Ircon International IPO: Here’s All You Need To Know

Ircon International Ltd., a state-run railway company, will be launching its three-day initial public offering on Monday as the government looks to offload part of its stake.

The government plans to raise about Rs 467 crore through the maiden offer—the second by a rail PSU after RITES Ltd.—by selling a 10.5 percent stake. The company is offering 99.1 lakh shares at a price of Rs 470-475 apiece.

Business

Ircon is engaged in engineering and construction business. The company receives nearly 87 percent of its orders from the Ministry of Railways. The state-run company also focuses on engineering, procurement and construction, and build-operate-transfer projects.

Ircon’s order book grew at an annualised rate of 30 percent over the last three financial years. Its current order book provides a revenue visibility of more than five years. The company plans to focus on high value orders as they provide more margins and face less competition. It bids for orders worth Rs 500 crore or above.

Financials

As on March 31, Ircon’s net worth stood at about Rs 3,762 crore, translating into a book value of Rs 400 a share. It had an own cash balance of close to Rs 1,200 crore as of March.

Ircon’s earnings before interest, tax, depreciation and amortisation margin contracted by more than 950 basis points in the last six years to 11.2 percent. The decline was on the back lower international orders. The company, however, reported growth in the last three years.

The company plans to increase its presence in international markets and focus on high-value projects. Ircon has a debt of Rs 3,200 crore towards the funding of railway land monetisation project. But this debt, the company said, will be passed on when the project is completed. The interest burden of the debt is borne by the Ministry of Railways.

The company’s return ratio for the financial year through March 2018 was higher than last year.

Ircon has been consistently paying dividends to shareholders over the last five years.

Valuations

Ircon’s earnings per share for the previous financial year is Rs 44. At the upper end of the price band, the price-to-earnings ratio is 10.9 times, according to BloombergQuint’s calculations.

The company doesn’t have any direct peer as it receives most of its orders from the Indian Railways. But for comparing valuations, NBCC (India) Ltd., Engineers India Ltd., and RITES Ltd. have been considered.

Brokerage Take

Motilal Oswal

• Investors can ‘Subscribe’ for listing gains.
• The IPO valuation appears decent, given the order book position and financials.
• Ircon is trying to improve international business and is planning to diversify to aid growth.

Antique Stock Broking

• Adding own cash and investments, the issue makes a compelling ‘Subscribe’.
• The company’s core business is remarkably asset light.
• The working capital need is negligible, and scalability of core business is huge.

ICICI Direct

• ‘Subscribe’ at the offer price only for listing gains.
• The company has big-ticket orders with diversified clientele base across sectors.
• It has a strong balance sheet position.

Centrum Wealth

• Suggests ‘Subscribe’; the issue is attractive at the higher end of the price band.
• Business diversification to bode well for the company.
• The company has a healthy order book.