IPO Size: Rs. 5,430 cr

• Rs. 4,180 cr is Offer for Sale (OFS) by the promoter (80.6%* holding to drop to 50.2% post IPO)
• Rs. 1,250 cr is Fresh Issue for Rs. 600 cr debt repayment cr (Rs. 3,365 cr debt), Rs. 320 cr working capital and Rs. 80 cr capex

Price band: Rs. 440-463 per share

M cap: Rs. 17,026 cr, implying 32% dilution

IPO Date: Fri 25^th Oct to Tue 29^th Oct 2024, Listing Mon 4^th Nov 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

*Secondary Sale by Promoter

On 17^th and 18^th Oct 2024, promoter Goswami Infra (selling shareholding in IPO) undertook to sell 6.42 cr shares to raise Rs. 2,967 cr, at Rs. 463 per share (some shares sold on same day to individuals at Rs. 417 per share too). As of 18^th Oct 2024, sale of only 0.16 cr shares have been executed and balance 6.25 cr shares will be executed by 25^th Oct. Thus, 99% promoter holding, as disclosed in the shareholding pattern on page 159 of RHP, does not paint the true picture, and the actual holding is 80.6%, merely for the want of procedural transfer of shares between RHP date to IPO opening date.

Promoter under Stress?

Even after selling 18.8% stake as above, promoter is looking to divest another 26% stake via the OFS. Why the urgency to offload so much stake?

Post IPO, promoter holding will fall to 50.2%, meaning barely a month’s time, promoter stake will halve, which is alarming. In other words, promoter is cashing out Rs. 7,147 cr, instead of Rs. 5,750 cr as stated in the DRHP dated 28^th Mar 2024.

Is it under stress to monetise? It is to meet the deadline of 31^st Oct for IPO, date for which was already extended once from 30^th Sep, to avoid increase in interest cost by 400 bps. Promoter had borrowed Rs. 14,300 cr from global investors in Jun 2023, at a coupon of 18.75%, which is an unusually high, pointing to liquidity stress at the group level. 

Shapoorji Pallonji Group Company

Afcons Infrastructure is an engineering and construction company building infrastructure (such as metro, highway and bridges, dam, tunnel etc.) in India and overseas, with the latter accounting for 1/4^th of Rs. 13,267 cr topline. Company counts some marque projects like Atal Tunnel, Mumbai Ahmedabad high speed rail, with an order book, as of 30.6.24, of Rs. 31,750 cr, representing 2.4x FY24 revenue. In Q2FY25, it won Rs. 5,937 cr worth of orders and is L1 for another Rs. 10,732 cr, implying a book-to-bill of close to 3.4x.  

Other Income comprises Half the PBT

FY24 EBITDA was reported at Rs.1,745 cr and PBT at Rs. 673 cr, which included Rs.379 cr other income (comprising one-offs like Rs.148 cr forex gain and Rs. 117 cr interest on arbitration awards), representing 56% of profit. This is not the case with peers KEC International or Kalpataru Projects. Thus, reported EBITDA of 13% is actually 10%, net of other income.

Due to complex nature of projects undertaken, company’s EBITDA margin of 10% is still higher than peers Kalpataru (8%) and KEC (6%) in FY24. PAT was reported at Rs.450 cr, translating into a net margin of 3.4%, but adjusted for other income, is barely 1.5%, as interest and depreciation are Rs. 580 cr and Rs. 500 cr annually respectively. Since less than 20% debt is being repaid, interest outgo will not reduce significantly going forward. FY24 EPS stood at Rs.13.20, and Q1FY25 was flat YoY at Rs. 2.7.

Fully Priced

On FY25E EPS of Rs. 16, current year PE multiple is at 38x and EBITDA multiple is 14x, which is seen fully priced for 13% RoE and sub-2% net margin. Kalpataru Projects, with Rs. 20,000 cr revenue, 3.1x book-to-bill, 2.4% net margin and 0.6 net debt equity ratio, is a good peer to Afcon, As Kalpataru is ruling at a PE of 38x and an EV/EBITA of 14, there is nothing left on the table for Afcons’ IPO investors.

While Afcons EBITDA is better than Kalpataru’s, promoter level stress does not make the risk-reward favourable. History shows that promoter level stress can snow-ball, especially so for infrastructure players. 

Poor Track Record

Forget rewarding shareholders, but the earlier IPO from the Shapoorji Pallonji group of Sterling and Wilson in Aug 2019 has been a wealth destroyer. In Aug 2019, IPO was undertaken at Rs. 780 per share, which dropped to half in Feb 2022, when stake sold to RIL. Even now, share price is ruling 20% lower, after 5 years. Such a pathetic track record will definitely have rub-off on the current IPO.

Hurried RHP Filing?

• Note I on Pg 194 of RHP is missing.
• KPI Table on Pg 189 of RHP has the headline ‘As of, and for the three months period ended March 31, 2024’, whereas financials have been presented for the year ended March 31, 2024.