Ashoka Buildcon IPO Review

Ashoka Buildcon, a leading player in the space of building and operation of roads and bridges on a build, operate and transfer (BOT) basis, would issue 69.4 lakh shares — at the top end of the price band — in a bid to mop up to `225 crore. Post-IPO, the promoter’s holding would come down to 71.7% levels from 84.4%.



This issue comes at a time when investors are favouring infrastructure-related stocks, coupled with the government’s emphasis on expanding roads and highway networks across the country. Ashoka Buildcon plans to use the IPO proceeds to prepay project loans worth `55 crore and also repay subsidiaries’ loan of `60 crore. Its secured loans on a consolidated basis that amounted to `967.8 crore at the end of March 2010. In addition, the company will utilise `45 crore for meeting its working capital needs.

BUSINESS: The company participates broadly in the entire value chain related to construction and management of road network via its four divisions. It is also expanding presence in third-party work related to power and construction sector. These divisions include BOT (build, operate and transfer), EPC (engineering, procurement and construction), RMC and bitumen, coupled with its toll collection contract unit.

Construction revenue amounts to over two-thirds of its total sales. Currently, it has interest in 23 BOT road projects totalling approximately 3,498 km of lanes, in states like Maharashtra and MP. Also, the weighted average concession period — including toll collection — for these 23 projects is 21.1 years at the end of March 2010.

However currently, only 17 BOT projects out of the above are in operation and comprise 1099.6 km of lanes. The nearest rival, IRB Infrastructure Developers, operated and managed over 3,400 km of road length at the end of July 2010. Ashoka Buildcon also collects revenue from the traffic on its routes via its toll collection contract division. It is also expanding its presence in the construction and modernising of power distribution network for third parties. The company’s orderbook stood at `1,615.3 crore at the end of May 2010, excluding two recentlyacquired road projects. Nevertheless, its orderbook provides the company with sufficient growth momentum, going forward.

FINANCIALS: Ashoka Buildcon churned out a robust financial performance during the period from March 2008 to March 2010, helped by an increase in traffic on its road network and a surge in its toll collections. Also, in its EPC division, it benefited from projects completed for third party players in the electricity sector. As a result, its consolidated net sales grew at a CAGR of 57% to `795.5 crore during this period.

Its net profit , during this period, grew at a CAGR of 55.9%. Its operating profit margin for the year ended March 2010 was 26.9%, a fall of 470 basis points on a year-on-year basis. Net sales of its peer IRB Infrastructure Developers grew at a CAGR of 52.6% while net profit grew 83% during the period. Also, its operating profit margin at 46.9% for the year ended March 2010 was far more than that of Ashoka Buildcon.

CONCERN: Debt-equity or the leverage ratio for Ashoka Buildcon at about two on a pre-IPO basis, is far higher than 0.3 for its peer IRB Infrastructure Developers. Post-IPO, it will fall to 1.6 levels for Ashoka Buildcon.

VALUATIONS: Ashoka Buildcon trades at nearly 21.1 times at the top end of its IPO band on a trailing 12-month basis, adjusting for the expansion in equity. Other players in the road and infrastructure sector like IRB Infrastructure Developers trades at a P/E of 22.1 times on a consolidated basis for the trailing four quarters while Gammon Infrastructure Projects trades at more than 50 times. Given the growth prospects of the infrastructure sector, investors can consider subscribing to this IPO.

via ET