Consolidated Construction Consortium is entering the capital market on 18th September, 2007 with a public issue of 37 lakh equity shares of Rs.10 each, in the band of Rs.460 to Rs.510 per share.
While analysing the Red Herring Prospectus, we were stunned that how can this type of a company, fix band of as high as Rs.510 per share. Over 30 listed quality stocks, which are pure construction and contracting companies, are available in the secondary market at half of its valuation.
The company's total income was Rs.868 crores in FY 07, while it was Rs.1,888 crores in last five years from FY 03 to FY 07. So a CAGR of 76% is witnessed in topline and 126% in bottomline, in last 4 years. Also, PAT in FY 07 was Rs.47.68 crores while total PAT was at Rs.82 crores in the last five years. EPS for FY 07 was placed at Rs.14.35 on pre-issue equity of Rs.33.26 crores. EPS for FY 07 has been shown at Rs.39.42, by the company, which is on equity base of Rs.13.30 crores. On 16-04-07, the company issued bonus in the ratio of 3 shares for every 2 shares held, and hence equity rose to Rs.33.26 crores, So, correct estimation of EPS has to be on the expanded equity.
The post issue equity of the company would be Rs.36.96 crores, and market capitalization at Rs.510 per share, would be Rs.1,900 crores. The company has orders on hand of Rs.2,050 crores as on 31-07-07. Adding debt of Rs.150 crores, enterprise value works out to 1 time of order book.
Nagarjuna Construction has market cap of about Rs.4,500 crores while order on hand of the company is over Rs.8,000 crores. IVRCL Infrastructure market capitalisation is about Rs.4,800 crores, while orders in hand are close to Rs.9,000 crores, apart from having 4 crore shares of IVR Prime with market value of Rs.1,440 crores. The same valuation comparison can be made for so many other pure construction companies, engaged in southern market, and this stock would be found expensive atleast by over 100%.
Preferential Allotment were made by the company on 31-03-06, at Rs.360 per share. Adjusting for bonus shares, the effective cost works out to Rs.144 per share. Now, IPO is made at Rs.460 to Rs.510. Fleecing the investors. This allotment was made to UTI Venture Funds and Evolvence.
After Purvankara Projects, probably this is the case of another aggressive pricing and needs to admire the courage of issuer, to ask for such a steep price, that too of a company, engaged in a sector, for which umpteen number of quality stocks are available in the secondary market.
Just give a pass to the issue, as its fundamental value is not more than Rs.250 per share.