Not Exciting Enough - Ashoka Buildcon

Ashoka Buildcon (ABL), which builds and operates roads and bridges in India on a build-operate-transfer (BOT) basis, proposes to enter the capital market to garner `225 crore through its initial public offering (IPO). The price band has been fixed between `297 and `324 per equity share. The company is one of the early players that made an entry into BOT projects. At present ABL has 26 BOT projects in hand. Out of this 17 projects are operational, six are under construction and three have been handed over after completion. The completed projects has acquired for the company experience in the entire value chain of the BOT business.

The company also has an engineering, procurement, and construction (EPC) division. It also maintains and repairs the existing roads under the BOT division. The division also constructs and modernises power distribution networks and constructs commercial, industrial, and institutional buildings for third parties. Till May 31, 2010 the company along with its subsidiaries had constructed 44 roads and bridges and built over 5.4 million sq feet of commercial, industrial, and institution projects. The order book till May 31, 2010 stands at `1,615.36 crore. Moreover we would also like to mention that the company has a pan-India presence. Further, in 15 out of the 20 projects mentioned above the company has been able to securitise to the extent of 150 per cent of the project cost.

The company plans to raise `225 crore primarily to be used for buying capital equipment to the tune of `25 crore, meet working capital requirement of around `45 crore, repay debts to the tune of `55 crore, and to fund certain subsidiaries for prepayment/repayment of their loans of approximately `60 crore.

The rest is to be used for general corporate purposes and issue-related expenses. On the financial front, the company has performed well in both topline and bottomline in FY10. Its net sales have witnessed a growth of 53 per cent at `795.57 crore for FY10 as against `518 crore in FY09. The net profit has witnessed a growth of 124 per cent at `85.88 crore for FY10 as against `38.30 crore in FY09. On the valuation front, the stock is likely to trade at P/E of 22.72 – 24.55x on its post-issue equity capital which is in line with its other listed peers like IRB Infrastructure which trades at 21.90x and Madhucon Projects which trades at 26.50x. On the EV/EBITDA front, the stock is likely to trade at 13.95 – 14.68x as compared to 10.62x and 11.34x of IRB Infrastructure and Madhucon projects respectively. At this moment the company looks like it will trade in line with its peers, thereby leaving very little scope for any upside in the share price. Therefore, we suggest that investors should refrain from the issue for the time being.