VKS Projects is entering the primary market on 29th June 2012, to raise Rs. 55 crore, via a fresh issue of equity shares of Rs. 10 each, in the price band of Rs. 55 to Rs. 60 per share. Representing 53% of the post-issue share capital of the company at the upper price band, the issue will close on 4th July.
Aryaman Financial is the issue’s BRLM, with previous track record of handling IPOs such as Swajas Air (failed) and Midvalley Entertainment (share ruling at one-tenth of its issue price in 18 months of the IPO). The banker seems to have re-surfaced and got active in the market once again. On reading Aryaman’s name as the BRLM, one need not analyse the issue any further as the answer is a clear negative. Nevertheless, for benefit of our users, we list our take on the issue below:
VKS Projects is small, Navi Mumbai-based EPC contractor operating in the oil and gas, textiles, petro-chemical, pharma, food, power and steel space. Revenues for the first nine months of FY12 stood at Rs. 98 crore, up from Rs. 60 crore in the whole of FY11. Wonder what miraculous happened for the company in the year when the entire economy and the industry, in particular, were facing a slowdown. Company’s top 5 clients provided 75% of total revenue in FY11, which shows that it is not very difficult to ‘manage’ revenue numbers.
As of 31st December 2011, its debtors jumped to Rs. 66 crore, up from Rs. 16 crore as of 31st March 2011. PAT for 9m of FY12 stood at Rs. 5.6 crore, up from Rs. 3.2 crore in FY11, despite higher labour costs of Rs. 78 crore in 9m of FY12 versus Rs. 40 crore in FY11. Rs. 21 lakh related to IPO expenses have been charged off in P&L Account for 9m FY12, while it should have been adjusted against Securities Premium. Thus, company’s financials are very weak.
Objects of the issue include working capital requirements of Rs. 15 crore, procurement of equipment for Rs. 23 crore and setting-up office / training centers in 5 cities for Rs.10 crore. Crisil has rated the IPO Grade 1, indicating poor fundamentals.
As of 31st December 2011, company’s networth stood at only Rs. 18 crore, while it had 80 lakh shares outstanding, almost 100% owned by the promoters. In contrast, post-listing, company is seeking a market cap of Rs. 103 crore, at the upper price band of Rs. 60. EPS for 9m FY12 was Rs. 7, translating to a PE multiple of 6.4 times, based on annualized 9m FY12 EPS. Total debt as of date was also high at Rs. 21 crore, which will only increase further.
Company is in a desperate need of funds, as can also be judged from the timing of the issue, coinciding with SEBI’s 6 month deadline for presentation of financial statements in the RHP.
Issue is fundamentally weak and a clear avoid.