AVP Infracon NSE SME IPO review (Apply)

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Review By Dilip Davda on March 7, 2024

•    AIL is a BOQ and EPC method contractor involved in constructions related activities.
•    It marked growth for the reported periods on standalone/consolidated basis.
•    Based on FY24 earnings, the issue appears fully priced. 
•    It has an order book worth Rs. 235 cr. as of October 31, 2023.
•    Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
AVP Infracon Ltd. (AIL) is a dynamic private sector firm involved in the construction of road projects based on Bill of Quantities (BOQ) and Engineering, Procurement, and Construction (EPC) methods. The Company is engaged in the business of construction and transacts the business to construct, build, s of infrastructure developmental works, constructions works such as technically complex and high value projects like Express ways, National Highways, Flyovers, Bridges and Viaducts, Irrigation Projects, Urban Development - Civic amenities, Hospitals, warehouses, hotels and other Commercial and Residential Projects. 

It has in-house capabilities to deliver a project from conceptualization to completion with fast turnaround time from acquisition to launch to completion, which focuses on de-risking and improving return on investment. AIL was incorporated in 2009 with a vision to become a leading infrastructure development company in India. In the last decade, it has excelled in diverse projects, including government contracts and national initiatives, earning its reputation as a trusted construction firm in the nation. The Company has completed 40 projects as of date of this Red Herring Prospectus.

Since incorporation, it has constructed well known roads and national highways such as construction of road over bridge, construction and widening of culvert, construction of drains, improvements and rebuilding of highways, construction of retaining walls on government roads and flyovers. Further in addition to independently managing projects similar to those previously undertaken, AIL has now ventured into collaborations to handle more extensive projects. As of the filing of this RHP, the company had 43 full time employees and 85 on-site contractual workers. As of October 31, 2023, it had an order book worth Rs. 235 cr. approx. The company is putting major thrust on EPC projects that has higher margins.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6979200 equity shares of Rs. 10 each to mobilize Rs. 52.34 cr. at the upper cap. It has announced a price band of Rs. 71 - Rs. 75 per share. The issue opens for subscription on March 13, 2024, and will close on March 15, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.94% of the post-IPO paid-p capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 15.00 cr. for purchase of capital equipment, Rs. 35.00 cr. for working capital and the rest for general corporate purposes. 

After reserving 731200 shares for the market maker, the company has allocated not more than 3118400 shares for QIBs, not less than 2190400 shares for Retail investors and not less than 939200 shares for HNIs. 

The issue is solely lead managed by Share India Capital Services Pvt. Ltd., and Purva Sharegistry (India) Pvt. Ltd. is the registrar of the issue. Share India Group's Share India Securities Ltd. the market maker for the company. 

The company has issued entire equity capital at par so far and has also issued bonus shares in the ratio of 30 for 1 in May 2017, 1 for 3 in November 2021, and 11 for 4 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 2.33, and Rs.  2.37 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.00 cr. will stand enhanced to Rs. 24.98 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 187.34 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, the company has (on a consolidated basis) posted a total income/net profit of Rs. 115.50 cr. / Rs. 12.15 cr. (FY23). For 7M of FY24 ended on October 31, 2023, it earned a net profit of Rs. 8.67 cr. on a total income of Rs. 74.12 cr. 

On a standalone basis, for the last three fiscals, the company reported a total income/net profit of Rs. 58.18 cr.  / Rs. 2.26 cr. (FY21), Rs. 64.03 cr. / Rs. 3.99 cr. (FY22), and Rs. 107.15 cr. / Rs. 11.53 cr. (FY23). For 7M of FY24 ended on October 31, 2023, it earned a net profit of Rs. 8.34 cr. on a total income of Rs. 70.05 cr. 

For the last three fiscals, it has (on a standalone basis) reported an average EPS of Rs. 4.15, and an average RONW of 38.51%. The issue is priced at a P/BV of 4.05 based on its NAV of Rs. 18.50 as of October 31, 2023, and at a P/BV of 2.19 based on its post-IPO NAV of Rs. 34.29 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 12.61. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 3.89% (FY21), 6.24% (FY22), 10.76% (FY23), 11.91% (H1-FY24), and RoCE margins of 20.85%, 25.94%, 37.04%, 22.63% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for any financial year so far. It has already adopted a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Udayshivakumar Infra, Rachana Infra, and H G Infra as their listed peers. They are trading at a P/E of 15.0, 49.9, and 11.7 (as of March 07, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 12th mandate from Share India Capital in the last four fiscals, out of the last 10 listings, 4 opened at par and the rest with premiums ranging from 1.82% to 118.52% on the listing date. There is a mismatch in Annexure A details of the merchant banker (see pages 320-321 of the RHP).

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