Choice Broking has come out with its report on Bharat Road Network . The research firm has recommended to “ Avoid ” the IPO in its research report as on September 04, 2017
Bharat Road Network Ltd. (BRNL) is a road BOT company in India, focused on development, implementation, operation and maintenance of roads/highways projects. The company have a project portfolio consisting of six BOT Projects, of which two are operational under final COD, three are operational under provisional COD and one is under construction.
•Out of the total net proceeds from the issue, around Rs. 3,725mn will be utilized to acquire subordinated debt advanced/held by SREI in the identified SPVs. Additionally around Rs. 515mn will be given as interest free subordinate debt to its subsidiary to part finance the project. Rest of the net proceeds will be utilized for general corporate purposes.
BRNL generates revenue mainly from consultancy fee. Over FY13-17, on standalone basis too, the company has reported loss, with loss increasing from Rs. 166.3mn in FY13 to Rs. 307.5mn in FY17. In the near term we are not anticipating any improvement in the business and thus on standalone basis also it may continue to report losses.
BRNL will be utilizing around Rs. 3,725mn from the net from the issue to acquire subordinated debt advanced/held by SREI in the identified SPVs. By this mechanism, the company will become creditors in the SPVs. Thus interest expenses from the SPV will be an income for the BRNL. This arrangement might increase the cash flow for the company (i.e. interest income plus non cash expenses in the SPV), but is not likely turn the SPVs profitable as there is no reduction in the debt levels.
Coming on the valuation front, considering the profitability of BRNL and the above mentioned peers, it seems that the issue is aggressively priced. Thus considering the above observations we assign a “AVOID” rating for the issue.
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