Monday, December 6, 2010


The EPC and Municipal Solid Waste management company is entering the capital markets on 08-12-10. The company intends to mobilize Rs 675cr through the IPO, in the price band of Rs 400-410. There is an offer for sale of 50, 56,193 equity shares by the existing share holders, including the big time investor and trader Rakesh Jhunjhunwala. IDFC Capital, DSP Merrill Lynch, Enam Securities,   ICICI Securities, SBI Capital Markets and YES Bank are the BRLMs.


The company’s businesses include EPC, Municipal Solid Waste management, Renewable Energy, among others.

The company is in EPC business since 2006 and has historically focused primarily on the power distribution sector, where the EPC services include the installation of distribution line infrastructure with capacities of up to 33 KV, the construction of substations of up to 33 KV and participation in system strengthening projects and rural electrification projects. 

In the power transmission sector, the company has undertaken select projects, the EPC services portfolio includes the construction of extra high voltage substations of up to 400 KV and EHV transmission lines of up to 765 KV. A2Z is executing projects in the power transmission and distribution sector for various state power utilities and central public sector utilities such as PGCIL, NTPC and NHPC. In the power generation sector, the company is currently executing EPC projects for an aggregate capacity of 60 MW for companies within the Group.

A2Z claims, that they recently entered the power generation business choosing renewable energy sources of fuel such as biomass, RDF generated from the projects in the MSW business, bagasse, mustard stems, rice husk and other agricultural and forest waste. The company claims that they are constructing three 15 MW renewable energy co-generation projects in sugar mills located in the State of Punjab on a BOOT basis and a 15 MW biomass-based power plant at Kanpur(UP) where they intend to primarily use, among others, RDF generated from the MSW business as a source of fuel. A2Z expects these four power plants to be commissioned in March 2011.

In the MSW business, A2Z provides collection, transportation, processing, disposal and treatment of municipal solid waste. The company has been awarded a contract on a BOOT basis with an aggregate MSW capacity of 3,800 tons per day in six cities.


Amount in crores
Investment in 3 biomass (bagasse)-based power co-generation projects of 15 MW each in the State of Punjab.

Investment in 5 biomass-based power generation projects of 15 MW each in the State of Rajasthan

Investment in Subsidiaries
Repayment of loan
Working capital requirement
General corporate purposes











1. A significant part of the business contracts are with government and public   sector undertakings.

2. A2Z is exposed to significant cost variations, on fixed-price and fixed-rate contracts.

3. The company does not have any prior experience in developing, constructing, commissioning and operating and managing power generation projects or in competing in the power generation business.

4. A2Z also does not have experience in processing, treating and disposing municipal solid waste.

5. The company operates in highly competitive segments with high working capital requirements.

6. Business is dependent on certain key clients.

7. Company is depending on one supplier for supply of boilers for their power generation projects.

8. A2Z had negative cash flows from 2006 -2010.

9. The project is entirely funded by equity.


On a turnover of Rs 1225cr for FY 10, the debtors outstanding are to the extent of Rs 825cr. 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.



  1. excellent analysis again!! I was thinking of going for this one but after this i would take this with pinch of salt now.... :)-

  2. Can SKS Microfinance buck the industry’s momentum to doom?

    When Akula naively disclosed that collections have come in lower than normal post the Andhra Pradesh government ordinance, the effect was a virtual invitation to bears to hammer the stock. And the bears responded with glee. SKS share touched a historic low of Rs 601 in the National Stock Exchange (NSE) - a fall of 60% from its all time high of Rs 1,490 - trading stopped by triggering the 20% downward circuit breaker! Feeling the pinch, Akula and his CFO, Dilli Raj walks into CNBC-TV 18 Newsroom to give an interview in an attempt to stem the tide. The interview succeeded in arresting the decline of the stock, giving it a small bounce and is trading around Rs 710 since.

    The question is whether SKS can hold on to its strong support between Rs 705-711 or would this range instead turn into a strong resistance level for that stock? To answer this we need to revisit Akula’s claims on November 18th to ascertain their veracity on the basis of new information now available to the market.

    Read More:

  3. But then sir... why do well known grading companies like CARE & CRISIL award such high grading to these kind of ipo's...
    Many small investors in our country take the grading as the base for investing their money...!!!

    Do you think there will be marginal listing gains if the issue is oversubscribed...???

    Tejas Sampat

  4. I have skipped this issue :)
    Thanks for the analysis once again :)

  5. @Tejas,
    The grading system works on the fundamentals and they never consider valuation at the time of giving grading.
    To answer your second question I would say you can take risk for such a high valuation IPOs only when issue is oversubscribed more by QIBs and HNIs. There will surely be listing gain in that case.
    Dear Prasanna sir, please correct me if something is wrong as your inputs are also required regarding this. :)

  6. Grading has nothing to do with IPO pricing. It is the greed of promoters that keep the premium high.
    Because Jhunjhunwala has invested there could be some speculative trading on listing. Take a chance. But First Choice advises the investors to stay away.

  7. Do not take a call on the basis of QIB and HNI subscription. In most cases they lose money. They have deeper pocket and staying power. But the retail investors money is hard earned. They have to be extra careful while taking investment decisions.