Keynote Capitals has come out with report on Shriram EPC IPO. The firm has recommended subscribing to the issue with a long term view.
Shriram EPC, one of the leading service providers of integrated design, engineering, procurement, construction and project management services for renewable energy projects, process and metallurgical plants and municipal services sector projects throughout India and one of India’s leading 250 KW wind turbine generator manufacturers, has opened for subscription with its initial public offering (IPO) of 5,000,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process.
The price band is between Rs 290 and Rs 330 per equity share. The issue will close for subscription on February 1, 2008.
Keynote Capitals report on Shriram EPC IPO
Recommendation - Subscribe with a long term view
* Shriram EPC (SEPC) is a leading provider of integrated design, EPC and project management services for renewable energy projects, process and metallurgical plants and municipal services.
* The JVs with Leitwind BV, Netherlands for wind turbine generators (WTGs), Hamon BV, Netherlands for Cooling towers and Air pollution control systems and other JVs give access to technological know-how, project management skills and helps build strong client relationships.
* 41% of the IPO proceeds will be utilized for equity investments in the subsidiary and associate companies. While no fresh capex is being planned in SEPC, these investments will help consolidate and bring operations of these respective companies under SEPC’s fold.
* The revenue and PAT grew @ CAGR 138% and 287% respectively during FY04-07 reflecting aggression on the part of the management, as also the base effect.
* We believe the healthy order book of Rs22.8Bn will translate into revenues and earnings growth over the next 3 years. We expect revenues and PAT to grow @ CAGR of 70.8% and 74.3% respectively during FY08-10, on the back of the healthy order book and higher revenues from Mega-watt and Kilo-watt class WTGs.
* The investment concerns include low pricing power resulting in poor EBITDA margins and high level of receivables and order execution risks.
* The IPO is priced at 49.1x FY08E, 25.1x FY09E and 16.2x FY10E earnings. We note the relatively small size and very short track record vis-à-vis peers. While we believe it is expensive vis-à-vis WTG/EPC peers like Gamesa, Suzlon Energy and Indowind Energy we are of the view that it can be a good play on combined potential of the EPC / WTG sectors, especially given the global institutional appetite for the renewable energy segment. We therefore recommend investing with a long term perspective.
Investment Concerns
* The business is in early stages and is yet to achieve significant scalability.
* Order execution risks
* Top 10 clients contributed 85.2% of revenues in H1FY08.
* Dependence on JVs with international players Viz, Leitwind, Hamon Group, Orient
Green Power, etc.
Source: Moneycontrol.com
Wednesday, January 30, 2008
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