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>> Shriram EPC
Shriram EPC Ltd. IPO Analysis
29 January 2008
Source: www.keynoteindia.net
Keynote Capitals set "Subscribe with a long term view" recommendation on Shriram EPC Ltd. IPO.
Shriram EPC Ltd. IPO details:
Price Band: Rs. 290 - 330 per share
Issue open between: January 29 - February 1, 2008
Book Running Lead Managers: Kotak, I-Sec, Motilal Oswal
To List on: NSE and BSE
Market Cap post-listing: Rs. 14.14 billion or $358.1 million (based on the cap price)
Highlights:
Shriram EPC Ltd. (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-?-vis peers. While we believe it is expensive vis-?-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.
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