Akash Infra NSE SME IPO review (May apply)

Akash Infra-Projects Ltd (AIPL) is engaged into the business of civil construction and has undertaken various government contracts for construction of roads. It is primarily into the Construction of roads, resurfacing, widening repairs of roads and Minor bridges etc. It has proven track record of successful completion of various road projects in the state of Gujarat. It is also into the business of hospitality segment and operating and managing hotel named Pathikashram at Gandhinagar which is owned by Gujarat Government.

The company has been awarded projects through competitive bidding process and after meeting with a variety of prescribed pre-qualification criteria by various Municipal and local authorities/bodies including Road & Building Department-Gandhinagar Gujarat, Road & Building Department-Himmatnagar, Ahmedabad Municipal Corporation, Other Corporation & Private Sectors Projects in central and northern region of Gujarat, based on certain eligibility requirements like project experience; engineering capabilities and financial strength etc. AIPL has made registration as “Class AA” Contractors and special Category 1 in Road Works with Government of Gujarat and “Class AA” Contractors with Ahmedabad Municipal Corporation in order to execute contracts of higher value.

To generate long term working capital, general corpus funds, the company is coming out with a maiden IPO of 2040000 equity share of Rs. 10 each at a fixed price of Rs. 125 per share to mobilize Rs. 25.50 crore. Issue consists of offer for sale of 772800 shares and fresh issue of 1267200 shares. Issue opens for subscription on 28.02.17 and will close on 06.03.17. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge platform. Issue is solely lead managed by Tipsons Consultancy Services Pvt Ltd and Purva Sharegistry (India) Pvt Ltd is the registrar to the issue. After issuing initial equity at par from inception till 2009, it issued fresh equity at a price of Rs. 200 per share in March 2009 and at a price of Rs. 500 per share in March 2010. It has also issued bonus shares in the ratio of 1 for 1 in January 2010 and 1 for 3 in July 2016. Its current paid up equity capital of Rs. 6.32 crore will stand enhanced to Rs. 7.59 crore post issue.

On performance front, the company has (on a consolidated basis) posted turnover/net profits of Rs. 153.22 cr. / Rs. 9.77 cr. (FY14), Rs. 103.43 cr. / Rs. 5.43 cr. (FY15) and Rs. 88.92 cr. / Rs. 3.98 cr. (FY16). For first five months of the current fiscal it has earned net profit of Rs. 1.15 crore on a turnover of Rs. 26.56 crore. If we annualize this and attribute to fully diluted equity post IPO, then asking price is at a P/E of around 34 plus making it a pricy issue. As per prospectus details, its peers are trading at a P/E of around 24 and 3341.

On merchant banker’s front, this is the first mandate from its stable and has no track record.

Conclusion: Considering declining trends of top and bottom line and the higher pricing, only risk savvy cash surplus investors may consider it for long term.