RPP Infra Proj

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SMC assigns `Neutral` on RPP Infra Projects IPO

RPP Infra Projects, a construction company, entered the capital markets today to raise Rs 442-487.5 million through initial public offering (IPO). The price band fixed at Rs 68-75. The issue will close on November 22. The credit rating agency Fitch has assigned IPO Grade 2 indicating below average fundamentals.

The broking firm, SMC Global has assigned `Neutral` rating on IPO of RPP Infra Projects.

Valuation:

Considering the P/E valuation, the stock is priced at pre issue P/E of 13.58x on the lower side of the band and 15x on the higher side of the band of its FY10 EPS of 5.01. Looking at the post issue valuation, the stock is priced at P/E of 18.60x on the lower side and 20.51x on the higher side of its post issue FY10 EPS of 3.66. At P/B ratio, it is priced at 4.24x and 4.68xof the lower and higher price band of its pre issue book value of `16.02 and 2.13x and 2.35x on the lower and higher side of its post issue book value of 31.94 respectively.

Company Profile:

RPP Infra Projects, incorporated in 1995, is a construction company primarily engaged in the business of infrastructure development such as highways, roads and bridges. The geographical reach of its business extends primarily in South India in the states of Karnataka, Andhra Pradesh, Tamil Nadu and the Union Territory of Pondicherry, Andaman Nicobar Island. The company has recently entered Srilanka market and is currently executing a project in the railway sector.

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RPP Infra Projects Review and Analysis – Expensively Priced,Small Construction Junk IPO

1) Untrustworthy Management – “Our Managing Director, Mr. P. Arul Sundaram, has attracted disqualification under section 274(1) (g) of the Companies Act 1956 from being appointed / reappointed as Director on the Board of any other public limited company for a period of five (5) years ending November 30, 2012.”

2) Small Scale,Low Topline Growth,Low Margins,Negative Cash Flows,High Debt – The Company’s Financial don’t paint a pretty picture except for Growth which some may consider good at around 27% sales CAGR but not very high comparatively when you consider bigger constuction companies are growing much faster with better margins.The Company has a debt of Rs 34 crores which is 1.4x times the Net Worth of the Company.The Net Margins are low at around 3-5%.

3) Valuation High – The Company is doing Rs 8 Crore in Profit and asking around Rs Rs 170 crore in market cap which gives it around 20  times P/E which is very high considering the much cheaper valuations for well established bigger construction companies.I think the valuation should half been half of the Rs 68-75 being asked for.

Summary

RPP Infra Projects is another junk stock out to fleece investors and should be safely be kept away from .The investment bankers for the issue Comfort Securities  and VC Corporate Advisors are not known for bringing high quality issues to the market either.Note Comfort Securities was responsible for the Tarapur Transformers IPO which is currently trading at less than half of the issues price.

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Avoid RPP Infra Projects IPO: MLR Securities

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Initial public offering (IPO) of south based construction company RPP Infra Projects opened for subscription. MLR Securities has recommended avoiding the issue considering its steep valuation, in its research report dated November 18, 2010.
A price band for the issue of 65 lakh shares, which closes on November 22, is at Rs 68 to 75 per share. Bids can be made for a minimum of 80 equity shares and in multiples of 80 equity shares thereafter.

RPP Infra is a construction company primarily engaged in the business of infrastructure development such as highways, roads and bridges.
The report says, "The company’s market cap is coming to around Rs 154-170 crore at a lower and upper price band of Rs 68-75. The P/E post issue comes to around 20 times on a lower price band of 68 and 22x on an upper price band of 75 on an FY10 EPS of 3.5. The price to book value comes to 5x and 5.5x at Rs 68-75 price band. The valuations are on a higher side if we compare it with its peers like ARSS Infra and Pratibha Industries they are trading at 13x and 11x respectively. P/BV is around 4.5x of ARSS Infra whereas Pratibha Industies is trading at 2.2 times its book value. We recommend investors to avoid the issue considering its steep valuation when another listed players are available at a cheap valuations."