A muted debut from Lanco Infratech

Lanco Infratech was trading at Rs 256, a 6.6% premium over IPO price of Rs 240.

The stock hit a low of Rs 255 and high of Rs 275. 2.05 lakh shares changed hands in the counter on BSE.

The company had priced its IPO at the higher end of the Rs 200 to Rs 240 price band.

The company has a large equity base of Rs 222.36 crore. Face value is Rs 10 per share.

Post issue FII holding is 6.35%.

Lanco Infratech is an infrastructure development company with interests in power, construction and property development. The company currently owns 11 power projects, of which five are in operation and six are under development. Its power generation capacity will increase seven times the existing capacity in the next four years. As a result, revenue and profit from power business will increase significantly. The company has also been qualified to bid for two ultra mega power projects: Sasan and Mundhra.

Its construction division had an order book of Rs 1611.83 crore on 30 September 2006. This includes contracts worth Rs 1229.95 crore with affiliates of Lanco Infratech. The entire order book will be executed by 2010.

Lanco Infratech is also obtaining approvals for a large integrated IT park and township on a 100-acre plot on which it proposes to develop 18.5 million square feet of saleable area in Manikonda, Hyderabad. The company also owns land banks, aggregating about 21.8 acres, close to Ocean Park in Hyderabad, where it intends to develop a residential housing project with one million square feet of saleable area. In addition, it has won a bid to develop an IT park and township on a 10.7-acre plot, on which it proposes to develop two million square feet of saleable area, in Vishakhapatnam, Andhra Pradesh.

Due to the nature of the business, Lanco Infratech’s projects typically require a long gestation period and substantial capital outlay before completion. It may be months or years before positive cash flows can be generated. Further, power, property development, and infrastructure and construction projects are capital intensive and will require high levels of debt financing. They will also lead to continuous dilution of equity.

Contingent liabilities of Lanco Infratech amounted to Rs 755.92 crore on 30 September 2006. Apart from these, the offtake of the Kodapalli power plant has resulted in court proceeding related to Rs 224-crore charges paid by the offtaker to Lanco Kodapalli Power (LKPPL). Lanco Infratech is in the process of raising its stake in LKPPL to 59% from current 33.9%.