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Capacit’e Infraprojects IPO seen attractive on healthy financials, order book

LiveMint logoLiveMint 13-09-2017 Nasrin Sultana

Mumbai: Construction company Capacit’e Infraprojects Ltd’s Rs400 crore initial public offering (IPO) opening Wednesday has found favour with analysts, thanks to its healthy financials, strong order book and comfortable valuations.

The company has set an IPO price band of Rs245-250 per share. Proceeds from the issue will be used to fund working capital requirement, purchase capital assets and general corporate purposes. The IPO closes on Friday.

Motilal Oswal Securities said the issue is priced at 24 times price to earnings (PE) on FY17 basis, which it thinks is attractive. “Despite the infrastructure segment struggling to grow in past few years, Capacit’e Infraprojects has successfully delivered strong revenue, earnings before interest, tax, depreciation and amortization (EBITDA) and net profit of 75%, 121% and 169% in FY14-17. Other key strengths of the company are large order book with marquee client base and repeat orders, presence in cities with high growth potential, expansion in the mass housing segment and superior return on equity (ROE) and return on capital employed (ROCE),” it said in a report on 12 September.

Capacit’e has projects across various segments in residential, commercial and institutional buildings. As of May 2017, it had an order book of Rs4,603 crore which is four times its consolidated revenue from operations for FY17. As on May 2017, West India constituted 58.9% of total projects, North 14.3% and South constituted 26.8%. Its clients include Kalpataru, Oberoi Constructions Ltd, Wadhwa Group, Saifee Burhani Upliftment Trust, Lodha Group, Rustomjee, Godrej Properties Ltd, Brigade Enterprises Ltd and Prestige Estates Projects Ltd. It has 51 ongoing projects and the order book consists of 96% residential, 3% commercial and 1% institutional projects.

ICICI Securities Ltd said the firm is in a position to perform better than industry growth, driven by its robust order book, lean balance sheet and strong opportunities ahead.

Jaikishan J. Parmar, research analyst, mid-caps, at Angel Broking Pvt. Ltd, said the company would continue to gain incremental order inflow going ahead. “At the upper end of the price band, the pre-issue PE works out to be 18.6 times FY2017 earnings, which is lower compared to PE multiple of its peers like Ahluwalia Contracts (India) Ltd (PE at 22 times), PSP Projects (PE at 32 times). Moreover, post-RERA, a contractor with strong track record of timely project delivery would garner major order,” Parmar said in a report on 12 September.

The company, which currently caters only to private players will take up public sector orders such as smart city construction work and affordable housing development.

However, Centrum Broking Ltd said entering the public sector is risky as it could result in higher working capital requirements. “Business concentration in Mumbai region as it fetches 71% of order book as of May 2017 is also a risk factor,” Centrum added.

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