ASHOKA BUILDCON

Ashoka Buildcon is entering the capital market on 24^th September 2010, with a public issue of upto Rs. 225 crores, in the price band of Rs. 297 to Rs. 324 per share. It is strange to see the company, not even taking pain to state the amount, it proposes to raise, in Capital Structure, on page 31 of RHP.

Apart from this incomplete information, even some misleading or incorrect information is given in the RHP. On page 7 of RHP, it is stated that the Company believes that they currently operate one of the highest number of toll based BOT projects in India. Is it in terms of numbers or kilometers of lanes? The company currently has interest in 23 BOT road projects, for approx. 3,498.35 kms. of lanes in 5 states. As against this, IL&FS Transportation Network, in February 10, had 17 BOT road projects comprising approx. 9,397 lane kms., with pan India presence. See what all a company has to do, to sail through its IPO! But then what is the BRLM doing in this case?

Apart from BOT projects, the company has its EPC or contracting division to construct roads for its BOT projects, as also for third parties, as also constructing industrial and institutional buildings. RMC and Bitumen Division and Toll Collection Contract Division, have either inhouse or insignificant contribution, in the consolidated financial performance of the company.

For FY10, on consolidated basis, the total income of the company was at Rs.1,116 crores with PAT at Rs. 76 crores. This translates into an EPS of Rs. 16.65 for the year, on equity base of Rs. 45.69 crores. Net worth of the company as at 31-03-10 was at Rs. 450 crores, excluding Preference Share Capital of Rs. 12.44 crores. This translates into a book value per share at Rs. 98.

The object of the issue is to largely repay the loan of the company and its subsidiaries, to the extent of Rs. 115 crores, working capital requirements of Rs. 45 crores and purchase of capital equipments of Rs. 14 crores. As the company had a debt of Rs. 1,122 crores, as at 31-03-10, debt equity ratio worked at 2.43:1.

Inspite of the company having its topline contributed by EPC by about Rs. 995 crores, with  toll of just Rs.45 crores, the issue looks quite expensively priced, at a PE of 18 to 19.50 times and PBV of 2.34 to 2.55 times, (post IPO), at the lower and upper price band.

This needs to be compared with the financial performance of IL&FS Transportation a pure BOT road and infrastructure play. This company had a topline of Rs. 2,400 crores for FY10, on consolidated basis, while PAT was placed at Rs. 344 crores, resulting in an EPS of Rs. 17.75 and Rs. 20 on diluted basis. Share now ruling at 343 is ruling at a PE of 19.30 times, with book value at Rs. 86 per share, as at 31-03-10. This company is having advantage of size as reflected from its topline and net worth of Rs. 1,668 crores, as at 31-03-10.

Even JP Infra is much better road and infra company, which is implementing 165 km. Yamuna Expressway project from Noida to Agra. Apart from this, company was given 1,235 acres of land at 5 locations, for development. The total cost of the project of this company, including land cost of 6,175 acres and cost of construction of 165 km. expressway, is about Rs. 10,000 crores. The company is now monetizing its first parcel of land at Noida, which can result in development of over 120 million square feet of saleable area and present value of this land is estimated to be over Rs. 10,000 crores. Valuations of other 4 parcels of land is not considered here. The present market cap of this company is just at Rs. 12,500 crores.

Also, it is an unwritten law that there should be a gap of about 15% in IPO price and expected listing price of a share. So if, IL&FS, a better and bigger portfolio, with better parentage, is ruling at a PE of less than 19.50 times, how this company can dare to issue share in a PE of 18 to 19.50 times? On top of it, contracting or EPC companies, of this size are ruling at a PE of around 10 times. So, if we take an average of both, ideal PE of the company on bourses should be 14 times and issue should have been made at a PE of  less than 12 times.

One can thus say that the issue is definitely aggressively priced and valuations look stretched even at the lower end of the price band. It is better to look for existing players by giving a pass to this issue.