PNC Infratech IPO – Should you invest in this IPO?
PNC Infratech IPO would hit the market on 8th May, 2015. PNC Infratech is a leading infrastructure construction, development and management company in India. Company has doubled revenues in last 5 years. There are several positive factors in PNC Infra IPO. Should you invest in a PNC Infratech Limited IPO? What are the risk factors to be considered before you invest in a PNC Infratech IPO?
About PNC Infratech Limited
PNC Infratech Limited is an Indian infrastructure construction, development and management company, with expertise in the execution of major infrastructure projects, including highways, bridges, flyovers, power transmission lines, airport runways, development of industrial areas and other infrastructure activities. They provide EPC services on a fixed-sum turnkey basis as well as on an item rate basis for various infrastructure projects. They also execute projects on a BOT (including on a DBFOT basis), operate them during the concession period on toll or annuity basis and subsequently transfer the projects. In 2013, they entered into a project on an OMT model as well. They have executed projects across various states in India including Rajasthan, Punjab, Haryana, Uttarakhand, Uttar Pradesh, Delhi, Bihar, West Bengal, Assam, Madhya Pradesh, Maharashtra, Karnataka and Tamil Nadu. Company has executed 42 major infrastructure projects on an EPC basis.
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Issue details of PNC Infratech IPO
- IPO opens: 8-May-2015
- IPO closes: 12-May-2015
- Face Value: Rs 10 per share
- Issue price band: Rs 355-378 per share.
- Minimum Shares to apply: 35 shares and in multiples of 35 shares thereon.
- Minimum Investment: Rs 12,425
- Issue size: Rs 458 – 488 Crores
- Lead Managers: ICICI Securities Limited and IDFC Securities Limited
- Listing: BSE / NSE
- Download PNC Infratech Limited IPO Prospectus here
Purpose of the IPO:
The Offer comprises a Fresh Issue by Company and an Offer for Sale by the Selling Shareholder.
I) The Offer for Sale
- Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder.
II) The Fresh Issue
The objects of the Net Proceeds of the Fresh Issue are:
(a) Funding working capital requirements;
(b) Investment in its subsidiary, PNCRHPL for part-financing the Raebareli-Jaunpur Project;
(c) Investment in capital equipment;
(d) Repayment/ prepayment of certain indebtedness; and
(e) Funding expenditure for general corporate purposes.
- Company generated revenue of Rs 754.83 Crores for the year ended Mar-10 and Rs 1,156.19 Crores for the year ended Mar-14. It earned revenue of Rs 1,102.07 Crores for 9 months ended Dec-14.
- Company posted a profit of Rs 45.22 Crores for the year ended Mar-10 and a Profit of Rs 66.94 Crores for the year ended Mar-2014. Its profit is Rs 66.70 Crores for 9 months ended Dec-2014.
- Its EPS for FY 2013-14 is 13.06 and last 3 years Avg is Rs 16.06. EPS for nine months ended Dec-2014 is Rs 15.68
Reasons to invest PNC Infratech IPO
- Good revenue growth story in last 5 years. If we annualize 9 months revenue of FY 2014-15 to entire year, it would cross Rs 1500 Crores. Means company has almost doubled its revenue in last 5 years.
- Good and consistent profits of around 6% in last 5 years.
Reasons not to invest in a PNC Infratech IPO
- Delays in the completion of current and future construction and development projects could have adverse effects on financial condition, cash flows and operating results.
- Actual cost in executing a fixed-sum contract or in constructing a project which is the subject matter of a BOT agreement may vary substantially from the assumptions underlying company's bid. They may be unable to recover all or some of the additional expenses, which may have a material adverse effect on its results of operations, cash flows and financial condition.
- Any adverse difference between the actual traffic volume and company forecast traffic volume for a toll based BOT or OMT road project could have a material adverse effect on its results of operations, cash flows and financial condition.
- They depend on forming successful joint ventures to qualify for the bidding process for and to implement large projects and company inability to enter into or successfully manage such joint ventures could impose additional financial and performance obligations resulting in reduced profits or in some cases, significant losses from the joint venture, which could have a material adverse effect on its business, financial condition and results of operation.
- Company and its Promoters have limited experience in successfully implementing company's growth strategy to expand into new functional and geographic areas, which could have an adverse effect on its business, results of operations and financial condition.
- Company business transactions are with governmental or government-funded entities or agencies and any change in government policies or focus, or delay in payment may affect our business and results of operations. We may also encounter disputes with these governmental entities, which could also have a material adverse effect on the results of its operations.
- Company revenues from its EPC business are highly dependent upon a limited number of customers.
- Company BOT projects generally have a long gestation period and substantial capital outlay before they realize any benefits or returns on investments. Company may encounter problems that substantially impair its ability to generate revenue from projects or substantially increase the costs and the time required to develop such projects, as well as its ability to complete and generate revenue from projects under construction.
- There is outstanding litigation involving the Company, its Promoters, its Directors, its Subsidiaries, its JVs and its Group Entities, which, if determined adversely, may affect their business and operations and this company's reputation.
- Company and certain of its Subsidiaries, Promoters and Directors have been subject to search and seizure operations conducted by the Indian income tax authorities.
- Construction faults may arise in projects, which may result in delays in completion and revision in estimated costs, thereby affecting the company business and results of operations.
- Other risk factors (Internal and external) can be viewed at prospectus Page no. 13 onwards.
Recommendation / Investment strategy
- At a higher price band Rs 378 and consolidated basic EPS for FY 2013-14 of Rs 13.06, P/E Ratio works out to be 29. At a higher price band Rs 378 and consolidated basic EPS of last 3 years average of Rs 16.06, P/E Ratio works out to be 23.5. Means, the company is asking an issue price of P/E ratio in between 23.5 to 30. Comparing to its peers, Ashoka Build Con has highest P/E Ratio is 30 and IL&FS has lowest of 8.41 and the industry average is 20. Hence the issue price at Rs 378 is on higher side.
- PNC Infratech IPO has several positive factors. Good revenue growth story in the last few years, consistent profit performance in the last 5 years are some of the positive factors. It has several risk factors indicated above.
- While, I am positive about PNC Infratech IPO, issue price seems to be very high. If you are a high risk investor, you can consider investing at lower price band of Rs 355. Alternatively, one can wait for any price correction after listing and can invest between Rs 280 to Rs 320 per share for medium term investment of 2-3 years.
Disclaimer: I am planning to invest 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 or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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PNC Infratech IPO – Should you invest in this IPO
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