Kaushalya Infrastructure IPO Analysis

Kaushalya Infrastructure Development Corporation is entering the capital market on 20th November, 2007 with a public issue of 85 lakh equity shares of Rs.10 each in the band of Rs.50 to Rs.60 per share.

The company is a small contracting company executing work for leading construction companies like Punj Lloyds, Engineering Projects, Tantia Construction etc. for the last 6 years. The volume of work executed by the company is quite low compared to its net worth. For FY 07, inspite of a net worth of Rs.14.71 crores, total income of the company was at Rs.55 crores on which PAT was just Rs.3.82 crores. This has resulted in an EPS of Rs.3.45. The company has been executing more of petty jobs where payment cycle is also of longer duration. Due to this, whatever margin enjoyed by the company is more on account of blocking working capital. The company has less than 4 cycles of its net worth, every year.

To improve its bottomline, the company thought of venturing into various activities of real estate development, investment in BOT/BOOT Project and for working capital. The proposed issue would be able to mobilize between Rs.42 crores and Rs.51 crores, at the lower and upper band. Rs.6 crore has been mobilized via pre-IPO placement.

However, such a small amount of Rs.50 crores is allocated on too many heads, thus having a very small allocation on each of them. The company is planning to develop about 12 acres of land at Rajarhat in Kolkatta and also at other places for which Rs.17.50 crores has been allocated. In Rajarhat, big developers like DLF and Unitech are developing integrated township and hence the projects of the company would always have lower realization of its properties. Even Rs.12 crore earmarked for BOT/BOOT projects are very small sum, which may not enable the company to take stake in 2 projects also.

Return on net worth of the company is very low at about 18% for FY 07. The post issue equity of Rs.19.60 crores would also be huge and shall pose difficulty for the company to service. Additional fund from IPO of about Rs.50 crore would improve the performance marginally.

Still it would remain a very small player with no significant presence in any of the segment and hence would also remain languishing at the levels of issue price. Hence, investment is not advised even at the lower band.

SP Tulsian