Promoted by Jerry Varghese, Roman Tarmat provides engineering, procurement and construction services for highways and roads, airside works and other civil work. The company has also set up a ready-mix concrete (RMC) plant at Goregaon, Mumbai, with an installed capacity of 30 cubic meters per hour to cater to its captive requirement and four automatic stone crushing units to enhance its operational efficiency.
Roman Tarmat’s IPO is to fund long-term working capital requirement and invest in capital equipment. The price band has been fixed at Rs150-Rs175. The issue opens on 12 June and closes on 19 June 2007.
Strengths
- End April 2007, the order book was Rs 336.89 crore comprising un-commenced projects, unfinished and uncertified portions of commenced projects. The order book is to be executed over two years. Generally, 35% of the road projects are executed in the first year and balance 65% in the second year. The order book represents four times the reported March 2006 year ending revenue.
- End March 2007, about 9,456 km of roads were yet to be awarded under the National Highways Development Programme. As Roman Tarmat is one of the players operating in the road segment, it may see further increase in order book. Apart from this. the company is also likely to benefit from increase in investment in restructuring of existing airports and setting up green field airports.
Weaknesses
- Has claimed tax benefit of Rs 6.02 crore under Section 80IA in FY 2006, and Rs 6.3 crore in the nine months ended December 2006. The retrospective withdrawal of Section 80IA benefit may not only impact FY 2007 profit but also future profit until the orders bided taking into account 80 IA benefit are executed going forward. The Finance Bill 2007-08 has clarified that benefits of Section 80-IA (which provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, Industrial Parks and Special Economic Zones) shall not be available to a person who executes a works contract. The company has also not included this benefit under ‘tax benefits available to the company’ in the prospectus.
- From FY 2003 to nine months ended December 2006, there was a gradual improvement in operating profit margin (OPM), from –0.8% to 12.4%. This was on account of increase in proportion of revenue from airside works. As a percentage of contract receipts, the proportion of airside works went up from 3% to 25%. However, in the pending order book end April 2007, the proportion of airside works declined to 13%. Thus, OPM may not sustain at current levels. OPM for road projects is 8%-10% and for airside works 14%-15%.
Valuation
Roman Tarmat’s net profit was Rs 8.15 crore in the nine months ended December 2006. Annualised EPS works out to 9.9. At the offer price band of Rs 150- Rs 175, P/E comes to between 15.1 and 17.7, respectively. Comparable and bigger players in terms of revenue --- Valecha Engineering and C&C Construction ---- are currently trading at nine months’ annualised recurring earning of around 15 times.