Thursday, February 11, 2010

IPO ANALYSIS - MAN INFRACONSTRUCTION LIMITED: GROWTH OPPORTUNITIES - INVEST

Mumbai headquartered construction company, proposes to raise around Rs 140.00cr, through issue of 56,25,150-equity shares of Rs10/- face value, in the price band of Rs 243-252. The issue opens for public on 18-02-10 and closes on 22-02-10. Issue will constitute 11.36% of the fully diluted post issue paid up capital of the company. IDFC – SSKI Limited and Edelweiss Capital Limited are the BRLMs.


PROMOTERS: Parag K.Shah, Manshi P.Shah and associates are the promoters of the company.

BUSINESS:

The company provides construction services for port infrastructure, and has interest in residential, commercial and road infrastructure projects. Man Infra has presence in six States - Maharashtra, Kerala, Gujarat, West Bengal, Goa and Tamil Nadu. The company has executed significant on shore port infrastructure projects in - Jawaharlal Nehru Port, and in the ports of Mundra, Chennai, Vallarpadam and Pipavav. Port infrastructure projects are complex and their execution generally requires strict adherence to exacting international quality standards and tight time schedules, for which the company has the requisite expertise. Man Infra is in the process of constructing a residential complex in the western suburbs of Mumbai with an aggregate area of 1.95 million square feet. Under SRA (slum rehabilitation authority) project, in Mumbai, the company is in the process of construction of a township aggregating 5.16 million square feet. The company is recipient of Systems and Services Certification from SGS United Kingdom Limited, for its construction services.

Man Infra also intends to bid for projects on a Build Operate Transfer ('BOT') and on a Public Private Partnership ('PPP') basis. The company has, as of December 31, 2009, order book of Rs.2,020.92cr.



OBJECTS OF THE ISSUE:

The company intends utilize the issue amounts for;

(a) Purchase of capital equipment
(b) General corporate purposes.



FINANCIALS: (Rs in crores)

07 08 09

Total Income 88.14 227.47 516.69

Net Profit 14.15 31.62 74.53

EPS (Rs) 4.60 7.82 17.55


Net Asset Value per Equity Share of face value of Rs.10 as at March 31, 2009 is Rs. 61.63.


RISK FACTORS:


1. Man Infra has experienced rapid growth in revenues in the preceding three fiscals. The consolidated revenues increased at a CAGR of 159.66%. The company is unlikely to sustain this kind of growth in future.

2. The company derives significant revenues from a limited number of clients and projects. The loss of one or more of significant customers could adversely affect the performance.

3. Man Infra has little or no prior experience in constructing, managing or operating BOT and PPP projects. The risks associated with undertaking BOT and PPP projects can be substantial, and could adversely affect the business, prospects, financial condition and results of operations.

4. Some of the Promoter Group companies are engaged in the construction and infrastructure development and there may be possible conflicts of interest between the company and such entities.

5. The funding requirements and deployment of the net proceeds of the Issue are based on management estimates and have not been independently appraised.

6. The rating agency CRISIL has awarded grade -3 for the IPO indicating average fundamentals.



OPPORTUNITIES


Construction investments are expected to increase, to Rs 12,189 billion during the five year period from 2008-09 to 2012- 13 from Rs 6,217 billion during 2003-04 to 2007-08 (2008-09 prices). The construction industry is expected to grow at a healthy CAGR of 35 % during 2008-09 and 2012-13. Infrastructure spending especially in roads, power, irrigation and urban infrastructure will drive this growth. This coupled with higher construction intensity augurs well for the construction industry in terms of larger opportunity size. Investments in the industrial sector are driven by capacity addition/expansion plans of companies operating in key sectors of the economy.

The infrastructure sector certainly offers major opportunities in general and the construction industry, in particular. There are several good projects in India, such as, modernization of airports, ports, roads etc. There are also appropriate technologies, expertise and plant-machinery now available to harness these projects with speed, quality and economy.



VALUATION AND RECOMMENDATIONS

Comparison of the Company, with Peer Group
(As 0n 31-03-09)



Book value EPS PE RoNW Face value

Gammon India 127.4 8.7 18.6 9.7 2

IVRCL Infrastructure 135.4 16.8 73.7 3.3 2

Nagarjuna Construction 80.0 5.9 29.1 9.5 2

Simplex Infrastructure 182.5 24.1 25.3 14.6 2

Man Infra Construction 59.74 17.55 - 28.44 10



The company has substantial and diverse order book. Man infra has established long-term relationship with reputed clients like - A.P. Moller group, Maersk India, Gateway Terminals, P&O Ports and Mundra International Container Terminal Private Limited. Taking into consideration the number of equity shares and the funds the company intends to raise, the issue is likely to be priced around Rs 250/ share. The valuation comes to less than 16x of its annualized earnings and less than four times the book value of FY 09. The issue is attractively priced. INVEST.

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