Article

IRCON International Ltd

17 Sep 2018 Nikita Bhoota

Issue Opens: September 17, 2018
Issue Closes: September 19, 2018
Face Value: Rs 10
Price Band:  Rs 470-475
Issue Size: ~Rs 470 cr
Public Issue: 99lakh shares
Bid Lot: 30 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

99.7

89.2

Public

0.3

10.8

Source: RHP

Company Background

IRCON International Ltd, a Government of India (GoI) entity, is an integrated engineering and construction company, specializing in major infrastructure projects like railways, highways/bridges/ flyovers/tunnels, electrification, commercial/residential properties, etc. As of FY18, IRCON is undertaking a total of 33 railway projects in two countries and in 13 states in India, with an aggregate length of ~1,665 km and has one completed road project of 115 km in India. It has posted revenue and PAT CAGR of 27.1% and 2.3% respectively (FY16-18).

Offer Details

GOI, via Offer for Sale (OFS), is offering up to 99 lakh shares aggregating to Rs470cr (upper end). There is a discount of Rs10 per share to the retail investors and employees with employee reservation of 5 lakh shares.  The OFS constitutes 10.5% of paid up equity share capital.

Financials

Consolidated Rs cr.

FY15

FY16

FY17

FY18

Revenue from operations

2,975

2,493

3,067

4,028

EBITDA Margin %

21.4

10.6

10.7

11.2

PAT

563

393

384

412

EPS (Rs)*

59.9

41.8

40.8

43.8

P/E*

7.9

11.4

11.6

10.9

P/BV*

1.3

1.2

1.2

1.2

RoE (%)

16.3

10.8

10.1

11.0

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

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IRCON International Ltd

17 Sep 2018 Nikita Bhoota

Issue Opens: September 17, 2018
Issue Closes: September 19, 2018
Face Value: Rs 10
Price Band:  Rs 470-475
Issue Size: ~Rs 470 cr
Public Issue: 99lakh shares
Bid Lot: 30 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

99.7

89.2

Public

0.3

10.8

Source: RHP

Company Background

IRCON International Ltd, a Government of India (GoI) entity, is an integrated engineering and construction company, specializing in major infrastructure projects like railways, highways/bridges/ flyovers/tunnels, electrification, commercial/residential properties, etc. As of FY18, IRCON is undertaking a total of 33 railway projects in two countries and in 13 states in India, with an aggregate length of ~1,665 km and has one completed road project of 115 km in India. It has posted revenue and PAT CAGR of 27.1% and 2.3% respectively (FY16-18).

Offer Details

GOI, via Offer for Sale (OFS), is offering up to 99 lakh shares aggregating to Rs470cr (upper end). There is a discount of Rs10 per share to the retail investors and employees with employee reservation of 5 lakh shares.  The OFS constitutes 10.5% of paid up equity share capital.

Financials

Consolidated Rs cr.

FY15

FY16

FY17

FY18

Revenue from operations

2,975

2,493

3,067

4,028

EBITDA Margin %

21.4

10.6

10.7

11.2

PAT

563

393

384

412

EPS (Rs)*

59.9

41.8

40.8

43.8

P/E*

7.9

11.4

11.6

10.9

P/BV*

1.3

1.2

1.2

1.2

RoE (%)

16.3

10.8

10.1

11.0

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