the issue proceed is earmarked for working capital. The company proposes to spend Rs.9.30 cr on acquiring construction equipments and Rs 2.35 cr is to be invested in subsidiaries. The balance is meant for general corporate purposes. Nonetheless, the funding requirement and the deployment are not appraised by any independent agency.
Parentage
Prakash Constrowell Limited (PCL) is an infrastructure construction company founded by a first generation entrepreneur, Prakash Laddha, who has over three decades of experience in the industry. PCL was formed in 1996 to take over the business of erstwhile proprietary concern Prakash Builders which was in operation since 1978, successfully executing a number of projects awarded by the state government and semi-government bodies.
Business
Headquartered at Nasik, PCL reportedly has operations across the state of Maharashtra. The company focuses on infrastructure projects namely construction and maintenance of roads/highways, bridges, including projects on public-private partnership (PPP) model, industrial parks, workshops, hospitals, educational institutions, Government staff quarters, hostel buildings and auditoriums. Recently, it has also diversified into residential and commercial real estate development.
Growth Prospects
PCL claims to have experienced high growth in consolidated revenue and net profit exhibiting a compounded annual growth rate of 69% and 51 % respectively over the last four financial years. Its standalone revenue and net profit registered a compounded annual growth rate of 37% and 43% respectively over the last five financial years. Nevertheless, the company’s performance achieved impressive levels only after 2009. In last three years, the company’s operating cash flow turned positive only in 2011 that is on the eve of the IPO.
From less than just Rs 2 cr until fiscal 2009, PCL’s pre-tax profit surged to Rs 7.75 cr in fiscal 2010 and to Rs 12.11 cr in fiscal 2011. For a promoter who has been in this line of business for more than three decades the financials are certainly unimpressive. Further, as of June 30, 2011, the company’s order book on a consolidated basis amounted to Rs.151 cr which would at best cover just one year’s revenue.
Since PCL predominantly operates in single state and that too on government contracts which run high risk of unpredictability. Any cancellation or scope-adjustments may pose serious challenge to the company’s growth prospects.
Valuation
PCL has fixed a price band of Rs.130-138 for the IPO. The floor price at Rs 130 discounts its Paid-up Value 13 times, EPS about 11 times and Book Value of the share around 3.5 times. The company expects us to believe that the average P/E for the industry is more than 30 times. However, the current market statistics depict a different picture. Of the 80-odd infra-construction stocks currently traded on the BSE, nearly a half has P/Es in single digits. In fact, the Industry’s Composite P/E is lower (11.1x) as compared to the Market Composite P/E (15.4x). Moreover, when many a reputed dividend paying company in this industry is currently available at 6 to 7 P/E, who will find the non-dividend paying PCL attractive for investment?
|
Infra-construction Industry’s poor discounting |
|||||||||
|
NAME |
COS |
M-CAP |
PE |
P/BV |
P/FV |
P/R |
OPM |
YIELD |
PRICE |
|
|
|
(Rs Cr) |
(x) |
(x) |
(x) |
(x) |
(%) |
(%) |
(Rs) |
|
IVRCL |
|
1,136 |
8.5 |
0.6 |
21.3 |
0.2 |
8.8 |
1.9 |
42.55 |
|
Gammon India |
|
1,095 |
8.6 |
0.6 |
39.9 |
0.2 |
5.0 |
0.8 |
79.70 |
|
Patel Engineering |
|
728 |
8.6 |
0.7 |
104.3 |
0.3 |
13.3 |
1.9 |
104.25 |
|
Arss Infrastructure |
|
497 |
4.3 |
1.1 |
33.5 |
0.4 |
22.0 |
0.3 |
334.70 |
|
Pratibha Industries |
|
483 |
6.5 |
1.0 |
24.3 |
0.4 |
14.9 |
1.2 |
48.60 |
|
Supreme Infrastruct |
|
385 |
4.8 |
1.5 |
23.0 |
0.4 |
16.4 |
0.7 |
229.85 |
|
Unity Infraprojects |
|
369 |
3.9 |
0.6 |
24.9 |
0.2 |
13.5 |
2.0 |
49.85 |
|
Consolidated Const |
|
362 |
8.0 |
0.6 |
9.8 |
0.2 |
6.3 |
2.6 |
19.60 |
|
JMC Projects |
|
347 |
7.8 |
0.9 |
13.3 |
0.2 |
8.2 |
1.5 |
132.80 |
|
J.Kumar Infra |
|
319 |
4.5 |
0.8 |
11.5 |
0.3 |
14.8 |
2.0 |
114.90 |
|
KNR Constructions |
|
308 |
5.6 |
0.9 |
11.0 |
0.4 |
14.8 |
1.8 |
109.50 |
|
C & C Constructions |
|
281 |
7.6 |
0.5 |
12.0 |
0.2 |
18.0 |
2.3 |
120.05 |
|
Ashiana Housing |
|
264 |
6.0 |
1.5 |
14.2 |
1.9 |
36.9 |
1.2 |
141.95 |
|
Petron Engineering |
|
239 |
6.8 |
2.0 |
31.6 |
0.4 |
11.8 |
0.6 |
316.45 |
|
MBL Infrastructures |
|
226 |
3.4 |
0.8 |
12.9 |
0.2 |
12.8 |
1.9 |
128.95 |
|
Gayatri Projects |
|
186 |
3.0 |
0.5 |
15.5 |
0.1 |
13.4 |
3.2 |
155.00 |
|
ITD Cementation |
|
170 |
8.3 |
0.5 |
14.8 |
0.1 |
10.0 |
1.0 |
147.60 |
|
R.P.P.Infra Projects |
|
152 |
7.4 |
1.9 |
6.7 |
0.7 |
11.7 |
1.5 |
67.35 |
|
Valecha Engg |
|
152 |
7.8 |
0.6 |
7.8 |
0.2 |
6.1 |
2.1 |
77.80 |
|
PBA Infrastructure |
|
62 |
6.9 |
1.7 |
4.6 |
0.2 |
19.1 |
4.4 |
45.80 |
|
Nila Infrastructures |
|
52 |
4.0 |
0.6 |
1.8 |
0.6 |
21.2 |
5.7 |
1.75 |
|
Roman Tarmat |
|
26 |
8.7 |
0.2 |
2.4 |
0.2 |
14.8 |
4.1 |
24.15 |
|
Infra Composite |
84 |
46,381 |
11.1 |
1.1 |
11.4 |
0.7 |
14.1 |
|
|
|
Market Composite |
2,889 |
6,056,553 |
15.4 |
2.4 |
29.3 |
1.4 |
22.6 |
|
|
|
Prakash Constrowell |
|
173 |
11.7 |
3.7 |
13.8 |
1.0 |
12.3 |
0 |
138 |
|
|
|
167 |
11.0 |
3.5 |
13.0 |
0.9 |
12.3 |
0 |
130 |
Promoters’ Cost & Lock-in
More than 97% of the existing shares of 82.2 lakh is held by the two promoter-directors whose average cost of holding is just 50 paise per share! While the entire pre-IPO holdings of the promoters are locked for one year from the IPO allotment, only less than 30 lakh shares (out of 79.8 lakh shares) are locked-in for three years. Hence, long term public-investors whose cost would be not less than Rs 130 a piece will have a tough time should the company’s operations turn flat due to economic slow down and promoters resort to selling a part of their ultra-cheap holdings once the lock-in lapses.
Investment Bankers’ Track
PCL’s IPO is managed by a relatively lesser known merchant banker, Intensive Fiscal Services, who has lead-managed only two IPOs in last three years. However, to his credit, both the issues are currently quoting at a premium. Will PCL help Intensive Fiscal to score a hat-trick? Only the investment banker can give an answer, though odds are heavily against such a proposition.
|
INTENSIVE FISCAL-ASSOCIATED IPOS IN LAST THREE YEARS |
|||||||||
|
Issuer |
IPO |
IPO |
Listing |
3-Mon |
6-Mon |
1-Yr |
2-Yr |
3-Yr |
Current |
|
|
Date |
Price |
Gain% |
Gain% |
Gain% |
Gain% |
Gain% |
Gain% |
Gain% |
|
Gokul Refoils |
8-May-08 |
39.00 |
-7.2 |
28.8 |
-1.3 |
38.6 |
90.9 |
138.8 |
119.6 |
|
Inventure Growth |
20-Jul-11 |
117.00 |
77.7 |
|
|
|
|
|
25.0 |