On the highway

Written by Akash Joshi | Updated: Jan 27 2008, 06:20am hrs
Clearly, roads are going to play an important part in taking the Indian economy ahead. And road makers and developers have a strong business opportunity ahead. Keeping this in mind, Hyderabad based KNR Constructions intends to raise Rs 130 - Rs 140 crore through an IPO of 79 lakh equity shares, with a face value of Rs 10 each, at a price band of Rs 170 - Rs 180.

The IPO proceeds will be utilised for investment in build operate transfer (BOT) projects estimated at Rs 78.35 crore, purchase of capital equipment amounting to Rs 21.49 crore and, meet working capital requirements to the tune of Rs 25.21 crore.

Background

Since 1995, KNRC has been involved in infrastructure development projects and services for the development of roads and highways, irrigation, and urban water infrastructure management.

KNRC primarily focuses on government projects such as ones offered by the National Highway Authority of India and public works department under various state governments. Its operations are spread across various states in India including Assam, Andhra Pradesh, Karnataka, Madhya Pradesh, Tamil Nadu, and Uttar Pradesh.

Infrastructure projects are executed independently as well as through its joint ventures. Currently, most of the road projects under execution are with its joint venture partner, Patel Engineering, which has a seven-year relationship with the company. Road projects constituted 95% of the company's revenues in FY07.

Valuation

The company intends to increase the share of other revenue streams after the issue. However, experts reckon that breaking into other business avenues would not be easy as there are high entry barriers. The company claims that it has an order book position of Rs 1,733.8 crore, which is 5.4 times the FY07 operational income. The profitability and revenue growth has been steady. Overall, the issue is priced at a price earnings multiple of 23.4 times and 24.8 times, at the lower and upper price band, respectively. This seems to be at a substantial premium to the industry average of 18.2 times. Investors should consider this before taking action.

The promoters hold 99.3% of the issued and paid-up share capital of the company, which will reduce to 71.5% post-issue.