Ashoka Buildcon Ltd

Ashoka Buildcon Ltd. (ABL) undertakes Engineering, Procurement and Constructions (EPC) contracts in roads, bridges (on Build Operate and Transfer basis, [BoT]), commercial and industrial buildings and power transmission and distribution (T&D) projects. ABL currently has an interest in 23 BOT road projects (17 operational and rest under execution) with blended concession period of ~21 years.

Objects of the Issue

ABL, through this public issue intends to raise ~INR 2,500Mn. Post IPO, promoter’s shareholding will reduce to 73% from 84%, currently. The object of the issue is to raise capital to invest in fixed assets, meet its working capital requirements, repay debt of its own and its subsidiaries & associates and for general corporate purposes.

Investment Rationale

Ø        Well-established player with proven ability in toll-based BOT projects execution

Ø        Healthy Order Book of INR 32,533Mn, 4x its FY10 consolidated revenue

Ø        Integrated Business Model with in-house traffic forecast expertise and RMC plants

Concerns

Ø        Any significant variation in cost estimates and actual cost could materially impact its future profitability

Ø        ABL has advanced a sum of INR 1,630Mn to its subsidiaries, Associates, Promoters etc without interest and any security

Ø        Of the total order-book as on May’10, ~73.95%; 9.8% and 10.6% comprises of projects in the states of Maharashtra, Madhya Pradesh and Chhattisgarh. As players in road sector faces stiff competition, regional concentration could hamper the future growth of the company

Ø        Unsecured debt of INR 1,599.62Mn on a standalone basis is repayable on demand

Valuation

At the upper price band of 324, ABL stock is offered at 3.8x its Price to Book value (FY10, pre-IPO) and 3x at the lower price band. With higher return on net worth of 17.4% for FY10, the issue is attractively priced for long term investors. Given the positive sector outlook, reasonable valuation and higher Return on Networth when compared with its peers, recommend SUBSCRIBE.