SVEC Construction, a south-based company, is engaged in civil, electrical, and mechanical (CEM) works, particularly focussed on irrigation and building on contract basis. The irrigation work also includes cement concrete lining and earthwork excavation. It also undertakes water treatment plants for civil works. Maximum projects are awarded by government entities. The clientele includes State government PWD, Airport Authority of India, Ministry of Defense and so on.
SVEC has its own equipment for executing contracts. However, sometimes it outsources equipment. To resolve this problem the company intends to utilise some part of the funds from the issue to buy capital equipment for both building and irrigation works. The company intends to raise approximately Rs 38 crore. Other than purchasing equipment, the funds would be allocated for working capital requirement. And majority of the funds would go into working capital to the tune of Rs 23.86 crore.
Financials
SVEC has a healthy order book of Rs 521.91 crore as on November 30, 2007. Irrigation projects comprise Rs 130.71 crore and Rs 388.07 crore for constructing and building. Construction of irrigation and building takes approximately 30 and 24 months respectively for completion. Irrigation has contributed majority of the revenues. In the last six months ended September 2007 irrigation revenues were Rs 32.52 crore and followed by building contracts at Rs 25.10 crore.
The company topline and bottomline has grown at a CAGR of 29.69% and 53.67% respectively since the last four years. The revenues and net profit for FY2006-07 is Rs 149.45 crore and Rs 7.53 crore respectively. The growth rate has slowed down in the last nine months ending September considering the annualised revenues. Nonetheless, margins have shown healthy improvement from 5.03% to 5.26%.
Valuation
From the valuation perspective, the company’s post-diluted annualised earnings per share is Rs 4.27. This gives a price-earning ratio of 22.23 times on a higher band price. SVEC, being a smaller entity as compared to its peers in terms of revenues is slightly expensive. It can be compared to its peers MSK projects, PBA Infrastructure, Tantia Construction having a P/E of 16.48, 7.34 and 44.49 times respectively. Market capitalisation to sales ratio is 1.01 times considering the higher price band.
One must take into account that due to the competitive bidding process in construction, the margins could shrink and ultimately transformed into lower cash flows in the hands of the company and survival then becomes difficult. Investors must consider the above factors before investing.
