Promoters’ controversial image, unclear and unusual separation from group’s listed company that is under cloud, loss-making operations, poor financial health, lenders’ diktat for recovering dues out of IPO proceeds, etc. make MEP Infrastructure shaky proposition!
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OFFER AT A GLANCE |
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Name |
MEP Infrastructure Developers Ltd |
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Public Offer |
Fresh issue of 498.46 lakh to 514.29 lakh shares of Rs 10 |
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Offer % on Total Equity |
30.90 to 31.57 % on Rs 161.34 cr to 162.92 cr |
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Post-IPO Promoter Stake |
66.50 to 67.15% |
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Offer Price |
Between Rs 63 and Rs 65 |
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Offer Amount |
Rs 324 cr |
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Application Quantity |
225 & Multiples of 225 |
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Bid/Offer Opens |
April 21, 2015 |
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Bid/Offer Closes |
April 23, 2015 |
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Listing |
BSE and NSE |
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IPO Rating |
Nil |
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Book Running Lead Manager |
IDFC Securities, Inga Capital & IDBI Capital |
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Registrars |
Link Intime India |
The IPO
The present offer is a fresh issue of 4.98-5.14 cr shares from the company valued at Rs 324 cr. The issue, amounting to 30.9-31.57% of the post-issue equity of about 162 cr, is being made with a price band of Rs 63-65. The promoters would be holding more than 66% of the enlarged capital. Investors should apply for a minimum of 225 shares and multiples of 225 thereafter. Investment bankers IDFC Securities, Inga Capital and IDBI Capital have been appointed as book running lead manager to the offer.
IPO Object
The main object of the IPO was to raise Rs 324 cr of which about 80% is to be used for repayment/pre-payment loans availed by the company’s subsidiary, MEP Infrastructure Pvt Ltd (MIPL).
Grading
The company has not sought rating for its IPO
Lineage
Generally, when promoters’ existing listed company does well on the trading screen they would invariably quote the performance of that listed company when they float public another venture. But, strangely, the IRB-fame Dattatray Mhaiskar family does not want to talk about the track record of their maiden public company viz. IRB Infrastructure Developers Ltd (IRB). Mhaiskar family-controlled MEP Infrastructure Developers Ltd (MIDL), which is now tapping the capital market apparently under the pressure of its lenders, claims that the Promoter Group did not include Virendra Mhaiskar, elder son of Dattatray Mhaiskar, who is the current chairman and managing director of IRB.
MIDL’s offer document reveals that Jayant Mhaiskar, brother of Virendra Mhaiskar, has disassociated from the businesses of the latter. However, there was no formal disassociation arrangement between the brothers. Interestingly, the RHP claims that Virendra Mhaiskar and his entities are not included in the Promoter Group of MIDL since he refused to provide any information pertaining to himself or his entities! Is the division/separation in the Mhaiskar family real or is it just a strategy to suppress the alleged omissions and commissions of the Mhaiskars from disclosing in the offer document?
The 2002-registered MIDL has Ideal Toll & Infrastructure Private Ltd (ITIPL) as main shareholder (53.76%). Dattatray Mhaiskar and his younger son Jayant reportedly hold 22.62% and 19.94% respectively. ITIPL is said to have been promoted by Jayant Mhaiskar and his mother Sudha Mhaiskar. Incidentally, ITIPL and the maiden public venture of the Mhaiskar, IRB, were incorporated on the same date, July 27, 1998. Whereas IRB was originally named as DVJ Leasing and Finance Private Ltd, ITIPL was originally called as JVD Finlease Private Ltd.
Business profile
MIDL is an established player in tolling operations in the road infrastructure sector with a pan-India presence. The company focuses on pure toll collection projects as well as Operate-Maintain-Transfer (OMT) projects, which involve maintenance obligations in addition to toll collection on operational roads (including highways) constructed by third parties. MIDL commenced business in December 2002 with collection of toll at the five Mumbai Entry Points, which the company undertook for a period of eight years. As on March 19, 2015, the company claims to have completed 75 projects, with an aggregate of 133 toll plazas and 841 lanes, and have an overall experience of over 12 years in this business across 12 states in India. The toll collection and OMT projects have been awarded to the company by statutory corporations or government companies like NHAI, MSRDC, RSRDC, RIDCOR, MJPRCL and HRBC.
Currently, a significant portion of MIDL’s revenue on a consolidated basis is generated from the five Mumbai Entry Points under a 16-year-contract from November 2010. For seven months ended October 31, 2014, FY2014, 2013 and 2012, the Mumbai Entry Points Project contributed 18.88%, 28.46%, 26.14% and 29.46%, respectively. The company has reportedly made a non-refundable upfront payment of Rs 2100 cr to MSRDC for the Mumbai Entry Points Project in 2010. For this, a subsidiary MIPL has availed a loan of Rs 2121cr from IDFC, HDFC, Canara Bank and India Infrastructure Finance Company.
In terms of the Mumbai Entry Points Contract, MSRDC has the right to terminate the Contract in the event of any material breach or default on MIDL and its associates in complying with the terms and conditions of the contract, including any default on their obligations under the financing agreements for the loans availed for the project.
Financial Performance
MIDL’s total revenue on a consolidated basis increased from Rs 329.13 cr in FY2010 to Rs 1240.13 cr FY2014, representing a CAGR of 39% while revenue on standalone basis grew from Rs 3,29.13 cr in FY2010 to Rs 498.32 cr FY2014, representing a CAGR of 11%. Total revenue for the seven months up to October 2014 was Rs 1141.52 cr on a consolidated basis and Rs 525.56 cr on a standalone basis. Consolidated EBITDA increased from Rs 6.29 cr in FY2010 to Rs 363.07 cr in FY2014 while standalone EBITDA increased from Rs 6.30 cr in FY2010 to Rs 36.17 cr in FY2014. EBIDTA for the seven months ended October 31, 2014 was Rs 220.13 cr on a consolidated basis and Rs 26.12 cr on a standalone basis. During the last five fiscals, they have reportedly earned aggregate revenue of Rs 4335.74 cr from their projects as against aggregate payment of Rs 2762.95 cr paid to the authorities in respect of such projects. On standalone basis, MIDL has earned aggregate revenue of Rs 2795 cr as against aggregate payment of Rs 2419 cr paid to the authorities in respect of such projects.
However, the top line’s healthy growth rate has not yielded much to the bottom line. From a consolidated loss of Rs 1.27 cr in FY2010, the bottom line has depleted to negative Rs 121 cr in FY2014. Technically, MIDL is a sick company as its entire net worth is wiped out. As against its equity of Rs 111 cr, the company’s accumulated deficit stood at Rs 350 cr at the end of October 2014.
Business Prospects
As MIDL and its subsidiaries are dealing mostly with government bodies/corporations, they require a lot of clout with the ruling dispensation. If the cases filed against IRB are any indication, the Mhaiskar seem to be close the present government. Nevertheless, IRB’s cases may continue to haunt the Mhaiskar in the years to come which may jeopardize the investors’ growth prospects.
Further, a substantial portion of MIDL’s revenue on a consolidated basis is derived from short term projects which accounted for 42%, 38%, 68% and 61% of its revenue for the seven months ended October 31, 2014, Fiscal 2014, 2013 and 2012, respectively. As on March 19, 2015, out of the 18 ongoing toll collection projects operated by the company, 12 are Short Term Projects. All the short term projects are reportedly terminable by the authorities without assigning any reason. Also, there is no assurance that the company would receive any compensation on account of such early unilateral termination of these contracts or that the compensation so received shall be sufficient to cover the cost incurred or to fulfill any debt obligation for such project. Any such early termination may badly affect the financials of the company which is already in poor health.
Valuation
In the absence of any credible bottom line since inception and also in view of the huge accumulated losses, one cannot expect any dividend return from MIDL for years to come. Moreover, when industry peer like Noida Toll is quoting at only Rs 32 offering an extremely attractive dividend yield of more than 7% who will bet for MIDL at almost double the price?
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HOW MEP INFRA COMPARES WITH INDUSTRY PEERS |
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CO_NAME |
M-CAP |
EQ |
RES |
NET BLOCK |
REVEN |
NP |
P/R |
P/NB |
YLD |
PRICE |
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(Rs Cr) |
(x) |
(%) |
Rs |
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IRB Infrastructure |
8,274 |
332 |
2,923 |
13,041 |
3,732 |
459 |
2.2 |
0.6 |
1.6 |
248.95 |
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IL&FS Transport |
4,519 |
247 |
4,433 |
14,112 |
6,587 |
457 |
0.7 |
0.3 |
2.2 |
183.15 |
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Noida Toll Bridge |
602 |
186 |
303 |
574 |
120 |
54 |
5.0 |
1.0 |
7.7 |
32.35 |
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MEP Infra – Hi |
1,049 |
161 |
-252 |
2,320 |
1,198 |
-121 |
0.9 |
0.5 |
0 |
65.00 |
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– Lo |
1,026 |
163 |
-252 |
2,320 |
1,198 |
-121 |
0.9 |
0.4 |
0 |
63.00 |
Lead Managers’ Track
MIDL has hired IDFC Securities, Inga Capital and IDBI Capital as book running lead managers to the IPO. Since 2010 IDFC Sec has associated with a dozen IPOs, half of which is currently languishing below the offer price. While Gujarat Pipavav, Repco Home Finance, Va Tech Wabag and Sharda Cropchem have fetched decent returns, A2Z Infra, Jaypee Infra and Shipping Corporation have inflicted huge losses on investors.
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IDFC SECURITIES-ASSOCIATED IPOS |
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ISSUER |
IPO |
CURRENT |
GAIN |
|
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PRICE |
PRICE |
% |
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Sharda Cropchem |
156 |
371 |
137.8 |
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Repco Home |
172 |
655 |
280.8 |
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Tribhovandas |
120 |
156 |
29.7 |
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A2Z Infra Engg |
400 |
18 |
-95.4 |
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Shipping Corp |
140 |
51 |
-63.8 |
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Ashoka Buildcon |
108 |
193 |
78.8 |
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Va Tech Wabag |
262 |
781 |
197.9 |
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Gujarat Pipavav |
46 |
240 |
422.0 |
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Engineers India |
290 |
212 |
-27.0 |
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SJVN |
26 |
25 |
-4.0 |
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Jaypee Infra |
102 |
19 |
-81.5 |
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Man Infraconst |
50 |
45 |
-11.6 |
In its previous avatar Inga Capital managed just three IPOs between 2010 and 2011of which one is currently quoting below the offer price. The other two have fetched modest returns in four years.
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INGA CAPITAL-ASSOCIATED IPOs |
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ISSUER |
IPO |
CURRENT |
GAIN |
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PRICE |
PRICE |
% |
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Flexituff Internat |
155 |
235 |
51.6 |
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Technofab Engg |
240 |
178 |
-25.7 |
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Intrasoft Techno |
145 |
260 |
79.2 |
In the case of IDBI Capital, of the 12 IPOs managed since 2010, six are quoting below the offer price. While National Buildings and Gujarat Pipavav have given fabulous returns, Dr. Datsons and ARSS Infra have wiped out more than 90% of the investment value.
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IDBI CAPITAL-ASSOCIATED IPOs |
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ISSUER NAME |
IPO |
CURRENT |
GAIN |
|
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PRICE |
PRICE |
% |
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Mitcon Consultancy |
60 |
96 |
60.0 |
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Opal Luxury |
130 |
116 |
-11.2 |
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PC Jeweller |
135 |
348 |
157.7 |
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CARE |
750 |
1689 |
125.2 |
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Thejo Engineering |
201 |
210 |
4.5 |
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National Buildings |
106 |
921 |
768.6 |
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SRS |
58 |
23 |
-59.7 |
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Dr.Datsons Labs |
234 |
13 |
-94.4 |
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MOIL |
375 |
286 |
-23.7 |
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Gujarat Pipavav |
46 |
240 |
422.0 |
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SJVN |
26 |
25 |
-4.0 |
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Arss Infrastructure |
450 |
40 |
-91.1 |