Ircon International IPO, which opens for subscription today, has a fair valuation, say analysts. Shares in the Ircon IPO, which closes on Wednesday, have a price band ₹ 470-475 apiece. “Adjusting for subsidiary investments worth ₹ 700 crore, the issue is available at 9.2 times FY18 EPS on higher band, which is attractive," ICICI Securities said in a note on 12 September. The stock is available at 10.7-10.9 times FY18 earnings per share.
As a part of its disinvestment plans, the government is selling around 10% stake in Ircon to raise around ₹ 467 crore.
According to Centrum Wealth Ltd, at the higher end of the price band, the Ircon IPO is priced at price to earnings of 10.9 times on FY18 basis, which is attractive.
“Ircon is looking at expanding its portfolio with BOT/Design, Build, Finance, Operate, Transfer (DBFOT)/EPC/HAM contracts along with projects development and operation via JVs and SPVs. Given Ircon’s focus on expanding geographic presence and foray into allied infrastructure segments—like road and highways—could bode well owing to the current infra spends by the government," Centrum said in a note on 11 September.
Over FY15-17, Ircon’s financials were muted which picked up in FY18, recording revenue/net profit growth of 31% and 24%, respectively. Ircon’s order book grew at a compounded annual growth rate (CAGR) of 12.9% to ₹ 22,400 crore in FY16-18.
Of the total, railway projects comprise 86.7%, highway sector contributes 5.6%, electrical works contributes 5.4% while remainder 2.2% is from the building sector. Major domestic clients for the company include Northern Railways, Dedicated Freight Corridor Corporation of India, National Institute of Technology (Mizoram) and National Highways Authority of India, among others.
Foreign clients include orders from Eskom Holdings SOC Ltd (South Africa).
According to Motilal Oswal Securities Ltd, a significant portion of contracts are awarded on a nomination basis. Government policy could materially impact the financials.
Ircon provides engineering and construction services to the infrastructure sector. Although the company’s primary focus is on the railway sector, in order to diversify the business, it has expanded itself into allied sectors like highway and road construction. Going ahead, Ircon is looking at increasing presence in the international market & allied sectors and focusing on high value projects.
IDBI Capital Markets, IDBI Securities, Axis Capital, SBI Capital Markets are the book-running lead managers to the issue.