What do experts, brokerages say about Ashoka Buildcon IPO?

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What do experts, brokerages say about Ashoka Buildcon IPO?

The initial public offering of Ashoka Buildcon, a company engaged in construction of roads and bridges on a build, operate and transfer (BOT) basis, has opened for subscription.

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The initial public offering of Ashoka Buildcon, a company engaged in construction of roads and bridges on a build, operate and transfer (BOT) basis, has opened for subscription.

The company hopes to raise upto Rs 225 crore through this issue, which will close on September 28, 2010. It has received commitment of Rs 40.3 crore from anchor investors on Thursday at Rs 324 a share - at higher end of price band band of Rs 297-324.

Experts as well as brokerage houses were mixed in their opinions. Investment advisor, SP Tulsian felt valuations of Ashoka were looking stretched even at the lower end of the price band and suggested giving this issue a pass. "It is an unwritten law that there should be a gap of about 15% in IPO price and expected listing price of a share. So if, IL&FS, a better and bigger portfolio, with better parentage, is ruling at a PE of less than 19.50 times, how this company can dare to issue share in a PE of 18 to 19.50 times? On top of it, contracting or EPC companies, of this size are ruling at a PE of around 10 times. So, if we take an average of both, ideal PE of the company on bourses should be 14 times and issue should have been made at a PE of  less than 12 times," Tulsian explained.

However, Manish Bhatt of Prabhudas Lilladher advised subscribing the issue.

While Angel Broking has recommended a "neutral" view on the IPO. "The company is not comparable to market leaders IRB Infra and ITNL on account of having smaller scale of operations in spite of being an early entrant in the space. The IPO is available at 2.5x and 2.3x FY2010 P/BV on the upper and lower price bands respectively, which again is at a premium to its peers, Sadbhav Engineering and NCC. Hence, on account of being fairly priced and with most positives factored in, we recommend a neutral view to the
IPO," suggested the broking firm.

Another leading broking from, Sharekhan in its research report said, "With 17 projects already operational and three more to get operational this fiscal, there is good revenue visibility in terms of toll revenue. Further its strong order book position of Rs 3,200 crore provides strong visibility in the EPC revenue growth in the coming years. The offer is priced in a band of Rs297 to Rs 324, resulting in a price/book value (BV) of 2.3-2.5x its FY2010 book value respectively. This is largely in line with the average valuations of its peer group companies. However, we see a lot of value in the two new projects bagged recently where financial closure is awaited. These two projects would provide upside in the near future."

"Given the limited availability of information about the BOT projects we employ a simple P/BV valuation method on the net equity invested in BOT projects by ABL. We believe these project can be valued between 1.5x to 2x P/BV and construction business at 6x EV/EBIDTA FY12 and thus arrive at a SOTP based target price band of Rs378 and Rs429 per share. i.e. expected return of 17% and 32% respectively. We recommend subscribe on the higher price band of Rs 324 per share," PINC Research said.