IRCON IPO Review | IRCON International Review

ircon IPO

IRCON IPO comprises of an offer for sale (OFS) of up to 99 lakh equity shares of Rs.10 each by Government of India in the price band of Rs. 470 to Rs. 475 per share, with a discount of Rs. 10 per share for retail category. IRCON International IPO total issue size is Rs. 467 crore at the upper end of the price band. The OFS amounts to 10.53% of the post issue paid-up share capitalIRCON International Limited is a government company under the Ministry of Railways, specializing in a variety of infrastructure projects.

IRCON IPO: Details
Issue Period Sept 17 – Sept 19, 2018
Issue Size (Shares) Offer for Sale of 9,905,157 Equity Shares
Employee Reservation 5,00,000 Equity Shares  (Rs.23.00~Cr – 23.85 Cr)
Issue Size (Rs. Cr) Rs.461.75~ Cr – 466.70 Cr
Price Band Rs.470 – 475
Retail & Employee Discount Rs.10/- per Equity Share
Bid Lot 30 Equity Shares and multiple thereof
Issue Structure :  
QIB 50% of the Net offer 
NIB 15% of the Net offer
Retail 35% of the Net offer – 3,291,805 Shares- Rs. 153.07 Cr
BRLMs Axis Capital, IDBI Capital, SBI Capital
Registrar Karvy Computershare Pvt. Ltd.
Related Post: IRCON IPO: Brokerage Views & Run Up to IPO
About IRCON International Limited
  • IRCON International Limited, is owned by Government of India and is  is an engineering and construction company (EPC) specializing in infrastructure projects  which includes railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, runways, commercial and residential properties etc.
  • Railways is the main focus of Company. The company is a Government Company having Ministry of Railways (“MOR”) as the largest shareholder and has been granted the status of ‘Mini Ratna – Category – 1’ by the Ministry of Railways.
  • As of March 31, 2018, ircon had undertaken total of 33 railway projects in 2 countries internationally and in 13 states in India. In the Infrastructure space, it had completed road project of 115 km  and expects to complete 2 more BOT  projects in Fiscal 2018.
  • As of March 31, 2018, the size of its workforce was 1179 permanent employees and the fleet of its  equipment comprised 648 construction vehicles and other equipment.
  • Apart from its Headquarters at Delhi, the company has overseas office in Malaysia. Additionally, they have 26 project offices in India and abroad including in Sri Lanka, Bangladesh, South Africa and Algeria and five regional offices to support and manage their business operations.
IRCON International: Financials
Particulars As at March 31  Rs Crore
2018 2017 2016 2015
Revenue from Operations 4,001.17 2,977.41 2,388.77 2,886.45
Revenue Growth (%) 34.38% 24.64% -17.24%
Profit Before Tax 558.36 555.52 611.6 834.58
Profit After Tax 411.58 383.98 393.11 563.03
PAT as % to revenue 10.29% 12.90% 16.46% 19.51%
Share Capital 94.05 98.98 98.98 19.8
Reserves 3,654.04 3,712.37 3,624.12 3,428.92
Net Worth 3,748.09 3,811.35 3,643.92 3,448.72
EPS (Rs.) 43.76 38.79 39.72 284.42
RoNW (%) 10.98% 10.07% 10.79% 16.33%
NAV (Rs.) 383.64 385.06 368.15 1,741.78
Dividend (%) 246.21% 224.02% 1107.29% 959.66%
Face Value 10
IPO Price 475
PE  10.85
P/BV 1.24
CAGR Sales 3 Yrs 11.50%
CAGR Net Profit 3 Yrs -9.92%
Market Cap 4467.38
Market cap / Sales 1.12
IRCON International IPO: Pros
  • IRCON International has completed more than 127 projects in more than 24 countries across globe, and 380 projects in various states in India. Company diversified into various infrastructure sectors including railways, highways, bridges,flyovers, tunnels, aircraft maintenance hangers, runways, EHV sub-stations, electrical and mechanical works, commercial and residential properties, development of industrial areas etc. Thus the company has  isplayed good execution expertise without straining its financial position.
  • IRCON International order book as of March 31, 2018,  was ₹22,407 crore. On  this date it had 49 ongoing projects.
  • Railway sector projects contribute approximately 86.70% of its  Order Book as of March 31, 2018.
  • The company has a healthy balance sheet. It is able to get 30% advance from the Railways against the orders. Thus the  company has rather low  working capital requirements.
  • Though Railways remains the major focus area of company, it has  also diversified into Road sector.
  • Company is trying to reestablish its foothold in International projects. 
IRCON International IPO: Risks
  • Its business and revenues are substantially dependent on construction and infrastructure projects undertaken or awarded by government authorities and other entities funded by the government.
  •  High concentration on orders from Railways.
  • Higher employee cost and less flexibility to attract talent due to Govt control
  • The Ministry of Railway (MoR) has distributed the jurisdiction of work between RITES and IRCON International Ltd. (a peer group PSU under the MoR) in accordance with their respective core competencies. The company is permitted to participate in EPC or BOT contracts, other than railway contracts, in the event there is no conflict of interest with any other public sector undertaking under the MoR.
IRCON IPO: Assessment
  • CRISIL Research expects the investments in railway sector to increase from Rs 3.9 trillion in fiscal 2015-2018 to Rs 6.8 trillion in fiscal 2019-2022. This jump in investments should benefit IRCON. 
  • Both IRCON International and recently listed RITES primarily derive their revenue from Railways. While Rites has presence in consultancy & services, Ircon International is mainly in to construction projects.
  • Except for International orders  which now for  a very low amount of IRCON’s current order book, IRCON faces no competition in the domestic market as it gets orders  from the Indian railways on nomination basis.  
  • iRCON International has been paying liberal dividend policy whereby 30% of its PAT or 5% of net worth, whichever is higher, is distributed as dividend. 
  • Its growth in revenue and been consistent but its profits were dented from 2015 onwards due too failure to secure international orders where it enjoyed higher margins.
  • The company’s order book is strong which gives good revenue visibility.  IRCONs order book to sales ratio is more than 5 and a healthy balance sheet normally less frequent in construction companies speaks well for the company.
  • At post issue P/E of around 10.85, the company’s valuations are reasonable.  With a lower retail  issue size of Rs. 153 crore which is in the same region as recently conclude RITES IPO, the IRCON IPO may be subscribed unlike some past issues by Govt. owned enterprises. 
  • Despite a lackluster performance by recent Govt controlled IPOs like GIC Re, HAL, BDL etc. whose IPO are ruling below IPO price, my stance on Ircon IPO is slightly positive due to reasonable valuations and good dividend track record of distributing about 40% of its profits. I intend to apply in the IRCON IPO.

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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