Man Infraconstruction IPO makes a comeback

The company, which had earlier withdrawn its plans to enter the market due to adverse conditions, is targeting the primary markets again

Man Infraconstruction Ltd had filed its red herring prospectus with SEBI in July 2008 and had subsequently stepped back from a public issue due to adverse market conditions. However, it subsequently decided to test the waters again.

The company’s issue opened on 18th February and closes on 22nd February with 5.6 million shares on offer through a 100% book-building route. As on 18th February, it got a 19% subscription out of the 1.6 million shares quota reserved for retail individual investors (RIIs) and 4.13% (out of 2,268,000) and 8.73% (out of 540,000) for qualified institutional buyers (QIBs) and non-institutional investors, respectively. There were no subscriptions under the employee category.

“We estimate the company to report subdued bottom-line compounded annual growth rate (CAGR) of a mere 8% over FY09-FY12E. On the valuation front, the IPO is available at a price-to-earnings ratio (P/E) of 11-12x FY12E earnings on the lower and upper price bands respectively, which is at a premium to listed players. Moreover, due to the concentrated nature of business and subdued earnings growth, we believe the stock should trade at a discount to its peers. Hence, we recommend avoiding the issue,” said Angel Broking in a research note.

Credit Analysis & Research Ltd (CARE) has assigned ‘IPO Grade 3’ to the issue indicating ‘above average’ fundamentals. Post the issue, the promoter group will hold 63.48% of the share capital. The issue size is pegged at Rs136.70 crore-Rs141.80 crore with a price band of Rs243-Rs252. The company’s order book stood at Rs2,020 crore as on 31 December 2009.

Although the company is bidding for Build Operate and Transfer (BOT) and Public Private Partnership (PPP) projects, it has no prior experience in undertaking such projects.

On a nine-month basis, the company’s total income fell by 19.3% at Rs318 crore for the December quarter of 2009 compared to Rs394 crore for the corresponding period last year. It registered consolidated revenues of Rs594 crore in FY09 compared to Rs236 crore in FY08.
Its earnings before income, tax, depreciation and amortisation (EBITDA) margin in FY09 was 26% and net margin was 14%. EBITDA increased from Rs22 crore in FY2007 to Rs55 crore in FY08 and went up to Rs152 crore in FY09, at a CAGR of 163.25%.

The company focuses on residential, commercial and industrial construction. More than 90% of its order book comes from the real-estate segment. High focus on real-estate projects exposes the company to business risk, as realty activity may decline in a downturn, thereby affecting the order flow for building contractors.

“In terms of valuation, the stock is offered at around 13-13.5x its FY10 earnings on post-issue diluted equity base. This is largely in line with the average valuations of its peer group companies,” said Sharekhan in its research note.

Incorporated in 2002, Man Infraconstruction has undertaken projects in Maharashtra, Kerala, Gujarat, West Bengal, Goa and Tamil Nadu. The company is engaged in construction services for port infrastructure along with residential, industrial, commercial and road infrastructure projects.

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