Vascon Engineers IPO to open on Jan 27:
Vascon Engineers, an engineering, procurement and construction (EPC) services and real estate development company, is entering the capital market on January 27, 2010, with an initial public offering (IPO) of 10,800,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process.
The price band has been fixed between Rs 165 and Rs 185 per equity share. Bids can be made for a minimum of 35 equity shares and in multiples of 35 equity shares thereafter. The issue will close on January 29, 2010.
The issue would constitute 11.95% of the fully diluted post issue paid-up capital of the company and the net issue would constitute 11.84% of the fully diluted post issue paid-up capital of the company.
Promoters' shareholding will be reduced to 38.41% post issue, which includes 13.19% stake of R Vasudevan and Lalitha Vasudevan.
For the year ended March 31, 2009, the company has reported net profit of Rs 31.27 crore on total income of Rs 524.76 crore.
The issue proceeds will be used for construction of EPC contracts & real estate development projects; repayment of debt and general corporate purposes.
CRISIL has assigned IPO Grade 3/5 to the IPO of Vascon Engineers. This grade indicates that the fundamentals of the issue are average relative to other listed equity securities in India.
The book running lead managers to the issue are Kotak Mahindra Capital Company Limited and Enam Securities Private Limited.
Vascon Engineers IPO: Avoid
Premium valuations, and high dependence on related parties for contract revenues make this offer unattractive.Investors can avoid the initial public offer of Vascon Engineers, a provider of EPC services, for now. Despite a good track record in construction, premium valuations, dependence on related parties for a bulk of the future contract revenues and long gestation of its real-estate projects support our recommendation. At the offer price band of Rs 165-185, the stock is likely to trade at 32-35 times its consolidated annualised earnings for FY-10 on a post-issue equity base. The valuation does appear steep, irrespective of whether it is compared with pure construction contract plays or stocks of established realty companies.
Scaling up of real-estate revenues, winning of significant contracts from external clients or a steep correction in the stock price linked to broader markets can be reasons to take a re-look at this recommendation.
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Vascon's projects also appear long-term in nature. For instance, only one-fifth of the EPC projects (external and own projects together) of Rs 3,227 crore are slated for completion over 2010/11. Similarly, of the 55 million square ft. of real-estate projects planned/being developed, less than 10 per cent are due for completion over the next three years ending FY-13. Earnings growth in the near term may, therefore, not keep pace with the valuations sought now.
Further, unlike the Mumbai commercial market, where prices have seen a quick revival, Tier-II cities such as Pune, where the company's commercial projects are concentrated, have not seen any clear demand pick-up as yet. Over the long term though, residential projects, a chunk of it in Pune, dominate the portfolio.
To read more, please, visit Vidya Bala - The Hindu Business Line
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