Thursday, January 5, 2017

A2Z Engineering Maintenance : Top value destroyer

A2Z hit the primary market in Dec 2010. It was lead managed by IDFC Capital Limited,DSP Merrill Lynch Limited,Enam Securities Private Limited,ICICI Securities Limited,SBI Capital Markets Limited.

The IPO was priced at Rs 400. It carried IPO grade of 4 awarded by CARE.

The IPO was backed by none other than Rakesh Jhunjhunwala, the big bull.

In the last 6 years the stock has depreciated more than 85%, thus earning the dubious distinction as one the top value destroyer. In the same period bench mark indices have gone up by more than 30%.

Our take on the IPO :

On a turnover of Rs 1225 cr for FY 10, the debtors outstanding are to the extent of Rs 825 cr. That means more than 66% of the reported revenue is yet to be realized. One has take, this kind of turn over and debtors outstanding in an IPO year, with a pinch of salt. The CAGR, profitability has no meaning, since the company has experienced negative cash flow for the last four years.

At Rs 400-410, the company is demanding a valuation of 30x on FY10 earnings, on its post issue capital of Rs 75.60cr, which is very expensive. The company is not into exiting business to demand such high valuation. The company derives most of its income from EPC segment. The revenue from the other verticals are yet to pick up. Do not be mislead by the big name, IPO grading, associated with the issue. Even SKS Micro had the big names like Sequoia, Sores, Narayana Murthy and the same IPO grading. Within 3 months of its listing the share are down 30%, to its offer price.


After touching 52 week low of Rs 16, the stock is now trading around Rs 45.

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