RKEC Projects NSE SME IPO review (Apply)

RKEC Projects Ltd. (RKEC) is a construction company primarily engaged in the business of Civil Construction such as construction of Highways, roads and bridges. During the last decade, it has undertaken and successfully completed many construction projects in India covering states of Andhra Pradesh, Tamil Nadu, Gujarat, Odisha, Rajasthan and Maharashtra. In addition RKEC has expanded its presence to three more states, Kerala, Uttar Pradesh and Manipur, with our ongoing projects. We have been able to achieve targets by fusing tremendous engineering knowledge with groundbreaking skills, experienced team, binding an optimum mix of men, machine and materials across diverse projects. RKEC's core business is designing and undertaking construction projects such as Bridges, Ports, dams, high-rise structures, airports, cross water, roads, highways, Oil and gas Pipelines, complexes and environmental structures across India. We have entered into projects for diverse range of clients including Defence sector, Railways, Ports, Adani Port, Vedanta Ltd, IVRCL Limited, Rashtriya Ispat Nigam Limited and ESSAR.

To part finance its working capital and general corpus fund needs, RKEC is coming out with a maiden IPO of 6378000 equity share of Rs. 10 each with a fixed price of Rs.45 per share to mobilize Rs. 28.70 crore. Issue consists of 4678000 shares as fresh equity and 1700000 shares by way of offer for sale. Issue opens for subscription on 25.09.17 and will close on 28.09.17. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.59% of the total post issue paid up capital of the company. Cost of acquisition of shares by promoters is Rs. 5 per share. Having issued initial equity at par, it has issued bonus shares in the ratio of 1 for 1 in October 2016. Post issue, company's current paid up equity capital of Rs. 19.31 crore will stand enhanced to Rs. 23.99 crore.

On performance front, RKEC has posted turnover/net profits of Rs.58.64 cr. / Rs. 1.08 cr. (FY14), Rs. 71.75 cr. / Rs. 1.96 cr. (FY15), Rs. 113.51 cr. / Rs. 3.19 cr. (FY16) and Rs. 200.12 cr. / Rs. 13.13 cr. (FY17). Thus it has posted improved top and bottom lines for last four fiscals. It has posted an average EPS of Rs. 4.12 and average RoNW of 22.41% for last three fiscals. Issue is priced at a P/BV of 2.2. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of 8.2 against industry composite of 34 plus. Thus issue is priced attractively.

On merchant banker's front, this is the 40th mandate from its stable in last three years. Out of last 10 recent listings, 1 issue opened at discount, 2 at a premium of 2.5 to 5% and the rest with 20% premium to offer price on the day of listing.

Conclusion: Investors may consider investment for short to long term.