IRCON International Ltd

Source: RHP, 5Paisa Research; *EPS &Ratios at higher end of the price band and on post IPO Shares

Key Investment Rationale

1. Company’s order book as of March 31, 2018 was Rs22,407cr, which provides revenue visibility for the next 5-6 years. As of March 31, 2018, domestic projects made up bulk of the company’s order book (93%) and secured ~Rs6,106cr new contracts in FY18. The railway sector accounts for ~87% of the total order book as on FY18. Various industry sources suggest that the investments in railways and the construction opportunity is expected to double over the next four years, which is favorable for IRCON.
2. IRCON is an established player in the field of railways and highways construction. It is a turnkey construction company that specializes in new railway lines, rehabilitation/conversion of existing lines, station buildings & facilities, bridges, tunnels, signaling & telecommunication and railway electrification. Revenue from railway projects accounted for 68.95% of total FY18 revenues. The company’s broad geographical coverage has helped it to achieve the objective of gradually moving from a construction company to a diversified company having a portfolio of BOT/DBFOT/EPC and other contracts as well as project development and operation through JVs/SPVs.

Key Risk

Any adverse change in the policies adopted by the government in awarding projects (viz. pre-qualification criteria) could adversely affect company’s ability to bid for/win such projects. In addition, any changes in the existing policies pertaining to incentives granted in respect of infrastructure development, could adversely affect the existing projects and opportunities to secure new projects.

Conclusion

IRCON has a healthy order book of Rs22,407cr (FY18), providing revenue visibility for next ~5 years. Robust revenue growth and focus on higher margin foreign projects would improve profitability going ahead. Apart from the retail discount and 4.3% dividend yield, the issue is favorably priced at 11x FY18 EPS. We recommend SUBSCRIBE on the issue.

Research Disclaimer