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Monday, April 20, 2015

MEP Infrastructure Developers Ltd. IPO


Issue Highlights

Issue Period
21/4/15-23/4/15
Price Band
Rs. 63-65
Issue size
Rs. 324 crore
Face Value
Rs. 10
Issue Type
100 % Bookbuilding
Minimum bid lot
225 equity shares
Listing
BSE,NSE
Industry
Toll Management
Registrar
Link Intime India Pvt. Ltd.
Maximum Retail Subscription Amount
Rs. 1,90,125 (13 lots)

Business Profile


The company was originally incorporated as MEP Toll Road Pvt. Ltd. at Mumbai in 2002 and the name was later changed to MEP infrastructure Developers Limited. MEP infra Developers is involved in the business of tolling operations with a pan-India presence. The company focuses on toll collection and OMT (Operate-Maintain-Transfer) projects.
The company has so far completed 75 projects with an aggregate of 133 toll plazas and 841 lanes across 12 states in India.

Risks:
(1)    A significant amount of revenue comes from 5 Mumbai Entry Points contributing around 30 % of the total revenue and any disruption or termination in revenue due to political reasons or policy changes might adversely impact its profitability as getting compensation is not at all an easy task.
Presently, around 40 % of the total revenue comes from short term projects and such projects can be terminated by concerned authorities without assigning any reasons.

(2) Falling operating cash flow, widening negative net-worth and huge piled-up debt are big concerns.


Objects of the issue
                (1)Repayment/prepayment of loans availed by the subsidiary MIPL:  Rs. 262 crore
    (2) General corporate purposes: NA

Inference

There was no need to delve deeper into fundamentals of this company as it is clearly a wealth destroyer for its shareholders and the continuously rising loan is the sole reason for floating this issue. Though revenue is rising but soaring operating expenses coupled with the finance costs are not letting this company to come out of the losses. There is no sense in investing and hoping the company to perform well in future years.
As per CRISIL the OMT business from NHAI and states combined is supposed to double in FY 18 than the same in FY 14 but infrastructure and toll-collection business in India are still not that transparent and free from political vested-interests, and  it is quite difficult to see clear profits appearing on financial statements.
As far as toll business is concerned leakages of traffic and toll-collection reduces the amount of capital invested in other projects and either stalls or delays those projects, and to avoid this company is forced to take a plunge into a spiralling debt trap.
No doubt MEP infra developers is a key player in the OMT market having special in-house capabilities for road-infrastructure maintenance and with a focus on long term projects, but it will be too premature to consider this company for investment.
So, a clear avoid for me.

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