Widely read:
AI-generated image
Afcons Infrastructure IPO will open for subscription on October 25, 2024, and close on October 29, 2024. Below is a breakdown of the construction player's strengths, weaknesses and growth prospects to help you make an informed decision.
Afcons Infrastructure IPO in a nutshell
-
Quality
: The company's three-year average
ROE and ROCE
were nearly 14 and 19 per cent, respectively, during FY22-24.
-
Growth
: The company's revenue and profit after tax jumped 10 and 12 per cent per annum, respectively, during FY22-24.
-
Valuation
: After listing, the stock will be valued at a
P/E
and
P/B
ratio of 38 and 4 times, respectively.
- Overview: Afcons Infrastructure's technical expertise along with the growing capital expenditure and development of infrastructure projects will help the company scale its business. However, the heavy dependence on government infra spending and capital intensive nature of the business can pose a threat to its growth trajectory.
About Afcons Infrastructure
The Shapoorji Pallonji Group company is an engineering, procurement, and construction (EPC) player with operations in India and overseas. Over its history of over 50 years, the company has successfully completed 79 projects in 17 different countries. It is currently working on over 60 projects with an order book of Rs 31,747 crore as of June 2024.
Strengths of Afcons Infrastructure
-
Strong track record:
Afcons Infrastructure boasts a stellar track record of executing large-scale complex projects in a timely manner. It has undertaken many projects in verticals like railway, marine and highway projects, among others.
- Client stickiness: Afcons Infrastructure has maintained long-term relationships with many of its clients, working on multiple projects for them. Their association with IHI Corporation and Reliance Industries has spanned over 15 years.
Weaknesses of Afcons Infrastructure
- Dependence on government expenditure: Around 70 per cent of the company's orders were government contracts (across India and overseas) as of June 2024. A decline in broader government capex or change in policies can impact the company's revenue stream.
Afcons Infrastructure IPO details
| Total IPO size (Rs cr) | 5430 |
| Offer for sale (Rs cr) | 4180 |
| Fresh issue (Rs cr) | 1250 |
| Price band (Rs) | 440 - 463 |
| Subscription dates | Oct 25, 28 and 29, 2024 |
| Purpose of issue | To fund capital expenditure, working capital requirements and repay debt |
Post-IPO
| M-cap (Rs cr) | 17,026 |
| Net worth (Rs cr) | 4,912 |
| Promoter holding (%) | 67.2 |
| Price/earnings ratio (P/E) | 37.8 |
| Price/book ratio (P/B) | 3.5 |
Financial history
| Key financials (Rs cr) | 2Y CAGR (%) | 12 months ending June 2024 | FY24 | FY23 | FY22 |
|---|---|---|---|---|---|
| Revenue | 9.7 | 13,250 | 13,267 | 12,637 | 11,019 |
| EBIT | 22.4 | 900 | 871 | 839 | 581 |
| PAT | 12.1 | 451 | 450 | 411 | 358 |
| Net worth | 3,213 | 3,575 | 3,155 | 2,691 | |
| Total debt | 3,454 | 2,523 | 1,612 | 1,623 | |
|
EBIT is earnings before interest and taxes
PAT is profit after tax |
|||||
Key ratios
| Ratios | 3Y average | Q1 FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|---|
| ROE (%) | 13.8 | 10.6 | 13.3 | 14.0 | 14.0 |
| ROCE (%) | 19.2 | 14.9 | 20.2 | 20.0 | 17.3 |
| EBIT margin (%) | 5.8 | 7.1 | 6.6 | 6.6 | 5.3 |
| Debt-to-equity | 0.6 | 1.1 | 0.7 | 0.5 | 0.6 |
|
ROE is return on equity ROCE is return on capital employed |
|||||
Risk report
Company and business
-
Was Afcons Infrastructure's earnings before tax more than Rs 50 crore in the last 12 months?
Yes. The company reported a profit before tax of Rs 680 crore for 12 months ending June 2024.
-
Will Afcons Infrastructure be able to scale up its business?
Yes. Growing capital expenditure on infrastructure development in India and other developing economies will help the company scale its business.
-
Does Afcons Infrastructure have a recognisable brand recall with client stickiness?
Yes. The company benefits from the good brand recall of its parent, the Shapoorji Pallonji Group. It has also maintained long-standing relationships with many of its clients.
-
Does the company have a credible moat?
No. It operates in a competitive industry that has no differentiation.
Management
-
Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over 25 per cent stake in the company?
Yes. Post the IPO, the promoters will hold a 67.2 per cent stake.
-
Do the top three managers have over 15 years of combined leadership at Afcons Infrastructure?
Yes. The top two executive directors have been with the company since 2002.
-
Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes. There is no information that suggests otherwise.
-
Is the company's accounting policy stable?
Yes. There is no information that suggests otherwise.
-
Is Afcons Infrastructure free of promoter pledging of shares?
Yes. The company's promoters have not pledged any shares.
Financials
-
Did Afcons Infrastructure generate a current and three-year average ROE of more than 15 per cent and a ROCE of more than 18 per cent?
No. Afcons Infrastructure' three-year average ROE and ROCE were 14 and 19 per cent, respectively. They were 13 and 20 per cent, respectively, in FY24.
-
Was the company's operating cash flow positive during the last three years?
Yes. The company reported positive cash flow from operations (CFO) between FY22 and FY24.
-
Is the company's net debt-to-equity ratio less than one?
Yes. Afcons Infrastructure had a net debt-to-equity ratio of 0.8 as of June 2024.
-
Is Afcons Infrastructure free from reliance on huge working capital for day-to-day affairs?
No. Construction businesses require huge investments in working capital and Afcons Infrastructure is no exception.
-
Can the company run its business without relying on external funding in the next three years?
No. Raising debt is common in the construction business. The company recently raised over Rs 900 crore debt. Despite the IPO proceeds, its working capital requirement will remain high and it may have to raise more funds.
-
Is Afcons Infrastructure free from meaningful contingent liabilities?
No. Contingent liabilities as a percentage of net worth stood at 48 per cent as of June 2024.
Valuations
-
Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
No. The stock offers an operating earnings yield of 4.6 per cent on its enterprise value.
-
Is the stock's price-to-earnings less than its peers' median level?
Yes. The stock is valued at a P/E of 37.8 times compared to its peers' median level of 39.4 times.
-
Is the stock's price-to-book value less than its peers' average level?
Yes. The stock is valued at a P/B of nearly 3.5 times compared to its peers' average level of around 4.1 times.
Disclaimer: This is not a stock recommendation. Do your due diligence before investing.
Also read: Godavari Biorefineries IPO analysis
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
For grievances: [email protected]
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
