SP TULSIAN VIEW
Frankly, Ramky is costly!
Ramky Infrastructure is entering the capital market on 21st September 2010, with a public issue of Rs. 530 crores, in the price band of Rs. 405 to Rs. 468 per share. Of this, fresh issue is of Rs. 350 crores while offer for sale is of Rs. 180 crores.
Nowadays, all the sectors are defined with new names, may be to show an improved business model of the company. For example, transport is named Logistic, Casino as Gaming, theatrical as film exhibition, contracting companies as EPC player and PPP companies as Developer or Infrastructure companies.
Same is seen in case of this company as well, as this contracting company is seen projecting itself as an EPC player. Apart from this, it has portfolio of some road and integrated township project, which are now at an infancy stage and has to grow, which may take at least couple of years, to contribute in respectable manner to the financials of the company, on consolidated basis.
It is also strange to see the BRLM and promoters steeply valuing the IPO on its earnings and assets either at higher earning multiples or on NPV basis, and without making any comparison with existing listed peers. Also, concept of an expected gap between secondary market and primary market valuations, are also not adhered to. Infact, a gap of 10% to 15% must exist between a listed peer and IPO pricing, with public issue valued lower, so as to have some room for appreciation for prospective investors.
The company seems to be doing the same mistake. For FY10, on consolidated basis, the total income of the company was placed at Rs. 2,251 crores with PAT at Rs. 129 crores. This results into an EPS of Rs. 26, on equity base of Rs. 49.42 crores. So, the share is issued at a PE multiple of 15.50 times at the lower band and at a PE of 18 times at the upper band. Infact, price band having range of over 15% is also quite confusing for the prospective investors, to take a call on the issue in respect to its correct price.
Maybe, to look this PE multiples attractive, even wrong data of peer companies are presented in RHP. For examples, PE of IVRCL is stated at 62 times on page 49 of RHP while it is at 20 times. One fails to understand the necessity of relying on data presented by a publication (which are non-consolidated)instead of relying on published data of such companies, available on NSE and BSE sites. Same variation exists for other peer also, like Nagarjuna Construction.
Also, in the sum of part valuation, we have estimated value of developer business at around Rs. 600 crores, while the same is claimed to be at Rs. 1,200 crores, by the management, relying on the report of some consultant or experts. When objective figures of published results of peer companies are difficult to rely upon, how one can rely upon the subjective valuations of the projects of the company. Infact, valuation as estimated by us of Rs. 600 crores, of developer business, is on the lines of prevailing valuations given by the market to similar companies.
To make the realistic comparison, IVRCL and Nagarjuna Construction are two listed peers having its presence in the same sector, where company is operating. IVRCL, for FY10, on consolidated basis, had a topline of Rs. 5,830 crores with PAT at Rs. 215 crores, on equity base of Rs. 53.40 crores, translating into an EPS of Rs. 8.05 per share. This results into a market capitalization of Rs. 4,450 crores, at price of Rs. 167 per share. However, the company is holding 80.5% stake in IVRCL Assets, market value of which is at Rs. 1,880 crores or Rs. 70 per share. Even if we deduct Rs. 47 per share, being 66% of this value, from share price of IVRCL, the value per share works out at Rs. 120 per share. This results in a PE of about 15 times.
Similar is the case with Nagarjuna Construction, which had a consolidated topline of Rs. 5,900 crores for FY10, with PAT at Rs. 282 crores, resulting in an EPS of Rs. 11 on equity base of Rs. 51 crores. At current price of Rs. 162, share is ruling at a PE of less than 15 times. Even the order book of both the companies are over Rs.22,000 crores, which are equal to the 4 years topline.
Even on price to book basis, stock of this company looks more expensive when compared to two peers, as stated above. Nagarjuna Construction having BV of Rs.90 is ruling at a PBV of 1.80 times, while IVRCL having book value of Rs.76 is ruling at a PBV of 2.20 times. Excluding value of IVRCL Assets, it is ruling at a PBV of 1.60 times.
At the upper band, equity of the company will rise to Rs.56.90 crores with net worth at Rs.905 crores, resulting in a BV of Rs. 159 per share. So, this will translate into a PBV of 2.95 times.
Lately, these contracting companies are seeing stagnation or fall in its PE multiple, more especially Hyderabad based companies. As this company falls in the same category, having almost less than half the topline and bottomline, when compared with IVRCL and Nagarjuna Construction , it does not deserve a PE multiple of over 12 times.
Since the price band has been announced so steep, one can contemplate going in for the issue only at the lower band, or look for ideas in the secondary market.
Zerodha (Trading Account)
RHP
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