Stagnant growth and steep valuation restrict capital appreciation prospects.
|
OFFER AT A GLANCE |
|
|
Name |
PNC Infratech Ltd |
|
Public Offer |
Fresh issue of 115 lakh shares and offer for sale of 14.22 lakh shares |
|
Offer % on Total Equity |
25% on Rs 51.31 cr |
|
Post-IPO Promoter Stake |
51.07% |
|
Offer Price |
Between Rs 355 and 378 (FV Rs 10) |
|
Offer Amount |
Rs 459 cr to Rs 488 cr |
|
Application Quantity |
35 & Multiples of 35 |
|
Bid/Offer Opens |
May 8, 2015 |
|
Bid/Offer Closes |
May 12, 2015 |
|
Listing |
BSE and NSE |
|
IPO Rating |
Nil |
|
Book Running Lead Managers |
ICICI Securities & IDFC Securities |
|
Registrars |
Link Intime |
The IPO
The present offer consists of fresh issue of 115 lakh shares of face value of Rs 10 each from the company and `Offer for Sale’ of 14.22 lakh shares from Foreign Venture Capital Fund, NYLIM JB, who acquired 56.87 lakh shares of the company at a price of Rs 263.77 a piece in January 2011. The public offer is being made with a price band between Rs 355 and Rs 378 for an aggregate value of Rs 459 cr to 488 cr. The IPO shall constitute 25.2% of the company’s post-issue equity capital.
IPO Object
The objects of the fresh issue (Rs 408-435 cr) are: (a) Funding working capital requirements (Rs 150 cr); (b) Investment in subsidiary for part-financing the Raebareli-Jaunpur Project (Rs 65 cr); (c) Investment in capital equipment (Rs 85 cr); (d) Repayment/ prepayment of debts (Rs 35 cr); and the balance is earmarked for funding general corporate purposes.
Grading
The company has not sought rating for its IPO
Lineage
The issuer company was originally incorporated in 1999 as ‘PNC Construction Company (P) Ltd which was changed to PNC Infratech Ltd (PIL) in 2007 to reflect the shift in the company’s focus from basic construction to high-tech activities such as construction of airport runways, bridges, etc. PIL’s promoters comprise of individuals Pradeep Kumar Jain (57) and his brothers Naveen Kumar Jain (53), Chakresh Kumar Jain (51) and Yogesh Kumar Jain (43) and group companies PNC Project and PNC Cold Storage. The holdings of individual promoters and promoter group amount to 72.27% of the pre-issue capital (Rs 39.81 cr). The balance 27.73% is held by Foreign Venture Capital Fund NYLIM JB (14.29%), three bodies corporate (13.4%) and one individual (0.04%). Post-offer for sale, the stake of the selling shareholder, NYLIM JB, will be reduced to 8.31%.
Prior to floating PIL, the main individual promoter, Pradeep Kumar Jain, who is the current chairman and managing director of the company, was engaged in the business of providing integrated construction services for infrastructure sector through PNC Construction Company, a sole proprietorship firm located at Agra, which had been in existence since 1989. In 2000-01, PIL reportedly acquired the business of the sole proprietorship firm from Jain and in consideration PIL’s shares were issued to him.
Business profile
PIL is an infrastructure construction, development and management company, with expertise in the execution of projects, including highways, bridges, flyovers, power transmission lines, airport runways, development of industrial areas and other infrastructure activities. The company provides EPC services on a fixed-sum turnkey basis as well as on an item rate basis. It also executes projects on a BOT (including on a DBFOT basis), operate them during the concession period on toll or annuity basis and subsequently transfer the projects. In 2013, it had entered into a project on an OMT model as well. The company claims to have executed projects across various states covering Rajasthan, Punjab, Haryana, Uttarakhand, Uttar Pradesh, Delhi, Bihar, West Bengal, Assam, Madhya Pradesh, Maharashtra, Karnataka and Tamil Nadu. It has reportedly executed 42 major infrastructure projects on an EPC basis.
Currently, PIL is said to be in the process of executing 21 infrastructure projects and its order book in terms of value of contract was estimated at Rs 6072 cr as on June 30, 2014. The company’s major clients include the NHAI, Airports Authority of India, Delhi State Industrial Development Corporation, Uttar Pradesh Power Corporation, RITES, Military Engineering Services, Uttar Pradesh State Highway Authority, Haryana State Road Development Corporation, Dedicated Freight Corridor Corporation of India, Madhya Pradesh Road Development Corporation, Public Works Department of Uttar Pradesh, etc.
Financial Performance
The 15 year-old PIL has impressive financials. In fiscal 2014 the company logged Rs 1364.24 cr in the top line and posted a net profit of Rs 47.43 cr against its equity base of Rs 39.81 cr. The company’s consolidated reserves (including share premium Rs 184 cr) amounted to Rs 786 cr at the end of December 2014 which gives a book value of more than Rs 207 a share. While the financials are appealing in size, the company’s growth has been stagnant in recent years. It is only on the eve of the issue (nine months of fiscal 2014), the growth has accelerated again.
In three years between FY2011 and 2014 PIL’s top line has grown only Rs 221 cr (from Rs 1143 cr to Rs 1364 cr) and during this period the company’s net profit actually dropped, from Rs 71 cr to Rs 47 cr. With a significant rise in inventories, PIL posted a higher net profit of Rs 62 for the 9-month period ended December 2014.
Valuation
PIL is asking the investing public to shell out Rs 355 to Rs 378 for its share which may look reasonable when compared to the discounting of its industry peers. Nevertheless, the company’s stagnant growth in recent years, its overdependence on government projects and abysmally low cost of existing shareholders advise caution. Moreover, the post-listing performance of the recent infrastructure IPO, MEP Infrastructure, is any indication, one can’t be too optimistic about PIL’s immediate capital appreciation.
The selling shareholder, NYLIM JB, had acquired 14.29% stake (56.87 lakh shares) for a value of around Rs 40 cr in 2011. As the current offer for sale will fetch more than Rs 50 cr, the selling shareholder’s cost of holding for its residual stake of 8.31% will be nil. In other words, even if the price were to drop much below the offer price post-listing, NYLIM will not lose anything.
In the case of promoters too, cost of holding is extremely low which could attract offloading in low prices once the lock-in restriction is over. Main individual promoter Pradeep Kumar Jain holds 3,002,325 shares at cost of just Rs 3.33 a share. Naveen Kumar Jain holds 3,551,625 shares whose cost is nil. Chakresh Kumar Jain has 435,225 shares whose average cost is only Rs 3.33. Yogesh Kumar Jain holds 3,291,225 shares at a cost of Rs 16.60. Promoter group company PNC Project has 2,133,000 shares at Rs 45.05. Another company of the group, PNC Cold Storage, has 360,000 shares at a cost of Rs 16.67 and Shri Parasnath Infrastructure is holding 1,410,000 shares at just 33 paise per share!
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How PNC Infratech compares with peers |
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CO_NAME |
MCAP |
EQ |
Net Blck |
REVEN |
P/E |
P/BV |
P/R |
OPM |
Sh Price |
|
|
Rs Cr |
(x) |
(%) |
Rs |
|||||
|
NCC |
5,242 |
111 |
2,629 |
7,689 |
– |
1.6 |
0.7 |
10.0 |
94.30 |
|
Sadbhav Engg |
4,599 |
15 |
6,068 |
2,733 |
180.5 |
3.6 |
1.7 |
16.3 |
303.25 |
|
Ashoka Buildcon |
2,543 |
79 |
12,536 |
2,125 |
30.7 |
2.4 |
1.2 |
22.0 |
161.00 |
|
Jaypee Infra |
2,347 |
1,389 |
10,179 |
3,189 |
8.6 |
0.4 |
0.7 |
39.6 |
16.90 |
|
Hindustan Const |
2,021 |
65 |
6,879 |
8,510 |
– |
3.4 |
0.2 |
5.3 |
31.30 |
|
J.Kumar Infra |
1,922 |
32 |
501 |
1,446 |
20.4 |
3.3 |
1.3 |
17.0 |
596.50 |
|
KNR Const |
1,371 |
28 |
858 |
895 |
20.9 |
2.2 |
1.5 |
14.7 |
487.50 |
|
MBL Infra |
1,029 |
18 |
590 |
1,766 |
13.4 |
2.2 |
0.6 |
10.7 |
587.50 |
|
IL&FS Engg |
1,006 |
112 |
201 |
1,133 |
71.0 |
7.0 |
0.9 |
0.0 |
90.15 |
|
Punj Lloyd |
983 |
66 |
3,478 |
10,855 |
– |
0.4 |
0.1 |
5.4 |
29.60 |
|
ITD Cementa |
793 |
12 |
230 |
1,537 |
– |
2.0 |
0.5 |
9.8 |
688.25 |
|
IVRCL |
663 |
90 |
6,360 |
4,945 |
– |
0.3 |
0.1 |
4.8 |
14.79 |
|
Patel Engg |
615 |
8 |
1,251 |
3,701 |
20.9 |
0.3 |
0.2 |
12.5 |
80.70 |
|
Atlanta |
559 |
16 |
752 |
364 |
10.3 |
0.9 |
1.5 |
30.3 |
68.55 |
|
JMC Projects |
495 |
26 |
1,726 |
2,686 |
– |
1.1 |
0.2 |
4.9 |
189.50 |
|
Supreme Infra |
479 |
22 |
2,852 |
2,583 |
6.1 |
0.6 |
0.2 |
17.4 |
216.80 |
|
Gayatri Proj |
465 |
30 |
9,633 |
1,586 |
– |
0.7 |
0.3 |
20.9 |
153.70 |
|
Madhucon Proj |
457 |
7 |
6,108 |
1,582 |
– |
4.6 |
0.3 |
22.6 |
61.95 |
|
Pratibha Indust |
420 |
20 |
1,173 |
2,284 |
27.4 |
0.7 |
0.2 |
14.1 |
41.60 |
|
R.P.P.Infra |
327 |
23 |
50 |
240 |
24.1 |
2.1 |
1.4 |
14.9 |
144.90 |
|
Gammon India |
289 |
27 |
1,158 |
4,412 |
– |
0.2 |
0.1 |
-4.1 |
21.30 |
|
PNC Infra -High |
1,939 |
51 |
1,922 |
1,364 |
28.9 |
2.1 |
1.4 |
12.8 |
378.00 |
|
-Low |
1,821 |
51 |
1,922 |
1,364 |
27.2 |
2.0 |
1.3 |
12.8 |
355.00 |
Lead Managers’ Track
PIL has hired ICICI Securities and IDFC Securities as book running lead managers to its IPO. Since 2010 ICICI has associated with more than 20 IPOs, half of which is currently languishing below the offer price. While Wonderla, CARE and PTC India have fetched decent returns, A2Z Infra, Shree Ganesh Jewel, Parabolic Drugs, Commercial Engineers, Jaypee Infra, Nitesh Estates and Tara Jewels have inflicted huge losses on investors. However, the most recent IPO handled by ICICI Sec viz. VRL Logistics is quoting more than 36% premium over its offer price.
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ICICI SECURITIES-ASSOCIATED IPOs |
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|
ISSUER NAME |
IPO |
IPO |
CURRENT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
VRL Logistics |
15-Apr-15 |
205 |
280.00 |
36.6 |
|
Shemaroo Entertainment |
16-Sep-14 |
170 |
197.00 |
15.9 |
|
Wonderla |
21-Apr-14 |
125 |
267.75 |
114.2 |
|
Bharti Infratel |
11-Dec-12 |
220 |
393.85 |
79.0 |
|
CARE |
7-Dec-12 |
750 |
1,512.15 |
101.6 |
|
Tara Jewels |
21-Nov-12 |
230 |
64.00 |
-72.2 |
|
Power Finance Corp |
10-May-11 |
203 |
265.00 |
30.5 |
|
Muthoot Finance |
18-Apr-11 |
175 |
184.05 |
5.2 |
|
PTC India Financial |
16-Mar-11 |
28 |
52.70 |
88.2 |
|
Punjab & Sind Bank |
13-Dec-10 |
120 |
48.70 |
-59.4 |
|
A2Z Infra |
8-Dec-10 |
400 |
15.50 |
-96.1 |
|
Shipping Corpn |
30-Nov-10 |
140 |
46.70 |
-66.6 |
|
Claris Lifesciences |
24-Nov-10 |
228 |
248.50 |
9.0 |
|
Power Grid Corpn |
9-Nov-10 |
90 |
140.60 |
56.2 |
|
Comm. Engineers |
30-Sep-10 |
127 |
22.50 |
-82.3 |
|
Engineers India |
27-Jul-10 |
290 |
181.30 |
-37.5 |
|
Parabolic Drugs |
14-Jun-10 |
75 |
11.75 |
-84.3 |
|
Jaypee Infra |
29-Apr-10 |
102 |
16.30 |
-84.0 |
|
Nitesh Estates |
23-Apr-10 |
54 |
13.30 |
-75.4 |
|
Shree Ganesh Jewel |
19-Mar-10 |
260 |
15.00 |
-94.2 |
|
Rural Electrification |
19-Feb-10 |
203 |
305.50 |
50.5 |
|
NTPC |
3-Feb-10 |
201 |
144.20 |
-28.3 |
Since 2010 IDFC Sec has lent its name for thirteen IPOs of which seven are currently quoting below the offer price. While Gujarat Pipavav, Repco Home Finance, Va Tech Wabag and Sharda Cropchem have fetched significant returns, A2Z Infra, Jaypee Infra and Shipping Corporation have inflicted huge losses on investors. Incidentally, many an infra construction IPO handled by IDFC Sec, including the most recent one viz. MEP Infra, is currently languishing below offer price.
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IDFC SECURITIES-ASSOCIATED IPOS |
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|
ISSUER |
IPO |
FV |
IPO |
CURRENT |
GAIN |
|
|
DATE |
|
PRICE |
PRICE |
% |
|
MEP Infra |
21-Apr-15 |
10 |
63 |
59.00 |
-6.3 |
|
Sharda Crop |
5-Sep-14 |
10 |
156 |
305.50 |
95.8 |
|
Repco Home |
13-Mar-13 |
10 |
172 |
600.45 |
249.1 |
|
Tribhovandas |
24-Apr-12 |
10 |
120 |
156.95 |
30.8 |
|
A2Z Infra Engg |
8-Dec-10 |
10 |
400 |
15.65 |
-96.1 |
|
Shipping Corp |
30-Nov-10 |
10 |
140 |
47.00 |
-66.4 |
|
Ashoka Buildcon |
24-Sep-10 |
5 |
108 |
155.90 |
44.4 |
|
Va Tech Wabag |
22-Sep-10 |
2 |
262 |
705.05 |
169.1 |
|
Gujarat Pipavav |
23-Aug-10 |
10 |
46 |
206.90 |
349.8 |
|
Engineers India |
27-Jul-10 |
5 |
290 |
180.85 |
-37.6 |
|
SJVN |
29-Apr-10 |
10 |
26 |
23.90 |
-8.1 |
|
Jaypee Infra |
29-Apr-10 |
10 |
102 |
16.30 |
-84.0 |
|
Man Infraconst |
18-Feb-10 |
2 |
50 |
43.55 |
-13.6 |