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Review By Dilip Davda on October 21, 2024

•    The company is a flagship infrastructure, engineering and construction company of the Shapoorji Pallonji Group.
•    It is a well-diversified infrastructure company having on an average 30% export revenues.
•    The company posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY25 annualized earnings and FY24 earnings, the issue appears fully priced.
•    It has an order book worth Rs. 40+K cr. as of September 30, 2024.
•    Investors may park funds for the medium to long term in this dividend paying company.

PREFACE:
The company planned an IPO of Rs. 8400 cr. including fresh equity issue of Rs. 1250 cr. and an OFS of Rs. 7150 cr. Having done pre-IPO placement of Rs. 2970 cr. at a price of Rs. 463 per share just a week before the IPO, this indicates the likely demand from marquee investors for this well diversified infrastructure company that has 30% export revenues. With this secondary sell, its IPO size is pruned to Rs. 5430 cr. now, that has fresh equity issue worth Rs. 1250 cr. and an OFS of Rs. 4180 cr. 

ABOUT COMPANY:
Afcons Infrastructure Ltd.  (AIL) is the flagship infrastructure, engineering and construction company of the Shapoorji Pallonji group (i.e., the group's leading engineering and construction company), a diversified Indian conglomerate, and have a legacy of over six decades. It has a strong track record of executing numerous complex, challenging and unique engineering, procurement and construction ("EPC") projects both within India and internationally. According to the Fitch Report, it is one of India's largest international infrastructure companies, as per the 2023 ENR (Engineering News-Record, US) Top International Contractors rankings, based on International Revenue for the Financial Year 2023. 

During the period comprising the last eleven financial years and the three-month period ended June 30, 2024, the company has successfully completed 79 projects across 17 countries with a total historic executed contract value of Rs. 563.05 billion. As of June 30, 2024, it had 65 active projects (i.e., ongoing projects) across 12 countries, aggregating to an order book of Rs.317.47 billion. Among large infrastructure construction companies in India analysed in the Fitch Report, it had the highest ROCE and EBITDA margins and the second highest ROE and PAT margins for the Financial Year 2024, and its PAT has grown at the fastest rate between the Financial Years 2022 and 2024 (Source: Fitch Report).

Over the years, it has expanded presence globally and in particular across Asia, Africa and the Middle East. It has undertaken many complex, challenging, unique and 'first of its kind' infrastructure projects in India and the rest of the world (Source: Fitch Report). It also benefits from the strong parentage of the Shapoorji Pallonji Group. The Shapoorji Pallonji Group has a legacy of over 150 years, and its strong reputation, global presence and extensive industry experience assists AIL in the growth of business and operations. Additionally, it gains access to the Shapoorji Pallonji Group's network enabling strategic collaborations, business development opportunities and knowledge sharing. Further, the company is strategically guided by board of directors and the leadership of management team, comprising five Key Managerial Personnel and 19 Senior Management Personnel. Its key management personnel have 35 years of average experience with an average of 23 years at AIL.

Through its extensive and diversified experience and systematic knowledge management practices, the company has developed a project management system that enables efficient planning, monitoring, control and timely delivery of the infrastructure projects that it undertakes. Its continuous pursuit of excellence in knowledge management is reflected in the recognition accorded to the company through the MIKE (Most Innovative Knowledge Enterprise) award at Global and India levels. This award is given by the International Global MIKE Study Group, comprising world experts in effective knowledge management and innovative practices. AIL was also accorded the status of Five Star Export House in accordance with the provisions of the Foreign Trade Policy 2023 by the Indian government in 2023.

It is dedicated to integrating environmental, social, and governance ("ESG") best practices into business and ensuring a sustainable and responsible approach to operations. It has 41 environmental auditors to track environmental footprint. The company also has a team of over 250 health, safety and environment ("HSE") professionals across organization, including 31 dedicated environment professionals. Over 65% of the members of this team have engineering and advanced safety degrees. It has reduced total energy consumption to 2.42 million gigajoules for the Financial Year 2024 from 2.70 million gigajoules for the Financial Year 2023 and 2.76 million gigajoules for the Financial Year 2022 and are committed to further reducing energy consumption. It also recycled over 27% of the wastewater discharged at project sites in the Financial Year 2024.  

AIL is one of the leading infrastructure construction companies involved in the execution of large and complex projects both in India and overseas (Source: Fitch Report). It focuses on large, complex, and high-value projects and has a strong track record in efficient project management, execution and on-time delivery of projects across verticals and geographies, with a substantial majority of projects being executed ahead of or on schedule. The company has undertaken many complex, challenging, unique and 'first of its kind' infrastructure projects in India and the rest of the world (Source: Fitch Report). According to the Fitch Report, the company has a transnational presence in almost the entire spectrum of infrastructure activities. In the 2023 ENR (Engineering News-Record, US) Top International Contractors rankings, AIL was the 10th largest international marine and port facilities contractor in the world and the only Indian company in the top 25, the 12th largest contractor in the bridges segment and the only Indian company in the top 25, the 42nd largest contractor in the transportation segment and the only Indian company in the top 50, and the 18th largest contractor in the transmission lines and aqueducts segment, in each case based on International Revenue for the Financial Year 2023 (Source: Fitch Report).

As of June 30, 2024, its order book stood at Rs. 31747.43 cr. As of the said date, it had 3972 employees on its payroll and additional 26920 contract workers on various projects. According to the management, it has specialized in many unique projects and has also completed many of them on dot or even before and has earned early completion incentives. With more influx of orders, its order book stands above Rs. 40+K cr. as of September 30, 2024.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 117278618 equity shares of Rs. 10 each worth Rs. 5430.00 cr. (at the upper cap). The company has announced a price band of Rs. 440 - Rs. 463 per share. The issue constitutes 26997840 fresh equity shares (worth Rs. 1250.00 cr. at the upper cap), and an offer for sale (OFS) worth Rs. 4180.00 cr., (approx. 90280778 shares at the upper cap).  The issue opens for subscription on October 25, 2024, and will close on October 29, 2024. The minimum application to be made is for 32 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 31.89% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 600.00 cr. for repayment/prepayment of certain borrowings, Rs. 320.00 cr. for working capital, Rs. 80.00 cr. for capex on purchase of construction equipments, and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., DAM Capital Advisors Ltd., Jefferies India Pvt. Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd., Nuvama Wealth Management Ltd. and SBI Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. Syndicate members for this issue are Sharekhan Ltd., Nuvama Wealth Management Ltd., Investec Capital Services (India) Pvt. Ltd., SBICAP Securities Ltd.

The company has issued/converted initial equity capital at par value, and has issued/converted further equity shares in the price range of Rs. 17 - Rs. 45 between November 1996, and February 2024. It has issued bonus shares in the ratio of 1 for 1 in April 1982, 1 for 1 in January 1986, and 1 for 1 in April 1989. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.14, Rs. 33.05, and Rs. 34.63 per share. 

Post IPO, company's current paid-up equity capital of Rs. 340.74 cr. will stand enhanced to Rs. 367.74 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 17026.18 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 11269.55 cr. / Rs. 357.61 cr. (FY22), Rs. 12844.09 cr. / Rs. 410.86 cr. (FY23), and Rs. 13646.87 cr. / Rs. 449.74 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a net profit of Rs. 91.59 cr. on a total income of Rs. 3213.47 cr. As per historic data, all infrastructure companies have sluggish first half and major activities and earnings happens in the second half as usual. 

For the last three fiscals, the company has reported an average EPS of Rs. 12.37, and an average RoNW of 12.84%. The issue is priced at a P/BV of 4.31 based on its NAV of Rs. 107.48 as of June 30, 2024, and is at a P/BV of 3.47 based on its post-IPO NAV of Rs. 133.58 per share (At upper cap). 

If we attribute annualized FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a P/E of 46.49 and based on FY24 earnings, the P/E stands at 37.86. Thus the issue appears fully priced. The management is confident of crossing FY24 performances for FY25 with the ongoing contracts and rising order book. 

The company reported PAT margins of 3.17% (FY22), 3.20% (FY23), 3.30% (FY24), 2.85 % (Q1-FY25), and RoCE margins of 17.30%, 20.04%, 20.18%, 14.89% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has declared dividends of 35% (FY22), 40% (FY23) and 25% (FY24). It adopted a dividend policy in March 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Larsen & Toubro, KEC Intl., Kalpataru Projects, and Dilip Buildcon, as their listed peers, they are trading at a P/E of 37.1, 66.9, 43.1, and 42.4 (as of October 21, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The six BRLMs associated with the offer have handled 79 public issues in the past three fiscals, out of which 20 issues have closed below the offer price on listing date.

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