PNC Infratech IPO opens today: Should you invest?

Agra-based PNC Infratech is coming out with a 100 per cent book building IPO (initial public offering) of equity shares of face value Rs 10 each in a price band of Rs 355-378 per equity share.

The company plans to raise about Rs 478 crore through the public offer. The IPO will open for subscription on May 8 and will close on May 12.

Post-issue, the shareholding of the promoter and promoter group in the company will fall to 56.1 per cent from the current holding of 72.3 per cent. The company plans to use the net proceeds to fund its working capital requirements (Rs 150 crore), invest in its subsidiary (Rs65 crore), invest in capital equipment (Rs 85 crore), repay certain debts (Rs 35 crore) and for general corporate purposes.

Rajnath Yadav, equity research analyst, Choice Broking, says, "At lower and upper price band, PNC's shares are available at price-to-earnings (P/E) multiple of 24.1x and 25.7x, which is at 17 per cent-24 per cent premium to average P/E multiple of peers. Thus we feel that the PNC's IPO pricing level is not justified, given the lower profitability margins and return ratios as compared to its peers. Thus, we recommend investors to avoid the issue."

Abnish Kumar, director-cum-research head, Amrapali Aadya, says, "We are not very much positive on the IPO PNC Infratech. However, one can subscribe the IPO for medium term gains."

However, a research report by Angel Broking, said, "PNC is poised to deliver healthy growth on the top-line as well as the bottom-line front with improvement in order book, particularly on account of revival in the NHAI and UP PWD award activity. We advise investors with a 12-month investment horizon to subscribe to this issue at the lower end of the price band."

Not more than 50 per cent of the issue will be allocated to qualified institutional buyers (QIBs). Further, at most 15 per cent of the issue will be available for non-institutional bidders and the remaining 35 per cent for the retail investors.

PNC Infratech is an Indian infrastructure construction, development and management company, with expertise in the execution of major infrastructure projects, including highways, bridges, flyovers, power transmission lines, airport runways, development of industrial areas and other infrastructure activities.

The company has executed or is executing projects across various states in India covering Rajasthan, Punjab, Haryana, Uttarakhand, Uttar Pradesh, Delhi, Bihar, West Bengal, Assam, Madhya Pradesh, Maharashtra, Karnataka and Tamil Nadu.

The company has executed 42 major infrastructure projects on an EPC basis. For the year ended March 2015, the company's order book was at Rs 7,849.7 crore against Rs 6,085.78 crore last year.

In terms of financials, revenues have grown at 11 per cent annually during 2009-10 and 2013-14 to Rs 1,145.6 crore. The operating margin has remained at the level of 11-12 per cent. It has also received a credit rating of CARE A for long term and CARE A1 for short-term.