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Friday, June 29, 2012

VKS Projects Limited IPO Review



   (A)  Issue Highlights

(1)    Issue Period: 29/6/2012-4/7/12
(2)    Price Band: Rs. 55-60
(3)    Issue Size: Rs. 55 crore
(4)    Issue Type: 100% Book Building
(5)    Market Lot: 100
(6)    Face Value: Rs. 10
(7)    Maximum Retail Subscription: Rs. 1,98,000/ 33 lots
(8)    Registrar: Bigshare Services private Ltd.
(9)    Listing: BSE,NSE
(10)Industry: construction


    (B)   Company Profile
VSK projects Ltd. is Mumbai based ISO 9001:2008 certified EPC (Engineering Procurement & Construction) company that undertakes various EPC projects of steel turnkey piping, civil land development, industrial infra projects, structural fabrication, fire fighting projects and many more.
Company’s order book as on 31/12/2011 was around Rs. 98 crore.
The company’s Major clients include Thermax Engineering, PACL India Ltd., BLA Power Ltd., Deepak Fertilizers, Lanko Infratech Ltd. and Reliance Gas transportation Infrastructure Ltd.

    (C)   Objects of the Issue
·         To meet long term working capital requirements : Rs.15 crore (150 million)
·         To finance the procurement of construction equipments and key machineries : Rs. 22.64 crore(226.4 million)
·         To finance the setting up of engineering design studio/office and training center in various big cities: Rs. 10 crore (100 million)
·         General corporate purposes: NA
·         Issue expenses: NA


    (D)  Financial analysis#
# All calculations at the upper price band
# Post issue equity used for FY 12 calculations
#post issue outstanding shares figure used is tentative

Parameter
FY 12 Annualized
FY 11
EPS
Rs. 3.3
Rs. 3.9
P/E
18.3
15.2
P/B
5.6
3.7
NPM
4%
5%
Debt/Equity Ratio
3.1
2.1
ROE
30.5%
24.7%
ROCE
25.5%
17.1%
Interest Cover
4
2.9

    (E)   Inference
Prima facie financials of this company may appear satisfactory but actually they are not. Receivables constitute around 91 % of the current assets of the company which is quite spooking-in case of any default company’s operation shall come to a standstill.
The balance sheet shows zero investment and that is strange for a company which shall boast an M-Cap of Rs. 103 crore post-issue. (At the upper price band).
In FY 12 Company’s reserve grew around 2.16 times but no increase in cash & bank balance, fixed assets, or the investment-which is zero. Secured debts of the company doubled while current liability grew 7.6 times in FY 12.
Cash flows from operations is consistently negative for past several years. Top five clients constitute the 90% of the order book and the ‘Sales to Order Book’ ratio is barely one which should be at least 2.5.
The company desperately needs the money for its working capital requirement.
Valuations of this issue are high, Valecha engineering and Tantia constructions fall in the similar M-cap category while they are trading at a price-to-earnings multiple of 4.5 and 11 respectively.
Considering all these facts, business prospects of this company are not healthy and investment in it should better be avoided.

(     Disclaimer
 Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.



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