J Kumar Infra
J. Kumar Infraprojects is entering the capital market on 18th January 2008, with a public issue of 65 lakh equity shares of Rs.10 each, in the band of Rs.110 to Rs.120 per share. At the upper band, issue size would be of Rs.78 crores.
History and background of the company has not been very exciting and performance had picked up only during FY 07 and in the current year. For FY 06, topline was Rs.23 crores with PAT of Rs.1 crore. This, rose for FY 07 with topline at Rs.113 crores and bottomline was Rs.8 crores.
The performance in first half of the current year has shown a topline growth of 46% while bottomline grew by 100%, NPM rose from 7.08% in FY 07 to 9.75% in the current year. As at 30th November 07, the total order book of the company was at Rs.461 crores.
All these, indicates that the company is vying to grow big by executing small work and has about 20 works under execution with an average contract value of close to Rs.23 crores. Though, the company may be able to make good profits from such small contracts, but it is not perceived very high by the market as replenishment of orders needs to take place on a regular basis. The present order backlog is for about two years while mid and large contracting companies have orders in hand for 3 to 4 years.
Considering its operations, the present equity base of the company at Rs.14.22 crores is very high which would rise to Rs.20.72 crores, post IPO. The past equity issues by the company are throwing some concerns on allottees. On 14th March 2007, equity issue of 24.95 lakh shares were made at par, to Supreme Sukhdham & Associates, which is stated to have no relation with the promoters of the company. Supreme Sukhdham has borrowed huge funds from the market and is in default for payment of interest and principal. This party is divesting funds to buy shares in the established companies, that too at par, gives an impression of collusion between this company and promoters. Are promoters discharging their liability to Supreme Sukhdham by issuing shares at par or this is an accommodation ? Also, issue of 17.29 lakh shares by the company on 18th August 07 at Rs.80 per share, establishes the pressing financial needs of the company to execute its projects.
Inspite of pressing financial needs for its own business, an amount of Rs.8 crores has been given as loans and advances which seems to be unrelated to the business of the company. Total loans and advances as at 30-09-07 were at Rs.18.80 crores, which were largely financed by debt of Rs.33 crores and current liabilities of Rs.26 crores.
The fund requirements are estimated at Rs.70 crores largely for capital equipments of Rs.51 crores and working capital requirements of Rs.19 crores. Any increase in topline would put further pressure on working capital requirements.
PBA Infrastructure, a similar company having equity of Rs.13.50 crores with promoters stake of 63%, had a topline of Rs.290 crores with PAT of Rs.11 crores giving an EPS of Rs.8.15. In first, six months of FY 08, topline was Rs.180 crores with PAT of Rs.9 crores, resulting in an EPS of Rs.6.70. Hence, FY 08 EPS, maybe, close to Rs.15, and share is now ruling at Rs.140, with a PE multiple of close to 9.
This company maybe able to post an EPS of Rs.10 for FY 08 on fully diluted equity of Rs.20.72 crores which gives a primary market PE valuation of 12 times, at the upper band, which makes it quite expensive. The contracting sector is becoming crowded and hence only large contracting companies are getting better valuations.
Hence, issue at both the levels of band works out quite expensive. It would be better to go for existing stocks in the secondary market or wait for this stock to get listed.