Ir­con: Good or­der book po­si­tion

Financial Chronicle - - FUNDAMENTALS, POLITICS -

Ir­con In­ter­na­tional, a 99.7 per cent gov­ern­ment-owned com­pany, pro­vides en­gi­neer­ing and con­struc­tion ser­vices to the in­fra­struc­ture sec­tor. Although the com­pany’s pri­mary fo­cus is on the rail­way sec­tor, in or­der to di­ver­sify the busi­ness, it has ex­panded it­self into al­lied sec­tors like high­way and road con­struc­tion. Ir­con also pro­vides ser­vices in the in­ter­na­tional mar­ket (15 per cent of FY18 rev­enue), wherein it has of­fices in Malaysia, Sri Lanka, Bangladesh, South Africa and Al­ge­ria. Go­ing ahead, Ir­con is look­ing at in­creas­ing its pres­ence in the in­ter­na­tional mar­ket and al­lied sec­tors and is fo­cus­ing on high value projects. Rec­om­men­da­tion: At the higher end of the price band of Rs 475, the is­sue is priced at P/E of 10.9x (post di­lu­tion) on FY18 ba­sis, which is at­trac­tive. The com­pany has no listed peers. Ir­con’s or­der book as of March 31, 2018 stands at Rs 22,407 crore (5.6x FY18 rev­enue), which pro­vides rev­enue vis­i­bil­ity. Over FY15-17, Ir­con’s growth was muted, with the same pick­ing up in FY18 (rev­enue up 31 per cent and PAT up 24 per cent). His­tor­i­cally debt free, in FY18 it has ac­quired debt of Rs 3,203 crore from the In­dian Rail­way Fi­nance Cor­po­ra­tion (IRFC) at the in­ter­est rate of 8.77 per cent to pay up­front lease pre­mium to Rail Land De­vel­op­ment Author­ity (RLDA) for the ac­qui­si­tion of a project site. Given the govt fo­cus on in­fra­struc­ture spends (Metro, Bharat­mala, Eco­nomic cor­ri­dors), healthy or­der book and at­trac­tive val­u­a­tions, in­vestors are sug­gested to subscribe to the is­sue. Ob­jects of the is­sue: The IPO con­sists en­tirely of an of­fer for sale (OFS) of 0.99 crore shares (10.5 per cent of post-di­lu­tion eq­uity) by the gov­ern­ment of In­dia. Of the to­tal is­sue, 5.0 per cent shares, that is 5,00,000 shares shall be re­served for the em­ploy­ees of Ir­con. The re­tail in­vestors and em­ploy­ees will be of­fered a dis­count of Rs10/share. As the is­sue is 100 per cent OFS, the com­pany will not re­ceive any funds raised from the is­sue. Busi­ness di­ver­si­fi­ca­tion to bode well: Given Ir­con’s fo­cus on ex­pand­ing geographic pres­ence and foray into al­lied in­fra­struc­ture seg­ments like roads and high­ways could bode well ow­ing to the cur­rent in­fra spends by the gov­ern­ment. As per Crisil, over FY19-22, the con­struc­tion sec­tor is ex­pected to in­crease 54 per cent to Rs 22.2 lakh crore. Healthy or­der book po­si­tion: Ir­con’s or­der book grew 19 per cent YoY to Rs 22,407 crore. In or­der to max­imise mar­gins, it is look­ing at in­ter­na­tional or­ders along with high value or­ders (> Rs 500 crore). Cur­rently, it has 20 high value or­der projects. The com­plex­ity and strin­gent pre-qual­i­fi­ca­tion ca­pa­bil­i­ties for th­ese projects have re­sulted in low com­pet­i­tive in­ten­sity. As Ir­con is al­ready ex­e­cut­ing th­ese projects, it could be a ben­e­fi­ciary of the high en­try bar­ri­ers.

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