AB Infrabuild NSE SME IPO review (May apply)

• ABIL is shifting its focus for Railway infra projects and uses its RMC facility for captive use.
• The company has emerged most preferred infra development contractor for Railways.
• It has overall orders on hand worth Rs. 370 cr. and has submitted bids for Rs. 70 cr.
• The issue is reasonably priced if compared with infra segment composite.

ABOUT COMPANY:

AB Infrabuild Ltd. (ABIL) is engaged in providing various services for infra developments including civil and structural works. The company generates 100% revenue from Government for infra works and 100% for RMC and other work from Private sectors. ABIL undertakes contracts for works such as new station infrastructure, redevelopment of old stations, new railway lines, gauge conversion, track linking, track formation, etc. It also engages in activities like building steel grinder bridges, building of Railway Infrastructure and Road Contracts (BOT & Turnkey basis).

 Company has two major business verticals, Railway infra contracts and RMC. It is not giving major thrust for Infra projects and RMC is utilized for captive consumption. A change in business strategy has rewarded the company with higher margin realization despite lower turnover as RMC business was of high volume, low margins. 

 Company's client list includes Central Railway, MRVC, Western Railway, Municipal Corporations of Maharashtra, RCF, North Central Railway, Dedicated Freight Corridor, CORE etc. and the type of contracts being of developments and safety measures, get priority in dues settlements, as stated by the management.

 In private sector, ME Infra Projects, NA Construction, Oasis Infrastructure, Das Group, J P Infra, Relcon Infra etc are its clients.

 ABIL is a Grade 'AA' Contractor registered with the Municipal Corporation of Greater Mumbai) (MCGM) and Class 1(A) Contractor with PWD Maharashtra.

ISSUE DETAILS/CAPITAL HISTORY:

To part finance its needs for working capital (Rs. 9.40 cr.) and general corpus fund (Rs. 2.30 cr.), ABIL is coming out with a maiden IPO of 4428000 equity shares of Rs. 10 each at a fixed price of Rs. 29 per share to mobilize Rs. 12.84 cr. The issue opens for subscription on 28.06.19 and will close on 03.07.19. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 34.95% of the post issue paid up capital of the company. ABIL is spending Rs. 1.14 cr. for this issue process.

The issue is solely lead managed by Mark Corporate Advisors Pvt. Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue.

 Asnani Stock Broker is acting as a Market Maker for this issue.

 Having issued initial equity at par, ABIL issued further equity at Rs. 32 per share in May/June 2018. It has also issued bonus shares in the ratio of 2 for 1 in June 2018. The average cost of acquisition of shares by the promoters is Rs. 3.33 per share. Post issue, ABIL's current paid up equity capital of Rs. 8.24 cr. will stand enhanced to Rs. 12.67 cr.

 FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, ABIL has posted turnover/net profits of Rs. 75.16 cr. / Rs. 0.33 cr. (FY16), Rs. 73.99 cr. / Rs. 0.16 cr. (FY17) and Rs. 61.09 cr. / Rs. 3.15 cr. (FY18). For 9MFY19 it has earned net profits of Rs. 2.70 cr. on a turnover of Rs. 40.33 cr. Higher earnings on the lower top lines in pre-IPO fiscals are a bit surprising.

 For the last three fiscals, it has posted an average EPS of Rs.2.33 and an average RoNW of 15.42%. The issue is priced at a P/BV of 1.63 on the basis of its NAV of Rs. 17.80 as on 31.12.18.

 If we annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 10. Against segment composite of 19 P/E, the issue appears reasonably priced. According to management, peers shown are primarily in RMC business and hence they are not comparable, but due to one business vertical, offer document is showing it. In fact, ABIL is enjoying a virtual monopoly in Railway infra contracts. The company has as of the filing of final prospectus, orders on hands worth Rs. 370 cr. and has submitted bids for Rs. 70 crore which is expected to be converted in order soon.

COMPARISION WITH LISTED PEERS: 

As per offer document, it has shown Man Infra and J Kumar as its listed peers that are currently trading at a P/Es of around 7 and 6 (as on 24.06.19). However, they are strictly not comparable on an apple to apple basis.

LEAD MANAGER'S TRACK RECORDS: 

On Merchant Banker's front, this is the 5^th mandate from its stable in the last three fiscals. Out of last four listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 6.06% and 12.78% on the day of listing.