Dilip Buildcon IPO – What are the hidden factors ?

Dilip Buildcon IPO ReviewDilip Buildcon IPO – What are the hidden factors ?

Bhopal based, the Dilip Buildcon IPO would open for subscription on 1st August, 2016. Dilip Buildcon Limited is one of the Mid-sized construction company and roads developer. The company revenues grew at 58% CAGR in the last 5 years ending FY15 indicating strong growth. Its profits are at 5.8% for 6 months ended Sep-15. There are several positive factors in Dilip Buildcon Ltd IPO. Why analysts started writing only positive factors after the Analyst meet held few days back?  What are the hidden factors of the Dilip Buildcon IPO? Should you invest in this Dilip Buildcon IPO or not?

About Dilip Buildcon Limited

They are one of the leading private sector road-focused EPC contractors in India. During the last five Financial Years ended March 31, 2015 and the six months ended September 30, 2015 they completed the construction of 51 road projects in the states of Madhya Pradesh, Gujarat, Himachal Pradesh, Rajasthan and Maharashtra in India, with an aggregate length of approximately 5,858.49 lane kms, achieving a CAGR of 58.44% of revenue growth on a consolidated basis for the five Financial Years ended March 31, 2015. In addition to the states where they have completed projects, they have expanded  presence to nine more states, Tamil Nadu, Punjab, Chhatisgarh, Jharkhand, Haryana, Telangana, Andhra Pradesh, Karnataka and Uttar Pradesh with ongoing projects. For details of  ongoing EPC and road infrastructure development  projects, see “Major Ongoing EPC Projects” and “Details of  Projects” on page 152 and pages 157 – 158, respectively.  Achievements in the last five Financial Years and the six months ended September 30, 2015 are attributable to a combination of factors, including  ability to successfully and timely execute EPC projects,  focus on geographically clustering projects for efficiency and profitability,  substantial investment in and efficient use of  construction equipment bank and in-house production of structural parts for  projects.

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Issue details of Dilip Buildcon IPO

  • IPO opens: 1-Aug-2016
  • IPO closes: 3-Aug-2016
  • Face Value: Rs 10 per share
  • Issue price band: Rs 214 to 219 per share
  • Issue size: Rs 430 Crores on lower price band
  • Market lot: minimum of 65 shares
  • Minimum investment: Rs 14,235 on lower price band
  • Lead Managers: Axis Capital and IIFL Holdings.
  • Listing: BSE / NSE
  • Download Dilip Buildcon IPO Prospectus at this link

Objects of the Dilip Buildcon Ltd IPO issue

The Issue comprises a Fresh Issue by our Company and an Offer for Sale by the Selling Shareholders.

a) The Offer for Sale

Our Company will not receive any proceeds from the Offer for Sale.

b) The Fresh Issue

The Net Proceeds from the Fresh Issue will be utilized towards the following objects:

1. Prepayment or scheduled repayment of a portion of term loans availed by our Company;

2. To meet working capital requirements; and

3. General corporate purpose

Company Financials (reinstated-Consolidated)

  • The company generated revenue of Rs 439.31 Crores  for the year ended Mar-11 and Rs 2,768.51 Crores for the year ended Mar-15.  We are yet to get FY16 nos.
  • The company posted a profit of Rs 39.17 Crores for the year ended Mar-11 and profit of Rs 87.65 Crores for the year ended Mar-15. We are yet to get FY16 nos.
  • Its restated-consolidated EPS for FY 2015 is Rs 8.19 and last 3 years average EPS Rs 13.7.

Dilip Buildcon IPO - Financials

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Reasons to invest Dilip Buildcon IPO

  • Strong revenue growth of 58% CAGR in last 5 years till FY15.
  • One of the Leading Road-focused EPC Contractor.
  • Efficient business model.
  • Excellent execution track record through strong operating systems and controls.
  • Visible growth through a robust order book and excellent pre-qualification credentials.

Reasons not to invest in an Dilip Buildcon Ltd IPO

  • Margins are on decline mode year on year. Its profits for FY12, FY13, FY14, FY15 are 9.1%, 12.5%, 7.7%, 3.2%. However, for the 6 months ended Sep-15 it generated 5.8% profits.
  • This is company’s second attempt to issue the IPO. Last year, the company had proposed to raise Rs 650 crore through IPO, however backed off citing the cautious sentiment of foreign institutional investors (FIIs) towards the sector.
  • There are certain criminal proceedings pending against the Company,  Promoters and certain Directors and employees.
  • There are outstanding legal proceedings against the Company, certain of its Directors, its Promoters, Subsidiaries and its Joint Ventures, which may adversely affect  business, financial condition and results of operations.
  • The company and certain of Promoters and Directors have been subject to search and seizure operations conducted by the Indian income tax authorities. Any adverse determination by the tax authorities in this matter could increase  tax liability and subject to monetary penalties.
  • Contingent liabilities that have not been provided for could adversely affect  business, cash flows, financial condition and results of operations.
  • Projects included in  the order book and  future projects may be delayed, modified or cancelled for reasons beyond  control which may materially and adversely affect business, prospects, reputation, profitability, financial condition and results of operation.
  • If they are not successful in managing  growth,  business may be disrupted and profitability may be reduced.
  • Lower than expected returns on  investment in BOT projects may adversely affect  financial results; they may not be able to divest BOT projects at the prices they  anticipate or at all and new roads may compete with  BOT road projects.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 14 onwards.

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Recommendation / Investment strategy – Dilip Buildcon IPO

  • On the upper price band of Rs 219 and on FY15 EPS of Rs 8.19, P/E ratio works out to 15.6x. Similarly, on last 3 years EPS of Rs 13.75, P/E Ratio works out to 26.7x. Means company is asking the upper band of issue price of Rs 219 for a P/E ratio between 15.6x to 26.7x. As per prospectus is peers are trading in P/E ratio of 15x to 39x. Hence the company issue price is reasonably priced. These nos may change once company announces FY16 financials.
  • Company revenues grew at 58% CAGR in last 5 years. Its issue price is reasonably priced. However, its profits are on declining mode which is major concern.  High risk investors can invest in this IPO for medium to long term perspective. However, one may not expect any listing gains. If you get listing gains, you can do party.

Note: Company held a Analyst meet few days back. Some of the analysts have started writing only positive features of the IPO. One should review both positive and hidden factors before investing in an IPO.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Dilip Buildcon IPO – What are the hidden factors


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