Prakash Constrowell

Prakash Constrowell, promoted by Prakash P Laddha along with his wife Aruna P Laddha, is engaged in providing civil construction services as well as infrastructure development. The company has civil construction expertise in diverse segments of the construction and infrastructure industry such as roads, bridges, buildings and industrial parks. Apart from that the company is also engaged in residential and commercial real estate construction.

The company has over 15 years of experience in the construction industry and has executed many projects for Government/semi-government agencies and private sector clients. In Infrastructure development space the company focus includes construction and maintenance of roads / highways, bridges, including projects on public private partnership (PPP) model, industrial parks, workshops, hospitals, educational institutions.



The company has successfully executed BOT project at Arni, Yeotmal (Maharashtra) on Public-Private Partnership (PPP) model. The project included construction of by-pass road and widening of several bridges in between Arni to Mahagaon, Yevatmal along with construction of new bridge on Nagpur-Bori-Tuljapur Road. The company has also developed a commercial complex at Arni, Yeotmal for MSRTC.

Of the FY11 revenue about 3% was accounted by BOT segment and 83% by works contract and 14% by others. The company's operations have been geographically concentrated in only one state i.e. Maharashtra. The company's headquarters is in Nasik, Maharashtra.

The company proposes to raise Rs 60 crore through initial public offer with the proceeds intend to be utilised to 1) meet working capital requirement; 2) Invest in Construction Equipments;3) Invest in Subsidiaries and 4) meet General Corporate Purposes.

Strengths

The promoters and top management of the company is with over three decade of experience and have demonstrated track record in execution of the small sized construction projects.

Consolidated order book as of June 30, 2011 was Rs 150.81 crore and in terms of business verticals about 51.9% of the order book is made up of infrastructure construction business and 45.5% for other civil construction and 2.7% for Real Estate.

Weaknesses

Major part of the current order book (or 67% or Rs 101.27 crore) is scheduled to be completed with in FY12 and further about 40% of the current order backlog is expected to be completed with in end of Q2FY12. While many listed construction companies have normal order book of 2-3 times of their latest sales, but this company scores poorly on this front with mere 1.2 times of its FY11 sales. Thus the current order backlog though gives visibility for near term the future growth of the company largely depends on ability of the company to win fresh orders or replenish/grow current order book in intensely competitive market.

Given the small size of its balance sheet the ability of the company to compete for medium to large size orders is limited and the company is forced to bid in consortium. It's ability to scale up has to be seen. It has only one Arni Yeotmal Toll Naka PPP project, won way back in 2002, and has failed to win any further orders in PPP mode since then.

On the back of low order book the company will be forced to replenish its order book fast and given the current intensely competitive market environment the margin might come under pressure. The operating margin as well as net profit margin of the company has seen wild swing in the past. For instance the operating margin which was 16% in FY08 has came down to 7.2% in FY09 then marginally improved to 8.9% in FY10 and further to 12.6% in FY11.

The company on March 31, 2006 has revalued the license to collect Toll in Arni Toll Naka on ‘net realisable value'. Thereby the net appreciation of Rs 10.63 crore in the value of license to collect toll was credited to the revaluation reserve.

Since the demand for construction services depends primarily on the activity and expenditure levels in the infrastructure and real estate industries, the current macro economic scenario for construction industry is tough given more and more infrastructure project getting delayed on account of various reasons ranging from approval/clearance delays, land acquisition issues, fund availability etc., as well as slowdown in demand for realty projects on the back of hardening interest rate. This may adversely affect the business and prospects and may reduce the number of projects it undertake thereby result in slow down in growth of the company.

Litigations/legal proceedings against promoters includes criminal litigations involving fraud and forgery U/s 420 & 468 of Indian Penal Code and cases involving dishonour of cheque etc.

The company, its subsidiaries (Atal Buildwell, Ram Buildwel, Punamraj Construwell & Mohini Buildcon) and some of the Promoter Group companies (Atal Buildcon & Vastu-krupa Construction (India)) are in the same business of construction and infrastructure development. The minority stake in the subsidiaries is held by directors and their relatives of the company, besides others. One of the objects of the Issue is acquisition of minority stake (i.e. balance 49% stake) in subsidiary companies and any consideration towards such acquisition of stake shall be paid to the company's directors or their relatives who are shareholders of subsidiary companies. This leads to conflict of interest.

Valuation

In FY 2011, consolidated sales of the company grew by 12% to Rs 126.91 crore and the operating profit was up by 58% to Rs 16.02 crore on the back of strong expansion in operating margin to 12.6% from about 8.9% in the corresponding previous period. The net profit was higher by 43% to Rs 10.65 crore. Thus the EPS stands at Rs 7.2-7.3 on post-IPO equity at the offer price band of Rs 130-138. The P/E works out to 18.1-18.9 times.

In comparison, construction companies of similar size are quoting at 3-8 times their FY2011 EPS. For instance RPP Infra quotes at a PE of 8 times of its FY2011 EPS and that of PBA Infrastructure was quoting at a PE of 6.5 times.