IRCON International IPO – Should you Invest or Avoid?
IRCON International IPO would open for subscription on 17th September, 2018. IRCON International is a government company under the Ministry of Railways. IRCON International is a leading integrated Indian engineering and construction company in India. Company revenues are fluctuating in its revenues has not grown in the last 5 years. It earned standalone profits of 9.5% for FY2018. Company has good order book over Rs 22,400 Crores. What are positive factors in this IRCON International Limited IPO? What are the hidden factors in IRCON International IPO? Should you invest in an IRCON International IPO? Let me provide some insights about this IPO and do the review.
About IRCON International Limited
They are an integrated Indian engineering and construction company, specializing in major infrastructure projects, including, railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, runways, EHV sub-stations, electrical and mechanical works, commercial and residential properties, 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 on build, operate and transfer mode in various projects in order to meet the requirements of its bids. In 2016, they were ranked number 248 in the list of the top 250 international contractors by Engineering News Record (ENR) of the United States.
They are headquartered in Saket, New Delhi and they have an overseas office in Malaysia. Additionally, have 26 project offices in India and abroad (including in Sri Lanka, Bangladesh, South Africa and Algeria) and five regional offices support and manage its business operations. Its reputation for quality, commitment and consistency in terms of performance, as well as its local, regional and international presence, have allowed us to service the growing infrastructure needs throughout India. Its Order Book as of a particular date comprises of the anticipated revenues from uncompleted portions of existing contracts (signed contracts for which all pre-conditions to entry have been met, including letters of intent issued by the client). As of March 31, 2018, they had an Order Book of ₹224, 067.90 million.
IRCON International IPO Issue details
IPO opening date: 17-Sep-2018
IPO closure date: 19-Sep-2018
Face Value: Rs 10 per share
Issue price band: Rs 470 to Rs 475 per share
Issue size: 470 Crores
IPO Lot size: 30 shares and 30 shares, there-off
Minimum investment: Rs 14,250 on higher price band
Leading Managers: IDBI Capital, Axis Capital and SBI Capital Markets
Listing: BSE / NSE
Download IRCON International IPO RHP Prospectus at this link.
Objects of the IRCON International IPO issue
The Objects of the issue are:
a) Offer for Sale: The Promoter Selling Shareholder shall carry out divestment of 9.9 Mn shares which is approx. 10.5% of their stake. The company would not receive any proceeds from this offer.
b) Further, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges.
The Promoter is the President of India acting through the Ministry of Railways. The Promoter holds 99.71% of the pre-Offer paid-up equity share capital of the Company. After this Offer, the Promoter shall hold 89.18% of the post Offer paid-up equity share capital of the Company.
Who is the Senior Management team at Ircon International?
1) Mr. Sunil Kumar Chaudhary (Chairman and Managing Director)
2) Mr. Deepak Sabhlok (Director – Projects)
3) Mr. Mukesh Kumar Singh (Director – Finance & Chief Finance Officer)
Company Financials (Reinstated-Consolidated)
1) The company generated revenue of Rs 4,150 Crores for the year ended Mar-14 and Rs 4,212 Crores for the year ended Mar-18.
2) The company posted a profit of Rs 746.9 Crores for the year ended Mar-14 and profit of Rs 411.5 Crores for the year ended Mar-18.
3) Its EPS for FY18 was Rs 42.13 and 3 years average EPS is Rs 30.62.
Company Financials (Reinstated-Standalone)
1) The company generated revenue of Rs 4,158.8 Crores for the year ended Mar-14 and Rs 4,123 Crores for the year ended Mar-18.
2) The company posted a profit of Rs 740 Crores for the year ended Mar-14 and profit of Rs 390.8 Crores for the year ended Mar-18.
3) Its EPS for FY18 was Rs 40.1 and 3 years average EPS is Rs 38.65.
What are the key strengths of IRCON International Limited?
Here are the key strengths of the company.
1) Its construction business operates in diverse sectors covering many countries.
2) Excellent execution track record through strong operating systems and controls.
3) Strong financial performance and credit profile.
4) Visible growth through the robust order book and steady execution.
5) Qualified and experienced employees and proven management team.
What are the Strategies of IRCON International Ltd?
Here are the key strategies of the company.
1) Continue expanding its geographical footprint within and beyond India
2) Paradigm shift in revenue generation
3) Focus on high value projects in the construction business to benefit from economies of scale
4) Actively bid for new projects
5) Maintain favorable financial risk profile
6) Explore different models of project execution to optimize its project portfolio
7) Explore potential ways to capture sectoral initiatives undertaken by the Government to improve economic growth
8) Attract and retain talented employees
What is the Grey Market Price (GMP) of Ircon International?
As of the 8th September evening, GMP was at Rs 93 to 98.
Reasons to invest in an IRCON International IPO
1) Company revenues have been growing in the last 3 years. However, if you compare revenues with 5 years back, there is almost zero growth.
2) It is a Government of India enterprise which has come up with attractive valuations and low price.
3) It has over Rs 22,400 Crores order book out of which 93% are from the domestic sector.
4) Company is offering Rs 10 per share discount for retail investors and eligible employees.
5) It is a dividend paying company. It paid 204.4% Dividend for FY2018.
Risk Factors / Reasons not to invest in an IRCON International IPO
1) Its profits are on declining mode. It earned 17.8% margins in FY14 Vs 9.5% for FY18.
2) Its business and revenues are substantially dependent on construction and infrastructure projects undertaken or awarded by government authorities and other entities funded by the government. Any change in government policies, the restructuring of existing projects or delay payments to us, may adversely affect its business and results of operations.
3) If they face adverse publicity and incur costs associated with warranty claims or from defects during construction, its business, results of operations and financial condition could be adversely affected.
4) Projects included in its order book and its future projects may be delayed, extended, modified or cancelled for reasons beyond its control which may materially and adversely affect its business, prospects, reputation, profitability, financial condition and results of operations. Revenues generated from its projects are also difficult to predict and are subject to variations driven by various factors.
5) If they are not successful in managing its growth, its business may be disrupted and its profitability may be reduced.
6) Railway sector projects contribute approximately 86.70% of its Order Book as of March 31, 2018. Any change in the sector causing decline in the number of project available may adversely affect its revenues and profitability.
7) They anticipate that its portfolio will be increasingly concentrated in large-scale and long-term projects, specifically, projects in the railway sector. Such concentration in its portfolio if not properly managed could lead to material adverse effect on its business, prospects, financial condition and results of operations.
8) For complete internal and external risk factors, you can refer the DRP of the company.
IRCON International IPO Schedule
17th September – Offer Opens
19th September – Offer Closes
25th September – Finalization of Basis of Allotment
26th September – Unblocking of ASBA
26th September – Credit to Demat Accounts
28th September – Listing on NSE & BSE
What are Stock Brokers saying about Ircon IPO? (Updated 17th September, 2018)
Here are the brokers recommendations about this IPO.
1) Motilal Oswal says IPO valuation looks decent considering orderbook position and financials and recommends subscribe to this issue for listing gains and long term gains.
2) ICICI Direct says company core business is remarkable highlight. while working capital is negligible, it has huge business on hand. It recommends subscribe to this issue for listing gains only.
3) Centrum Wealth says this company order book and business diversification is good and recommends to subscribe.
IRCON International IPO – Should you invest?
Let us look at the valuation of the company now. On FY2018 consolidated EPS of Rs 42.13 and on an upper price band of Rs 475, P/E works out to be 11.2x. On last 3 years average consolidated EPS of Rs 40.62, P/E works out to be 11.7x. Similarly for standalone nos, the P/E is in between 11.9x to 12.2x. Means company is asking for a higher price band Rs 475 where P/E would be in the range of 11.2x to 12.2x. There are no listed peers doing similar business, hence we cannot ascertain whether the issue price is under priced or overpriced.
While company revenues have not grown in last 5 years, it shows improvement in the last 3 years. Its profits are on declining mode. However, such shares are available at attractive valuations. Also IRCON International is Government of India enterprise that has a good order book. Recent Govt of India enterprises IPOs like RITES etc., has given decent returns. However, some of them are still trading at lower than issue price. Considering all these positive factors, investors can invest in this IPO for 4-5 years time frame. Investors may or may not get listing gains.
Disclaimer: I have an interest in investing in this IPO and above analysis is based on my personal views. 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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IRCON International IPO – Should you Invest or Avoid