IRCON International IPO to open on September 17; 10 key things to know before investing

State-owned engineering and construction company IRCON International will open its initial public offering for subscription on September 17 with a price band of Rs 470-475 per share.

This would be the 9th company coming out with public issue in current financial year 2018-19 while it would the second company from Government of India coming out with IPO under divestment programme.

The book running lead managers to the Offer are IDBI Capital Markets & Securities, Axis Capital and SBI Capital Markets. Equity shares are proposed to be listed on BSE and NSE.

Here are 10 key things to know before subscribing the issue:

Company Profile

IRCON International is an integrated Indian engineering and construction company, specialising 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.

The company provides EPC services on a fixed-sum turnkey basis as well as on an item-rate basis for various infrastructure projects. It also executes on build, operate and transfer mode in various projects in order to meet the requirements of its bids.

In December 2017, IRCON bought back 0.49 crore shares at a price of Rs 386.72 per share.

As of March 2018, IRCON had an order book of Rs 22,406.79 crore.

The company has headquarter in New Delhi and overseas office in Malaysia. Additionally, it has 26 project offices in India and abroad (including in Sri Lanka, Bangladesh, South Africa and Algeria) and five regional offices to support and manage business operations.

Corporate Structure

About Public Issue

The public issue comprises an offer for sale of 99,05,157 equity shares by its promoter, The President of India, acting through the Ministry of Railways, Government of India.

The offer includes a reservation of up to 5,00,000 shares for subscription by eligible employees. The offer and the net offer will constitute 10.53 percent and 10.00 percent of the post offer paid-up equity share capital of the company respectively.

The issue closes on September 19.

Retail investors and eligible employees will get shares at a discount of Rs 10 per share on the final offer price.

Bids can be made for a minimum lot of 30 equity shares and in multiples of 30 equity shares thereafter.

Fund raising

IRCON aims to raise Rs 465.54 crore at lower end and Rs 470.5 crore at higher end of price band, through the public issue.

Objects of the Issue

The object of the offer is to carry out the disinvestment of upto 99,05,157 equity shares by the promoter; and to achieve benefits of listing the equity shares on the Stock Exchanges.

Company will not receive any proceeds from the offer and all proceeds will go to the selling shareholder.

Competitive Strengths

> Construction business operates in diverse sectors covering many countries.

> Company has excellent execution track record through strong operating systems and control.

> Company has a strong credit profile that includes non-fund based standby bank limits of Rs 3,120 crore out of which Rs 1,664.77 crore has been utilised. As of March 2018, the financial profile of company is characterised by healthy profitability margins and a comfortable liquidity position.

> Visible growth through robust order book and steady execution: Order book of Rs 22,406.79 crore translates into approximately six times total operating revenue in FY18, and provides evidence of healthy revenue profile.

> It has qualified and experienced employees and proven management team.

Business Strategy

> Company will continue expanding geographical footprint within and beyond India.

> Company is gradually moving from generating income only through individual projects to regularly generating revenue and profits through subsidiaries and joint venture companies.

> Company will cocus on high value projects in the construction business to benefit from economies of scale.

> Business growth continues to be attributed principally to increased bidding activities for more and larger projects awarded by government clients.

> Its financial profile of healthy profitability margins with comfortable liquidity position has contributed to operational performance. It intends to continue this favourable capital structure with minimum debt by leveraging advances received from clients and internal accruals for working capital requirement towards projects.

> Company intends to explore different models of project execution to optimise project portfolio.

> Company also intends to explore potential ways to capture sectorial initiatives undertaken by the government to improve economic growth.

> Company continues to focus on improving health, safety and environment for employees. It intends to further strengthen work force through continued on-job skill development and training.

Financials

On a consolidated basis, over FY16-18, IRCON posted revenue and PAT CAGR of 27 percent and 2 percent, respectively. Average EBITDA margins stood at 10.8 percent and return on equity (RoE) at 10.3 percent. The company’s cash & bank balance stands at Rs 4,691 crore as of March 2018 and has historically been debt free.

Management and Promoter

Sunil Kumar Chaudhary is the Chairman and Managing Director of the company. He has been on the board of the company since October 29, 2016 and is spear heading the entire operations of the company.

Board of Directors

Promoter is the President of India acting through the Ministry of Railways. Promoter, along with its nominees, currently holds 99.71 percent of the pre-offer paid-up equity share capital of the company. After this offer, promoter will hold 89.18 percent of the post offer paid-up equity share capital.

Dividend Policy

IRCON has been consistently paying dividends to shareholders (56.3 percent dividend payout in FY18).

Risks and Concerns

Here are some risks and concerns highlighted by several brokerages:

> The 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 in payments, may adversely affect the business and results of operations.

> Delay in regulatory approvals could impact the execution timeline.

> Prolonged time taken to secure international orders.

> The portfolio will be increasingly concentrated in large-scale and long-term projects, specifically, projects in the railway sector (86.7 percent of March 2018 order book). Such concentration in the portfolio if not properly managed could lead to material adverse effect on the business, prospects, financial condition and results of operations.

> Vigilance issues raised by statutory auditors.

> Materialisation of contingent liabilities can impact financials.

> Pending legal proceedings, which, if determined against the company, may have a material adverse impact on business operations & financials.

> Some of the employees are on deputation from Ministry of Railway and may not get permanently absorbed in the company.

> Projects sub-contracted or undertaken through a joint venture may be delayed on account of the performance of the joint venture partner, principal or sub-contractor, resulting in delayed payments or non-enforcement of performance guarantee issued by the company, could lead to material adverse effect on the business, prospects, financial condition and results of operations.

> IRCON’s subsidiaries are currently not compliant with DPE guidelines on corporate governance for central public sector enterprises.