Promoted by Rajhoo and Rikiin Bharot, Atlanta (formerly Atlanta Infrastructure) is engaged in the construction of road projects. The company also has presence in mining and real estate development.
The civil engineering works executed by Atlanta include road construction, airfield pavements, reclamation, reinforced concrete tracks, building sheds and other civil works. Road construction works on engineering, procurement and construction (EPC) basis as well as built-operate-transfer (BOT) basis are executed for the National Highway Authority of India (NHAI), urban bodies and the state public work departments (PWD).
Atlanta has executed the Udaipur Bypass Road Project II successfully and toll collection commenced in 1998-99 by the special purpose vehicle (SPV), i.e., Ideal Toll Roads Investment & Operations. It is currently working on two projects on BOT basis: the Mumbra Bypass Project and the Nagpur-Kondhali section. The former is in advanced stage of completion. Further, the company is currently executing road construction and development projects in Orissa (NHAI), Lucknow (NHAI & PWD), Mumbai (MMRDA), and Udaipur (PWD).
Majority of the revenue (about 89% in FY 2006) comes from road projects, which empirically offer thin margin. However, Atlanta maximised the margin by bidding for risky projects from urban local bodies and state PWDs and by not confining to high quality ????(NHDP) projects where competition is higher but margin thin.
The mining business of Atlanta involves excavation of coal / coal measure strata on job work basis for subsidiaries of Coal India. The company is currently extracting approximately 12.79 million cubic meters of coal from Mahanadi Coalfields at Bharatpur and Kalinga, Orissa. The contract value of the project is Rs 40.22 crore, with Rs 17.99 crore worth of project pending completion. The Bharapur Open Cast project contract will last up to October 2007 and the Kalinga open cast contract up to July 2008.
The real estate business of Atlanta consists of developing both residential and commercial complexes. The company has developed properties in Mumbai such as Amba Shanti Chambers, Atlanta Arcade and Atlanta Towers. The company proposes to construct a residential apartment complex with all amenities on its own land at Shil Phata in Thane district on National Highway (NH)-4 at a cost of Rs 50 crore. Total buildup area will be about 0.66 million sq. ft and the project is to be executed in five phases over five years. Rs 5 crore will be invested from the current issue proceeds to finance the first phase of the project.
The proceeds from the current issue are to be used to fund investment requirement in Balaji Toll Ways, a SPV incorporated for the execution of the Nagpur-Kondhali four-lane BOT project, for purchase of plant and machinery for mining and construction, investment in real estate projects, repayment of high cost debt and incremental working capital requirement.
Strengths
- Unexecuted order/work on hand amounted to Rs 293 crore end June 2006 in the road sector with six projects amounting Rs 118 crore scheduled to be completed by end March 2007.
- The high margin nature of the mining business lifts the overall margin. The mining business contributed about 11% of the revenue in FY 2006.
- Investment splurge in infrastructure projects, specially roads, and policy change in the mining sector approving captive mining blocks provide good growth opportunities.
Weaknesses
- Negative cash flow from operating activities in FY 2006 and FY 2005 with a strong rise in unbilled expenditure as well as delay in recovery. This affected the working capital recycling, leading to higher interest cost.
- Over-dependent on road projects and on a single client, Mahanadi Coalfields, in the mining business.
- Sundry debtors outstanding for the past couple of years amount to Rs 21.68 crore due to disputed claims.
- There are six group firms/companies engaged in similar business.
- Atlanta will be investing around Rs 42.9 crore (65% of IPO proceeds) in an SPV for executing the Nagpur-Kondhali four-lane BOT project, which is not appraised and which will not yield any return for the next few years.
Valuation
At the offer price band of Rs 130-150, the PE range works out to between 13.5-15.6, respectively, on FY 2006 EPS of Rs 9.6 on post-IPO equity. The TTM PE for Construction – Civil Medium/ Small is 20.4.