ARSS Infrastructure and Projects - book profits

Investors can consider booking profits in the stock of ARSS Infrastructure and Projects, a construction contractor in the infrastructure space. At Rs 1,177, the stock is valued at 20 times the trailing 12-month earnings. Peers such as Tantia Constructions trade at valuations of 8 times.

ARSS Infrastructure Projects ends with 64% premium

At 736.30 on the BSE

ARSS Infrastructure Projects ended at Rs 736.30 on the BSE, a 63.60% premium over the initial public offer price of Rs 450.

The stock debuted at Rs 640, a 42.2% premium over the initial public offer (IPO) price. On BSE, 1.15 crore shares were traded on the counter. The stock hit a high of Rs 754.70 and a low of Rs 640.

The current share price of Rs 736.30, discounts the company's year ended March 2009 EPS of Rs 34.4 by a PE multiple of 21.40.

ARSS Infrastructure Projects had raised Rs 113.04 crore through its recently concluded IPO that ended on 11 February 2010 with an over subscription of 47.62 times. The IPO, which opened on 8 February 2010, had a price band of Rs 410 to Rs 450 per share.

Foreign institutional investors (FIIs) put in bids for 4.48 crore shares compared with 15.07 lakh shares reserved for the qualified institutional buyers (QIB) category as a whole. The non-institutional investors segment, comprising of high networth individuals and corporates was bid a staggering 124.5 times. The retail investors' segment was bid 18.5 times.

The company will use the issue proceeds for investment in joint ventures and funding long term working capital requirement.

ARSS Infrastructure Projects (AIPL) provides construction services for railway infrastructure, roads & highways and irrigation projects. The company has successfully executed over 86 projects involving construction of over 200 kilometer (km) of railway tracks. Besides rail projects, AIPL is also into construction of roads and highways and irrigation projects.

Railway projects account for 41% of AIPL's unexecuted order book of Rs 2877.53 crore (as on 10 January 2010). Road projects account for 41% and 3% of the order backlog comprises irrigation projects.

ARSS Infrastructure Projects reported a net profit of Rs 51.04 crore on sales of Rs 624.38 crore in the year ended March 2009.

Solid debut for ARSS Infrastructure

ARSS Infrastructure that listed today, opens with a premium at Rs640.00, up 42% over its issue price of Rs450. The stock hits a high of Rs711 on BSE.

The issue was subscribed 47.62 times. Non-institutional investors were the leading subscribers in this issue. Their reserved portion got subscribed 124.5 times. Qualified institutional and retail investors’ reserved portion subscribed 49.3 times and 18.55 times, respectively.

The stock is currently trading at Rs673.15 up by 49.79% with a volume of over 19.54 lakh shares on the BSE.

ARSS Infrastructure to list on 3 March 2010

The IPO was priced at Rs 450 per share

Shares of construction and engineering firm ARSS Infrastructure Projects will be listed on the stock exchanges on 3 March 2010. The company had raised Rs 113.04 crore through the recently concluded initial public offer (IPO) which was subscribed 47.62 times. The company had fixed issue price at the top end of the Rs 410 to Rs 450 price band.

Foreign institutional investors (FIIs) put in bids for 4.48 crore shares compared with 15.07 lakh shares reserved for the qualified institutional buyers (QIB) category as a whole. The non-institutional investors segment, comprising of high networth individuals and corporates was bid a staggering 124.5 times. The retail investors' segment was bid 18.5 times. The company had set the Rs 410 to Rs 450 per share as price band for the IPO which remained open for bidding between 8 and 11 February 2010.

The company will use the issue proceeds for investment in joint ventures and funding long term working capital requirement.

ARSS Infrastructure Projects (AIPL) provides construction services for railway infrastructure, roads & highways and irrigation projects. The company has successfully executed over 86 projects involving construction of over 200 km of railway tracks. Besides rail projects, AIPL is also into construction of roads and highways and irrigation projects.

Railway projects account for 41% of AIPL's unexecuted order book of Rs 2877.53 crore (as on 10 January 2010). Road projects account for 41% and 3% of the order backlog comprises irrigation projects.

ARSS Infrastructure Projects IPO subscribed 47.34 times

Gets bids for 11.89 crore shares as compared with 25.12 lakh shares on offer

The initial public offering (IPO) of the Orissa-based infrastructure company, ARSS Infrastructure Projects (AIPL) saw high investor demand. The IPO received bids for 11.89 crore shares as compared to 25.12 lakh shares on offer, NSE data showed. The IPO was subscribed 47.34 times.

AIPL is engaged in the business of construction activities in India. It undertakes construction of railway infrastructure, roads, highways, bridges and irrigation projects.

The proceeds of the issue are intended to be deployed for investment in joint ventures (at a cost of Rs 5 crore) and funding long term working capital requirement (cost of Rs 86 crore). The rest of amount will be used for issue expenses and general corporate purpose.

The company's order book position was at Rs 2877 crore as on 10 January 2010 and it had 145 projects in hand as on that date.

AIPL's net profit jumped 90% to Rs 51.04 crore on 99% growth in revenue to Rs 624.38 crore in the year ended 31 March 2009 over the year ended March 2008.

ARSS Infrastructure Projects IPO subscribed more than 4 times

QIB category subscribed more than 5 times

The initial public offer of ARSS Infrastructure Projects was subscribed more than 4 times by 16:00 IST on the third day of the issue today, 10 February 2010. The IPO received bids for 1.02 crore shares as compared to 25.12 lakh shares on offer. The issue closes on Thursday, 11 February 2010. The price band for the IPO is Rs 410 to Rs 450.

Foreign institutional investors (FIIs) had put in bids for 79.43 lakh shares at the end of day two on Tuesday, 9 February 2010. That compared to 15.07 lakh shares reserved for the qualified institutional buyers category as a whole. The non-institutional investors segment, comprising of high networth individuals and corporates was bid 1.47 times at the end of day two. The retail segment was bid 0.58 times.

ARSS Infrastructure Projects (AIPL) provides construction services for railway infrastructure, roads & highways and irrigation projects.

ARSS Infrastructure Projects gets good traction

By 16:00 IST on day two

The initial public offering (IPO) of Orissa based infrastructure company, ARSS Infrastructure Projects (AIPL) received bids for 86.37 lakh shares by 16:00 IST on day two as compared to 25.12 lakh shares on offer, data on NSE showed. The IPO was subscribed 3.44 times.

The company plans to raise Rs 103 crore via this issue with a price band of Rs 410-450 per share. The issue was opened for subscription on Monday, 8 February 2010 and will close on 11 February 2010.

The company is engaged in the business of construction activities in India. It undertakes construction of railway infrastructure, roads, highways, bridges and irrigation projects.

The proceeds of the issue are intended to be deployed for investment in joint ventures (at a cost of Rs 5 crore) and funding long term working capital requirement (cost of Rs 86 crore). The rest of amount will be used for issue expenses and general corporate purpose.

The company's order book position was at Rs 2877 crore as on 10 January 2010 and it had 145 projects in hand as on that date.

AIPL's net profit jumped 90% to Rs 51.04 crore on 99% growth in revenue to Rs 624.38 crore in the year ended 31 March 2009 over the year ended March 2008.

ARSS Infrastructure Projects IPO Review

A relatively low asking price and a focus on government projects make the offer from ARSS Infrastructure Projects a reasonable bet, but only for investors with a high-risk appetite.

A construction contractor in the Railways and roadways segment, the company plans to raise Rs 103 crore from this issue to fund working-capital and joint ventures.

In its price band of Rs 410-450, the offer is at a valuation of 8.6 to 9.5 times the estimated FY-11 per share earnings on a post-offer equity. Reasonable valuations notwithstanding, given the risks to the business, investors are advised to exit the stock if it touches about a 21 per cent return.

ARSS has a high exposure to Railways (which offer higher margins) and roadways, a sizeable order book, strong sales and profit growth, and a secure client base in government contracts. The company also uses joint-ventures to bid for and execute bigger projects and build on execution capabilities. Strong margins and post-issue lower debt-equity are other positives for the company.

However, the order book has several contracts with a relatively short execution period. ARSS will have to keep up the pace of securing fresh orders to maintain current rate of growth.

A promoter facing criminal investigations, past instances of default in payment of power bills, default in servicing debt and decline in working capital turnover pose significant risk.

Background

ARSS executes construction contracts in Railways (laying and linking of tracks, earthwork and construction of bridges) and roadways (widening and strengthening of roads), with a recent move into irrigation. Geographically concentrated in Orissa, the company has moved into regions such as Tamil Nadu, Rajasthan, Jharkhand and so on. Almost 90 per cent of the contracts come from government-based institutions such as Ministry of Railways, Orissa Public Works Departments, and so on, providing a secure repeat client base. The company also has in-house design capacities.

Current order-book stands at Rs 2,877.5 crore (4.6 times 2008-09 revenues), and is well-diversified with 41 per cent in the Railways segment, 40 per cent in roads, 3 per cent in irrigation and the balance in other smaller works.

The order book is represented by over a hundred contracts, a smaller average contract value (about Rs 21 crore), and bulk of the order book is executable by FY-11 providing near-term earnings visibility. However, maintaining current growth rate depends on the company's ability to continually secure fresh contracts which provide similar margins.

Issue objects

ARSS has used joint ventures with players such as Kalindee Rail and Patel Engineering to execute projects where it lacks capability. Such ventures could help it build on its own expertise and allow a bidding capacity for bigger and more varied projects.

Besides, gradual build up of expertise could help it eventually qualify for projects on its own strength. About Rs 5 crore from the issue proceeds will go to funding such joint ventures and Rs 86 crore towards working capital.

Turnover of working capital, however, has gradually declined from 3.36 in FY07 to 1.67 times (as of December 09). Huge increases in inventory could partly explain this slide.

The order book just about doubled in FY-08 over the year before, but work-in-progress (WIP), a part of inventory, jumped about nine times. This has continued in FY-09 as well where WIP more than doubled against an order-book growth of 64 per cent.

Financials

Sales recorded a strong 118 per cent three-year CAGR while net profits put up a 149 per cent growth. Given a higher component of railway projects, and price escalation clauses built into a majority of the contracts, operating margins have been maintained above 10 per cent FY-07 onwards, standing at 12.5 per cent for the nine months ended December 09.

Net profit margins as well have stayed at about 8 per cent. Funding position appears comfortable with debt-equity on a post-issue basis on the lower side at 1.23 times, and interest cover at 2.7 times (December 09). The company has, however, defaulted on interest and repayment of loans in FY-06, FY-04 and FY-03.

Offer details

The issue is open from February 8-11. IDBI Capital Market Services and SBI Capital Markets are the lead managers.

via BL

ARSS Infrastructure Projects IPO analysis

Focused on rail and road infrastructure

Of the Rs 2877.53-crore unexecuted order book, 41% comprises railway projects, 41% road projects, and 3% irrigation

Promoted by Subhash Agarwal of Bhubaneswar and his three brothers, ARSS Infrastructure Projects (AIPL) provides construction services for railway infrastructure, roads & highways and irrigation projects. Originally incorporated in May 2000 as ARSS Stones, the company changed its name to ARSS Infrastructure Projects in May 2005. Initially, it took up railway contracts mainly in and gradually expanded to zonal jurisdictions of East Coast Railway, South Eastern Railway, South East Central Railway, Southern Railway and North Western Railway. Its expertise in railway construction projects extends to earthwork, major and minor bridges, supply of ballast, sleepers, laying of sleepers and rails, and linking of tracks. Over the years, it has diversified its field of activities into other construction segments such as development and construction of roads, highways, bridges, irrigation projects, and EPC activities for railways. AIPL has crusher plants at six locations in various districts of Orissa and necessary equipment required for quarrying and crushing granite stone to produce required sizes of rock products for railway track ballast or highway work or any other civil construction work.

Some of the standalone and joint venture projects currently being executed include the Rs 208- crore Cuttak-Paradeep Road construction and widening project, the Rs 261-crore rail infrastructure work for Jindal Steel & Power's Angul project, and construction of roadbed including minor & major bridges, facilities and general electrification works on the Haridaspur-Paradeep new broad-gauge (BG) line.

Strengths

Strong unexecuted order book of Rs 2877.53 crore as on 10 January 2010 and significantly diversified order book comprising 41% railway projects, 41% road projects, 3% irrigation projects, and balance others. Moreover, orders from government and government entities amounted to 87.5% of the order book as on January 10, 2010.

Has successfully executed over 86 projects involving construction of over 200 km of railway tracks, 300 km of roads & highways, 10 minor & major bridges and other general civil engineering works over nine years. Given the strong investment lined up in the country, both in the road sector as well as by the Railways including the dedicated rail freight corridor project, is well positioned to capitalise on it.

Has strong relationship with clients such as Rail Vikas Nigam, RITES, and various departments of the Orissa government. About 73.11 % of its order book as on 10 January 2010 comprised repeat orders.

Weaknesses

There are a number of pending litigations against the company and/or the promoters and group companies, including a criminal case.

Has expanded its presence and pursued orders outside Orissa like Chattisgarh, Rajasthan, Jharkhand, Haryana and Tamil Nadu. Still, contracts outside Orissa are limited.

Had negative cash flow from operating activities in the fiscal ended March 2008 (FY 2008) as also nine months ended December 2009.

Valuation

AIPL's revenue grew 99% to Rs 624.38 crore in FY 2009 and net profit was up by 90% to Rs 51.04 crore. The EPS for FY 2009 works out to Rs 33.9 and Rs 34.4 on post-IPO equity at the lower and upper price band, respectively. The P/E works out to 12.1 times and 12.9 times on the lower and upper price band, respectively. This is comparatively higher than players such as PBA Infrastructure and MSK Projects, which quote at P/E of 6.8 times and 10.8 times their FY 2009 earning. However, the offer is at a discount to J Kumar Infrastructure and Tantia Constructions which quotes at 12.3 and 13.7 times of their FY 2009 earning. But the scrip is offered at 9.3 times to 10.0 times the annualised EPS of 44.3 to 45.0 for the nine months ended December 2009 on the lower and upper band.