IRCON International IPO on 17 Sept: Should You Subscribe?

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    Formerly known as the Indian Railway Construction Company Limited, IRCON International Limited will be entering the capital market on 17 September with its IPO (initial public offering) issue. Here are the key details of the IRCON IPO offer and brokerage views.

    Issue Details
     

    Issue Details

    IRCON is offering 99,05,157 shares with a face value of Rs 10 per share at the price bandwidth of Rs 470 to 475 per share. Bids have to be made for a minimum lot size of 30 shares and in multiples of 30 thereon. The issue managers are IDBI Capital Markets & Securities, Axis Capital and SBI Capital Markets. It is proposed to be listed on the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange).

    It is a Government of India subsidiary and as a part of its disinvestment plan, it will be selling 10 percent of its stake in IRCON to raise Rs 467 crore. At the lower price band, IRCON IPO will fetch Rs 465.54 crore and Rs 470.5 crore at the higher end. Up to 5 lakh shares are reserved for eligible employees.

    Company background

    Company background

    IRCON International is an engineering and transport company headquartered in New Delhi that specializes in transport infrastructure projects including, railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, runways, EHV sub-stations, electrical and mechanical works, commercial and residential properties, development of industrial areas, and other infrastructure activities.

    It is a 'MiniRatna' public sector firm and has a presence in Malaysia (overseas headquarter), Sri Lanka, Bangladesh, South Africa and Algeria.

    Financials
     

    Financials

    Railway projects make up for 86.7 percent of its order book. As of 2017-18, its order book was at Rs 22,407 crore, which is sufficient revenue visibility for more than five years. Its net profit grew to Rs 412 crore in for FY 2017-18 from Rs 393 crore in FY 2015-16.

    IRCON gives Engineering, Procurement and Construction (EPC) services at a fixed-sum turnkey basis as well as on an item-rate basis for many infrastructure projects. For various projects it also executes on the build, operate and transfer mode. It is looking to expand geographically and other allied infrastructure segments.

    Risk factors

    Risk factors

    Change in government policies, lower railway budget, high dependence on the railway segment, longer time to secure expansion of orders internationally are all risk factors for the company.

    Dividend

    Dividend

    The company has been paying regular dividends to its shareholders. Between FY 2014-15 and 2017-18, it had an average dividend payout ratio of over 40 percent (56.3 percent in FY 2017-18).

    Should you subscribe to IRCON IPO?

    Should you subscribe to IRCON IPO?

    ICICIdirect.com and Choice Broking have both given it a 'subscribe' rating. "On the valuation front, at higher price band, the company is demanding a P/E valuation of 10.9 times (to its restated FY18 EPS of Rs 43.8). Moreover, based on FY19 and FY20 earnings, the forward P/E comes out to 9.9 times and 8.4 times, respectively. Thus, the issue seems to be attractively priced considering its strategic importance in the Indian Railway, future growth outlook, limited competition, virtually debt-free operations and healthy financial performance," Choice Broking said.

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