Vascon Engineers is entering the capital market on 27^th January 2010, with a public issue of   108 lakh equity shares of Rs. 10 each, in the price band of Rs. 165 to Rs. 185 per share.

The business model of the company is quite mixed and confusing, with major chunk of its topline coming from contracting or EPC business, but the company is relying more on its land bank, for its valuations.

The performance of the company is on a declining trend and FY09 and H1 of FY10 has disturbing and declining trend of profitability. For FY09, the total income of the company was at Rs. 530 crores with PAT at Rs. 21.05 crores, resulting in an EPS of Rs. 2.80. For H1 of FY10, the total income of the company was at Rs. 319 crores with PAT at Rs. 18.53 crores, which results in an annualized EPS of Rs. 4.70. Even in this, the major contribution, to the extent of about Rs. 260 crores, has come from EPC while realty has contributed just Rs. 50 crores.

Even present paid up equity of the company is quite high at Rs. 79.20 crores, which will rise to Rs. 90.35 crores, post IPO. This would result in a market capitalization of Rs. 1,670 crores at the upper band of Rs. 185 per share, with enterprise value of Rs. 1,800 crores.

The company can neither be treated as a contracting or EPC company nor realty company. Also, it falls in mid category segment of both the sectors, where PE multiple of such stocks are anywhere between 8 to 10 times. The Company is issuing shares at a PE of over 30 times, based on FY 10 earnings, which is very expensive, even at the lower band of Rs. 165. Even the present net worth of the company at Rs. 450 crores does not justify such valuations.

There are many players available in this space, in the secondary market, which are ruling at 50% valuations, of the primary market valuations asked by the company. So, no point in considering this IPO,even at the lower band of Rs. 165.

Clear advice is to avoid the issue.