1. IPO Note | Infrastructure
Ashoka Buildcon NEUTRAL
Issue Open: September 24, 2010
Richly valued Issue close: September 28, 2010
Ashoka Buildcon (Ashoka) is in the business of undertaking engineering,
procurement and construction (EPC) contracts in roads, bridges, commercial and Face Value: Rs10
industrial buildings, and power transmission and distribution (T&D) projects. Present Eq. Paid up Capital: Rs45.7cr
Integrated business model: Ashoka undertakes all activities related to a BOT road Offer Size: 0.7cr-0.8cr Shares*
project right from tendering for the project till the collection of tolls. We believe Post Eq. Paid up Capital*: Rs52.6cr - Rs53.3cr
that its integrated structure enables it to bid for BOT projects with confidence to Issue size (amount): Rs225cr
complete and operate the project on a profitable basis. It also results in capturing Price Band: Rs297-324
the entire value in the BOT development business, including EPC margins, Promoters holding Pre-Issue: 84.4%
developer returns and operation and maintenance margins. Promoters holding Post-Issue: 73.2% - 72.4%
Early entrant in BOT space: Ashoka was one of the early entrants in the road BOT
Note:*at Upper and Lo wer price band respectively
segment with its first project bagged in 1997, resulting in 13 years of experience
in the road sector. We believe that this rich experience will allow Ashoka to further Book Bu ilding
enhance its presence in the BOT space. The company is also credited with QIBs At least 60%
executing projects on time, which we believe is critical for maintaining the Non-Institutional At least 10%
required IRR’s as this offers extended period of toll collection, thereby increasing Retail At least 30%
overall revenues.
Decent order book: Ashoka’s outstanding order book, as on May 31, 2010, Post Issu e Shareholding Pattern
stood at ~Rs1,615cr or 2x FY2010 revenues. This excludes the two recently Promoters Group 73.2%
bagged road projects of Rs1,600cr which are awaiting financial closure. MF/Banks/Indian
FIs/FIIs/Public & Others 26.8%
Outlook and Valuation: Ashoka is a pure play on the road segment and with the
sector in sweet spot the company is well placed to reap the benefits going ahead.
However, we believe that the company is not comparable to market leaders IRB
Infra and ITNL on account of having smaller scale of operations in spite of being
an early entrant in the space. The IPO is available at 2.5x and 2.3x FY2010 P/BV
on the upper and lower price bands respectively, which again is at a premium to
its peers, Sadbhav Engineering and NCC. Hence, on account of being fairly
priced and with most positives factored in, we recommend a Neutral view to the
IPO.
Key risks: 1) Ashoka’s business model is vulnerable to interest rate fluctuations
and traffic growth, and 2) Concentration of projects in Maharashtra and Madhya
Pradesh.
Peer Comparison (Rs cr)
Project Capitalisation
Under NW
Oper. Total Value P/BV (x)
Develop. FY10
Sadbhav Eng. 647 4,594 5,241 660 1,400 2.1
Nagarjuna Const 394 659 1,054 374 560 1.5
Shailesh Kanani
IVRCL Assets 1,493 7,854 9,347 483 1,364 2.8 +91 22 -4040 3800 Ext: 321
Madhucon Projects 1,043 1,432 2,475 326 408 1.3 shailesh.kanani@angeltrade.com
Average 894 3,635 4,529 461 933 2.0
*Ashoka 1,284 2,676 3,960 687 1,705 2.5 Nitin Arora
+91 22 -4040 3800 Ext: 314
**Ashoka 1,284 2,676 3,960 687 1,582 2.3
nitin.arora@angeltrade.com
Source: Company, Angel Research, Note: Ashoka numbers are post factoring the dilution,
*at upper price band, **at lower price band
Please refer to important disclosures at the end of this report 1
2. Ashoka Buildcon | IPO Note
Company Background
Ashoka is present in the C&EPC, road Ashoka is in the business of undertaking EPC contracts in roads, bridges,
BOT and the RMC and bitumen commercial and industrial buildings, and power transmission and distribution
segments (T&D) projects. Apart from building roads and bridges, it also operates them on a
BOT basis in India. It is one of the first players to enter the BOT domain in India.
Ashoka’s business model can be bifurcated into three divisions: 1) C&EPC business
– the core business forming ~70% of FY2010 revenues; 2) BOT – wherein the
company earns revenues by way of collecting tolls constituting ~21% of FY2010
revenues; and 3) RMC and bitumen division – which is an ancillary of its core
business and contributed <10% of FY2010 revenues.
Business divisions:
1) The C&EPC division is involved in engineering and designing and construction
of roads, power T&D and buildings both commercial and industrial.
2) Ashoka’s portfolio comprises 23 BOT road projects totaling to ~3,500 lane
km with presence in Maharashtra, Madhya Pradesh, Chhattisgarh, Karnataka
and Orissa. Out of the 23 BOT projects, 17 are operational and six are under
construction. The weighted average concession period for the 23 BOT road
projects was ~21 years as on March 31, 2010. To meet specific eligibility
requirements of some of the larger BOT projects, including requirements
relating to particular types of experience and financial resources, Ashoka has
entered into project-specific joint ventures or special purpose vehicles with
other companies too.
3) The RMC and bitumen division sells ready-mix concrete and bitumen and also
supports the EPC division by ensuring that it has an adequate and timely
supply of high-quality RMC and bitumen. Ashoka has 14 RMC plants with a
total production capacity of 650 cubic meters per hour and 86 concrete transit
trucks and 19 concrete pumps.
September 24, 2010 2
4. Ashoka Buildcon | IPO Note
Issue Details
Ashoka is tapping the IPO market with an issue size of Rs225cr in the price band
of Rs297-324/share, thus resulting in a public issue of 0.69cr and 0.76cr equity
shares at the upper and lower price band respectively, of face value Rs10, resulting
in a dilution of 13.2% and 14.2%. The company plans to use the IPO proceeds for
investment in capital equipment, meet working capital requirements, repayment of
loans and funding the subsidiaries for prepayment/repayment of their loans.
Exhibit 2: Objects of the issue
Particulars Amount (Rs cr)
Investment in capital equipment 25.0
Working Capital requirements 45.0
Prepayment/Repayment of loans 55.0
Funding subsidiaries for prepayment/repayment of their loans 60.0
General Corporate Purpose -
Total 225.0
Source: RHP, Angel Research
Exhibit 3: Shareholding Pattern
Pre-Issue Post-Issue
Particulars
No. of Shares % No. of Shares %
Promoter and Promoter Group 38,554,383 84.4 38,554,383 73.2
Total Public Holding 7,137,319 15.6 14,081,763 26.8
Total 45,691,702 100.0 52,636,146 100.0
Source: RHP, Angel Research
September 24, 2010 4
5. Ashoka Buildcon | IPO Note
Investment Rationale
Integrated business model
Ashoka is present across the BOT value Ashoka undertakes all activities related to a BOT road project right from tendering
chain for the project till the collection of tolls. With 14 years of experience in toll-based
BOT projects, it has developed an in-house traffic study team having the dual
responsibility of conducting pre-bidding traffic surveys and monitoring toll
collections. The company’s in-house traffic study team has in-depth knowledge of
traffic patterns, which strengthens its traffic forecasting ability and expertise as well
as allowing it to bid effectively for the BOT projects and toll collection contracts.
Further, the company’s EPC division has an experienced team of engineers, skilled
workmen and fleet of construction equipment that facilitates construction and
maintenance of the projects. Also, it’s RMC and bitumen division manufactures
and supplies the concrete and bitumen ensuring consistent and cost-effective
method of procuring. Overall, we believe that the company’s integrated structure
will allow it to bid for BOT projects with confidence to complete and operate the
projects on a profitable basis. Thus, the company benefits on account of being
present across the BOT value chain in terms of EPC margins, developer returns
and operation and maintenance margins.
Early entrant in BOT space
Ashoka’s rich experience allows it to Ashoka was one of the early entrants in the road BOT segment bagging its first
further enhance its presence in the BOT project in 1997. The company’s BOT portfolio comprises 23 road projects
segment translating into ~3,500 lane km with a presence in Maharashtra, Madhya
Pradesh, Chhattisgarh, Karnataka and Orissa. Currently, 17 projects of the
company are operational, while six are under construction. This rich experience
allows Ashoka to further enhance its presence in the BOT space going ahead. The
company has also been able to execute projects on time, which we believe is
critical for maintaining the required IRR’s as it offers extended period of toll
collection in turn increasing overall revenues.
Decent order book
The company’s outstanding order book The company’s outstanding order book, as on May 31, 2010, stood at
of ~Rs1,615cr (May 31, 2010) ensures ~Rs1,615cr (2x FY2010 revenues), which ensures revenue visibility over the next
revenue visibility over the next few years few years. The order book does not include the two recently bagged road projects
of Rs1,600cr, which are pending financial closure. However, the company’s order
inflow has been dismal as it registered negative growth of 2% during FY2009 and
FY2010. Nonetheless, we believe that Ashoka’s order inflow is set to grow going
ahead owing to increased government focus on the road sector.
September 24, 2010 5
6. Ashoka Buildcon | IPO Note
Exhibit 4: Segment-wise order-book break-up (May 31, 2010, Rs cr)
206.4
600.2
808.6
In-house Road projects Third party road projects EPC
Source: Company, Angel Research
September 24, 2010 6
7. Ashoka Buildcon | IPO Note
Outlook and Valuation
We are optimistic on the road segment on the back of the recent structural
changes, which have reduced the uncertainties in road development. We believe
that the sector offers abundant opportunities for the players in the space. Notably,
over the last couple of years since the change in guard at the road ministry, the
road sector has been gathering pace. In FY2011, NHAI plans to award 9,000km
of highways – one of largest annual opportunity in its history. As on date,
~2,856km have already been awarded.
Exhibit 5: NHAI – Award of orders picking up
10,000 9,000
9,000
8,000
7,000
6,000
4,740
5,000
4,000 3,361
3,000
1,734
2,000 1,305 1,234
677 312 643
1,000
0
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E
Km
Source: NHAI, Angel Research
Ashoka is a pure play on the road segment and with the sector in sweet spot the
company is well placed to reap the benefits going ahead. However, we believe
that the company is not comparable to market leaders IRB Infra and ITNL on
account of having smaller scale of operations in spite of being an early entrant in
the space. The IPO is available at 2.5x and 2.3x FY2010 P/BV on the upper and
lower price bands respectively, which again is at a premium to its peers, Sadbhav
Engineering, NCC and Madhucon. Hence, on account of being fairly priced and
with most positives factored in, we recommend a Neutral view to the IPO.
September 24, 2010 7
9. Ashoka Buildcon | IPO Note
Concerns
Interest rate risk
The inherent nature of BOT project requires high leverage. Going by thumb rule,
most road BOT projects have a debt-equity blend of 70:30. In case of Ashoka, on
completion of some of its earlier projects, it sought further refinancing thereby
increasing its debt exposure to 150% of the total project cost. As a result, its
business model is vulnerable to interest rate fluctuations and any hike in the
interest rates, which we believe are headed northwards, would increase its interest
costs.
Concentrated bet
Ashoka’s BOT projects have largely been limited to the states of Maharashtra and
Madhya Pradesh. Out of the 17 operational BOT projects, 14 are in Maharashtra.
In value terms, Maharashtra constitutes around 49% and Madhya Pradesh 43% of
the operational BOT projects. Although Ashoka is well placed in understanding the
traffic patterns and competitive environment of both the regions, any slowdown in
the award of the road projects in these states might adversely impact it. In
addition, despite being one of the first players to enter the BOT space, it has
limited exposure to the NHAI projects, where we believe the opportunities are
emerging.
Traffic growth risks
Revenues from the BOT-toll based projects are directly affected by traffic growth.
The companies bid for projects assuming certain long-term traffic growth patterns,
which may be higher/aggressive than actual growth impacting returns on their
project. Moreover, any economic slowdown or competing road development could
also impact our estimates.
September 24, 2010 9
10. Ashoka Buildcon | IPO Note
Profit & Loss Statement (Consolidated)
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010
Net Sales 403 323 518 796
Other operating income - - - -
Total operating income 403 323 518 796
% chg - (19.9) 60.6 53.5
Total Expenditure 298 199 354 581
Contract/O&M exp 205 120 265 484
Net Raw Materials 37 53 58 59
Other Mfg costs 12 14 16 18
Personnel 11 13 16 21
Other 32 - - -
EBITDA 105.5 123.3 164.0 214.3
% chg - 16.9 33.0 30.6
(% of Net Sales) 26.2 38.2 31.6 26.9
Depreciation& Amortisation 50.0 53.2 64.5 66.1
EBIT 55.5 70.1 99.5 148.1
% chg - 26.4 41.9 48.8
(% of Net Sales) 13.8 21.7 19.2 18.6
Interest & other Charges 45.2 47.4 64.6 49.0
Other Income 15.9 17.6 15.0 18.6
(% of PBT) 60.6 43.6 30.0 15.8
Share in profit of Associates - - - -
Recurring PBT 26.2 40.3 49.9 117.7
% chg - 53.9 23.8 135.9
Extraordinary Expense/(Inc.) - - - -
PBT (reported) 26.2 40.3 49.9 117.7
Tax 1.9 3.8 11.6 31.9
(% of PBT) 7.2 9.4 23.3 27.1
PAT (reported) 24.3 36.5 38.3 85.9
Add: Share of earnings of associate - - - -
Less: Minority interest (MI) 0.2 3.4 3.5 5.5
Prior period items (0.11) - - -
PAT after MI (reported) 24.2 33.1 34.8 80.4
ADJ. PAT 24.3 36.5 38.3 85.9
% chg - 50.1 4.9 124.2
(% of Net Sales) 6.0 11.3 7.4 10.8
Basic EPS (Rs) 6.2 7.4 7.6 17.6
Fully Diluted EPS (Rs) 4.6 6.9 7.3 16.3
% chg - 50.1 4.9 124.2
September 24, 2010 10
11. Ashoka Buildcon | IPO Note
Balance Sheet (Consolidated)
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010
SOURCES OF FUNDS
Equity Share Capital 5.6 45.7 45.7 45.7
Preference Capital 16.8 13.0 13.0 12.4
Reserves& Surplus 265 253 289 404
Shareholder’s Funds 287 311 347 462
Total Loans 438 512 723 1,122
Deferred Tax Liability 3.2 1.3 1.8 3.0
Minority Interest 12.6 16.2 23.7 81.3
Total Liabilities 741 841 1,095 1,669
APPLICATION OF FUNDS
Gross Block 547 623 749 791
Less: Acc. Depreciation 141.2 190.8 258.8 330.0
Net Block 406 432 491 461
Capital Work-in-Progress 61.7 129.3 373.0 814.4
Goodwill - - - -
Investments 66.2 71.7 91.1 148.7
Current Assets 269.6 290.8 306.1 685.4
Inventories 58.9 90.5 67.0 196.4
Sundry Debtors 22.7 33.4 35.0 182.0
Cash 139.0 99.4 69.2 84.5
Loans & Advances 49.1 67.5 134.9 222.4
Other - - - -
Current liabilities 62.8 83.1 165.3 440.3
Net Current Assets 206.8 207.6 140.8 245.1
Misc. Exp. not written off - - - -
Total Assets 741 841 1,095 1,669
September 24, 2010 11
12. Ashoka Buildcon | IPO Note
Cash Flow Statement (Consolidated)
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010
Profit before tax 26 40 50 118
Depreciation 50 53 64 66
Change in Working Capital (27) 37 (49) 38
Less: Other income 2 5 4 5
Direct taxes paid 3 6 11 31
Cash Flow from Operations 98 46 148 111
(Inc.)/ Dec. in Fixed Assets (328) (152) (367) (478)
(Inc.)/ Dec. in Investments 27 (5) (19) (58)
Other income 2 5 4 47
Cash Flow from Investing (298) (153) (382) (489)
Issue of Equity 100 (8) - -
Inc./(Dec.) in loans 192 75 211 399
Dividend Paid (Incl. Tax) - - - -
Others (0) 1 (7) (6)
Cash Flow from Financing 292 67 203 393
Inc./(Dec.) in Cash 92 (40) (30) 15
Opening Cash balances 47 139 99 69
Closing Cash balances 139 99 69 85
September 24, 2010 12
13. Ashoka Buildcon | IPO Note
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September 24, 2010 13
14. Ashoka Buildcon | IPO Note
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel: (022) 3952 4568 / 4040 3800
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