AGI Infra Limited SME IPO – Should we invest?

AGI Infra Limited IPOAGI Infra Limited SME IPO – Should we invest?

Punjab based AGI Infra Limited IPO would hit the market on 10th March, 2015. AGI Infra is into Construction and real estate development for the past 10 years. Revenues of this company have shown good improvement in the last 2.5 years. Profits are also consistent. Can we invest in an AGI Infra SME IPO? What are the positive and negative factors in AGI Infra Limited IPO?


About AGI Infra Limited

AGI Infra is an integrated construction and real estate development company, focussed primarily on construction and development of commercial / residential projects, in and around Punjab. This Company was incorporated in the year 2005 as G. I. Builders Private Limited, jointly promoted by Mr. Sukhdev Singh and Mrs. Salwinderjit Kaur, with the vision of providing “premium housing at fair prices”. The name of this company was changed to AGI Infra Limited in the year 2011.

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Issue details of AGI Infra Limited SME IPO

  • IPO opens: 10-March-2015
  • IPO closes: 13-March-2015
  • Face Value: Rs 10 per share
  • Issue price: Rs 54 per share
  • Minimum shares to be applied: 2,000 and in multiples of 2,000 shares thereon.
  • Minimum investment: Rs 108,000
  • No of shares: 27.76 Lakhs shares
  • Issue size: Rs 15 Crores (approx).
  • Lead Managers: Aryaman Financial Services Limited
  • Listing: BSE SME
  • Download AGI Infra IPO Prospectus from SEBI website here

Purpose of the IPO

The funds would be used for the following purposes.

  • To part finance the construction of 215 Residential Flats in our on-going Group Housing Project – “Jalandhar Heights” in Punjab
  • Repayment of Loans
  • To meet Issue Expenses

Company Financials

  • Company generated revenue of Rs 485 Lakhs for the year ended Mar-10 and Rs 3,046 Lakhs for the year ended Mar-14.  It earned revenue of Rs 2,427 Lakhs for 6 months ended Sep-14.
  • Company posted a profit of Rs 89 Lakhs for the year ended Mar-10 and a profit of Rs 274 Lakhs for the year ended Mar-2014. It earned a profit of Rs 160 Lakhs for 6 months ended Sep-2014.
  • EPS for FY2014 is Rs 3.68.
  • Average EPS for the past 3 years is 2.77.

AGI Infra SME IPO-Financials

Reasons to invest AGI Infra Limited SME IPO

  • Good revenue growth in last 2.5 years.
  • Earns good profitability of 6% + in last 1.5 years. Majority of SME IPO’s which came earlier has been posting less than 4% margin.

Reasons not to invest in AGI Infra Limited SME IPO

  • Negative revenue growth during 2010 to 2012. Unless a company is growing consistently, difficult to assess future revenues.
  • There are certain legal proceedings and claims involving this company, its Managing Director and Group Entity – Aay Jay Builders and the same are pending at different stages before the Judicial/Statutory authorities. Any rulings by such authorities against this company, its Managing Director and Group Entity, may have an adverse material impact on their operations.
  • Its ability to access capital depends on its credit rating.
  • There cannot be any assurance as to when they will be able to successfully realize the sale proceeds in respect of the real estate for which construction has been completed as also whether the proceeds would be in line with the expectations / estimates. It may find it difficult or not be able to market its developed / proposed to be developed real estate.
  • Its operations have been concentrated in the state of Punjab. Its growth strategy to expand into new geographic areas poses risks.
  • It requires certain approvals, licenses, registrations and permits for its business, and the failure to obtain or renew them, as and when required, in a timely manner may adversely affect its business and operations.
  • Fluctuations in market conditions between the time they acquire land or obtain development rights and sell developed projects on such land may affect its ability to sell projects at expected prices, which may adversely affect its revenues and profit margins.
  • Company has availed Rs 256.30 lacs as unsecured loan which are repayable on demand. Any demand from the lenders for repayment of such unsecured loan may affect its cash flow and financial condition.
  • Failure to procure contiguous parcels of land may adversely affect its business, results of operations, financial condition and prospects.
  • The launch of new projects, if proved to be unsuccessful could impact its growth plans and may adversely impact earnings.
  • They are subject to a penalty clause under the construction agreements entered into with their customers, for any delay in the completion of the project.
  • Certain lands which are being used as part of the “Jalandhar Heights” project are purchased by the Company but have not yet been registered in the name of the Company and are as on date registered in the name of our Promoter – Mr. Sukhdev Singh.
  • They experience negative cash flows in previous years / periods. Any operating losses or negative cash flows in the future could adversely affect its results of operations and financial condition.
  • They have delayed payment of instalment of one of its Team Loan from PNB and the same may result in default if the delay persists.
  • SME IPO’s are trading on low volume. Liquidity of such shares could be an issue. Stock brokers can easily manipulate the price of the stock.

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Recommendation / Investment strategy

  • On an issue price of Rs 54 per share, based on financial year ending Mar-2014 EPS of Rs 3.68, P/E ratio works out to be 14.67. Based on 3 years average EPS of Rs 2.77, P/E Ratio works out to be 19.49. Its competitors P/E Ratio is 142.7 (Highest-Ashiana Housing Limited) and 1.8 (Lowest-Zandu Realty Limited) and the industry average is 23. Hence, for an issue price of Rs 54 per share ask looks reasonably good.
  • The AGI Infra IPO has several positive and negative factors. Strong revenue growth in last 2.5 years, consistent profits, etc., are some of the positive factors. Negative cash flows, legal issues against company, high risk real estate business are some of the negative factors. I am positive about this IPO. However, one can wait for consistent performance for one more year in terms of revenues and profits and can invest in such companies. High risk investors who are willing to take risks indicated above and risks indicated in the prospectus can invest in this IPO now.

Disclaimer: I would not be investing in this IPO now nor in the near future after listing.

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AGI Infra Limited SME IPO – Should we invest

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