Avoid Gammon Infrastructure IPO: Experts
Gammon Infrastructure Projects (GIPL), an infrastructure project development company promoted by Gammon Group, is open for subscription with its initial public offering (IPO) of 1,65,50,000 equity shares of face value Rs 10 each for a cash price to be determined through a 100% book building process. The issue will close on March 13, 2008. The price band has been fixed between Rs 167 and Rs 200 per equity share.
Moneycontrol conducted a poll on market experts to check whether to apply for the public issue or not. Experts said don't apply.
Experts/Company
Poll Result Experts view
R S Iyer
(KR Choksey)
Don’t Apply
Investors should ignore primary market for the time being as the market sentiments are weak. All stocks are available at cheap price range in the secondary market.
SP Tulsian
(Investment Advisor)
Don’t Apply
Gammon Infrastructure Projects IPO is open for subscription. One fails to understand the logic of valuing the company at an expected market capitalization of Rs 2,500 crore even at the lower price band of Rs 167 per share and at Rs 2900 crore at the upper price band of Rs 200 per share. This is despite the fact that the books of the company show a debt of Rs 700 crore on completed projects and would be assuming a debt of Rs 1,886 crore for two road projects of 132 kms, one 66MW hydro power project and one bridge on river Kosi. Of these, a 100 kms road project has got just a 70% stake of the company.
The company is now going in for 10 more projects of which seven are in development phase and three are in pre-development phase. Of these 10 projects, financial closure has been made for four projects only. This implies that the balance sheet of the company, on consolidated basis, would keep ballooning with debt.
If we go by the comparative peers IRB Infrastructure, a company recently having gone public, have 512 kms of road, on toll basis in operation, including Mumbai Pune Expressway of 206 kms. Even this company has market capitalisation of just Rs 6,200 crore. Apart from this, IRB has 66% interest in a 1,400 acre realty project being developed near Pune. GVK Power, a player developing the Mumbai Airport, as also having interest in various road and power projects has a market capitalization of Rs 5,300 crore. Even the promoter of the company, Gammon India market capitalization is Rs 4,100 crore. So, on all the parameters, the valuation of the company looks quite stretched and over valued.
The expanded equity base of the company would be Rs 144.55 crore, which also looks quite high considering its level of activity. Even six months performance for the period from April 07’ to September 07’ is not good enough to attract investors. During this period, total income was at Rs 84 crore with PAT of Rs 10.95 crore. During FY07, total income was at Rs 109 crore with a PAT of Rs 29.85 crore.
There are many better stocks available in the secondary market with much better and diverse business model and also at attractive valuations. Hence it is not prudent and advised to go in for this issue, even at the lower price band of Rs 167.
Investors can avail of two modes of payment. Under Payment Method-1, the amount payable on submission of the bid-cum-application form (in case of retail individual bidders and non-institutional bidders) is Rs 50 per equity share (such that it shall not be less than 25% of the issue price). And the balance payable shall be paid by the due date. Non-resident bidders cannot make use of Payment Method-1. Under Payment Method-II, the amount payable on submission of the bid-cum-application form in the case of retail individual bidders and non-institutional bidders shall be 100% of the bid amount, and, in the case QIBs, will be 10% of the bid amount with the balance being payable on allocation.
Presently, GIPL undertakes and develops projects such as roads, bridges, ports, hydroelectric power and biomass power projects on a PPP basis.
The Issue proceeds will be utilised to:
Contribute to a part of the investment required by KBICL, its subsidiary formed for the design, construction, finance & maintenance of a 1.8 kilometer long four-lane bridge across river Kosi including 8.2 kilometers long approach roads and Guide bund & Afflux bund on NH-57 in the Supaul district of Bihar;
For the investment required by GICL, its subsidiary formed for the design, construction, finance & maintenance of a 32 kilometer long four-lane bypass to Gorakhpur town on NH-28 in the state of Uttar Pradesh;
For the investment required by SHPVL, its subsidiary formed for developing the Rangit-II hydroelectric power project in the state of Sikkim;
For infusion of funds into MNEL, its subsidiary formed for the four-laning of the 99.5 kilometers Vadape-Gonde section (between Mumbai and Nasik) of NH 3 on BOT basis;
Repayment of loan to Gammon India Limited and general corporate purposes and investment in strategic initiatives and acquisitions.
The book running lead managers to the issue are IDFC-SSKI Private Limited and Macquarie Capital Advisers (India) Private Limited . The co-book running lead manager to the issue is Collins Stewart Inga Private Limited.
Zerodha (Trading Account)
RHP
