MAYTAS INFRA

Maytas Infra is entering the capital market on 27^th September, 07 with a public issue of 88.50 lakh equity shares of Rs.10 each in the band of Rs.320 to Rs.370 per share. Though the company has not tom-tommed about its parentage, about the fact that its promoters are the same as those who have promoted Satyam Computers, the name of the company, Maytas, when read in reverse, stands for "Satyam". Son of B. Ramalinga Raju, promoters of Satyam Computers is the promoter of this company and this they have surely capitalized in the IPO pricing.

While analyzing the financial performance and proposed business plans of the company, it is difficult to identify whether it's a contracting company or an infrastructure company. Past financial performance, reflecting construction and contracting work, is raising money for infrastructure projects, being implemented and getting commissioned by March, 2010.

For FY 07, on standalone basis, total income of the company was at Rs.601 crores, PBT of Rs.79 crores and PAT of Rs.55 crores on equity of Rs.50 crores, resulting in an EPS of Rs.11 per share. On consolidated basis total income for FY 07 was at Rs.827 crores, PBT of Rs.84 crores and PAT of Rs.53 crores. This means, the subsidiaries, though had a topline of Rs.226 crores, had negative bottomline of Rs.2 crores. Even total debt on standalone basis was at Rs.430 crores while it is Rs.664 crores on consolidated basis.

The order book of the company as at 30^th June, 07 were of Rs.3,589.32 crores including company's share of Joint Ventures. Order book on standalone basis were at Rs.2,700 crores.

The company is raising money for investing in various infrastructure projects like Rs.27.71 crores in Bangalore Elevated Tollway, Rs.127.44 crores in K V K Nilachal Power and Rs.34.25 crores in S V Power, while Rs.33.29 crores is for purchasing construction equipments. The issue would mobilize Rs.282 crores at the lower band or Rs.327 crores at the upper band.

The company's share stands as follows in these infrastructure projects-

1) 19,5% in Gautami Power, a 464 MW gas based power project.

2) 33% in Himachal Sorang Power, a 100 MW hydro based power project.

3) 50% in K V K Nilachal Power, a 300 MW coal based power project.

4) 50% in S V Power, a 56 MW, coal washery reject based power project.

5) 25.5% in Machipattanam Port Project.

6) 30% to 50% - in 6 road projects on BOT basis.

Gautami Power has been setup completely, but due to non-availability of gas, remains non-operational. Even other power projects are at an infancy stage, and would be operational by March 2010, thus having long gestation.

Based on FY 07, EPS on fully diluted equity is about Rs.9. Considering the order book, the company may post an EPS of Rs.14 for FY 08. This means, at the upper band, share is issued at a PE multiple of about 26 (issue price Rs.370). This kind of PER neither gets applied for pure contracting companies nor for utilities companies. Also, debt component for existing and future projects are very high between 3:1 to 4:1, which lowers its future valuations. Also, looking at the fate of Gautami Power, the future projects have uncertainties in operations and earnings.

So, under the given circumstances, it would be more prudent to give PER of mid-size contracting companies which is ideal at 16 - 18 times, based on FY 08 earnings.

Considering this, issue seems extremely overpriced, as better investments are available in the secondary market.