IRCON International IPO to Close on 19th Sep, Should You Invest?

IRCON International IPO opened on 17th September and closes on 19th September. We will help you identify whether the IRCON IPO is worth investing or not.

IRCON International Limited (under the ministry of railways), engaged in the business of engineering and construction has planned to raise Rs.470.49 crore through the issue of 9,905,157 Equity Shares. IRCON international IPO consists of entirely offer for sale (OFS) of 0.99 crore shares (10.5 per cent of post-dilution equity) by the Government of India.

Out of  the total issue size, 5 per cent of the issue size is reserved for the company’s employees. The retail investors and employees are offered at a discount of Rs 10 per share. As the IPO 100 per cent OFS, the company will not receive any fund from the issue. 

Investment Rationale

• IRCON is a ‘miniratna’ public sector company
• The company is into the infrastructure sector, comprising of construction of roads, highways, bridges, tunnels, commercial and residential properties, and development of industrial areas.
• The company has presence in Malaysia, South Africa, Sri Lanka, Bangladesh and Algeria.  The company has received 15 per cent of revenue from exports in FY18.
• IRCON has planned to expand geographic presence and enter into allied infrastructure segments like roads and highways. As per Crisil, the construction sector is expected to grow 54 per cent during FY19-22 to Rs 22.2 lakh crore.
• The company’s order book has grown at a strong 12.90 per cent CAGR in FY16-18, in which approx.20 orders consist of an average size of more than Rs 500 crore.

Purpose of the issue

The objects of the IPO are:

1. To carry out the disinvestment of the shares comprising of the 10.53% of the pre-offer.
2. Offer related expenses
3. General expenses of the corporate

IRCON International IPO Details

• Issue Open:  17 Sep, 2018 – 19 Sep, 2018
• Issue Type: Book Built Issue IPO
• Issue Size: 9,905,157 Equity Shares of Rs 10 aggregating up to Rs 470.49 Cr
• Issue Price: Rs 470-Rs 475 Per Equity Share
• Market Lot: 30 Shares
• Minimum Order Quantity: 30 Shares
• Listing At: BSE, NSE
• Credit of Shares to Demat A/C: September 26, 2018
• IPO Share Listing Date: September 28, 2018

Valuation – Should you Invest?

In the coming quarters, IRCON has planned to increase its presence in international markets and will be focusing on high-value projects. As of FY18, the company had an order book of Rs 22,407 crore, which provides the revenue visibility for over five years. Railway projects consist of 86.7 per cent of its order book.

At the end of March 2018, the company’s cash and bank balance stood at Rs 4,691 crore and had a debt-equity ratio of 0.9. The revenues have grown to Rs 4,028 crore in FY18 from Rs 2,493 crore in FY16. Therefore, the company’s net profit has grown to Rs 412 crore in FY18 from Rs 393 crore in FY16.

Moreover, IRCON international IPO is available at 10.2 times FY18 EPS on higher band, which is attractive valuation compared to its peer companies. Based on FY19 and FY20 earnings, the forward P/E comes out to 9.7 times and 8.4 times, respectively. Additionally, the company is consistently paying dividend and had an average dividend payout ratio of over 40 per cent during FY15-18.

The IPO is expected to give gain on listing. The investors may ‘subscribe’ to IRCON international IPO.