Afcons Infrastructure Limited IPO: Check IPO Date, Lot Size, Price & Details

Introduction:

Afcons Infrastructure, a leading engineering and construction company within the Shapoorji Pallonji group, has a rich legacy of over six decades. As the flagship firm of this diversified Indian conglomerate, Afcons has built a strong reputation for delivering complex and challenging engineering, procurement, and construction (EPC) projects across India and internationally. According to the 2023 ENR (Engineering News-Record, US) Top International Contractors rankings and the Fitch Report, Afcons is recognized as one of India’s largest international infrastructure companies based on international revenue for the financial year 2023.

Over the past eleven financial years and the first quarter ending June 30, 2024, the company has successfully completed 79 projects in 17 countries, with a total contract value of ₹563.05 billion. As of June 30, 2024, Afcons is actively managing 65 ongoing projects across 12 countries, contributing to an order book valued at ₹317.47 billion.

The company operates across five key business verticals:

• Marine and Industrial: Specializing in ports, harbour jetties, dry docks, breakwaters, LNG tanks, and material handling systems.
• Surface Transport: Focusing on highways, roads, railways, and mining infrastructure.
• Urban Infrastructure: Covering metro works, bridges, flyovers, and elevated corridors.
• Hydro and Underground: Handling dams, tunnels, underground works, and irrigation projects.
• Oil and Gas: Engaging in both offshore and onshore oil and gas projects.

IPO Details:

Objectives of Issue:

• Capital expenditure towards purchase of construction equipment
• Funding long term working capital requirements
• Prepayment or scheduled repayment of a portion of certain outstanding borrowings and acceptances availed by the Company
• General corporate purpose

Key Strengths:

• Diversified and Strong Order Book- Over the past three years, the company has significantly expanded and diversified its order book, maintaining a value exceeding ₹30,000 crore. With an impressive bill-to-book ratio above 2, the company demonstrates a strong ability to consistently secure new contracts. This diversification is further reflected in the contributions from all five business verticals, each accounting for at least 5% of the total order book over the period, highlighting the company's versatility. Additionally, the company has established a dominant presence internationally, with 25% of its orders sourced from overseas markets.
• Experience in Pursuing Large Value and Complex Projects – The company prioritize high-value, complex projects that align with its rigorous project selection criteria and risk management framework. It typically avoid projects with a large number of bidders, where competition is primarily price-driven. Instead, it focuses on technically advanced projects in specialized sectors, as these offer better profit margins due to limited competition. Eligibility to bid for such projects is restricted to companies with proven expertise, ensuring a higher level of competitiveness. Its vast experience in executing technically demanding projects across diverse sectors strengthens our position. For instance, in Marine, Industrial, and Surface Transport, it has completed 235 projects across 15 countries. In Urban Infrastructure, it has developed over 120 km of metro networks and delivered key infrastructure across nine major cities in India.
• Investment in state-of-the-art equipment and Technology: Afcons is committed to investing in the latest equipment and technologies in its operations. The company has a large fleet of tunnel boring machines, jack-ups and other specialized equipment that allows it to execute complex projects efficiently. For example, the tender for Phase IV of the Delhi Metro Rail required bidders to have nine tunnel boring machines. Afcons was able to win two large-value projects in this phase because it had nine tunnel boring machines available to meet the required deployment schedule.

Risks:

• Over Dependence on Government Orders – In the past 3 years government and government owned entities had a major share in the order book of company amounting to more than 65%. As on 30^th June 2024, the share of government and government related entities in the order book is 69.8%. If Projects funded by the government of India in foreign countries are considered such order share increases to further 20% , increase the total interest of government to more than 90%.Hence any change in the government stance towards infrastructure , could severally affect the business operations of the entity.
• Geopolitical Tensions in the international market – The company derives a significant portion of its revenue from international markets, particularly in Africa, the Middle East, and South Asia (excluding India), with key regions including Bangladesh and the Maldives. As of June 30, 2024, overseas projects accounted for ₹77,437.70 million of its order book, encompassing 20 projects. In Bangladesh, the company had to issue force majeure notices to customers due to work stoppages caused by ongoing protests and agitations, impacting projects valued at ₹34,055 million. If these disruptions persist, the company may face the possibility of abandoning these projects altogether.
• Risks and Challenges in Engaging Subcontractors: Engaging subcontractors involves various risks, including challenges in overseeing their performance, potential delays in securing qualified subcontractors, and unanticipated cost overruns. As subcontractors are not directly contracted with the company's clients, the company faces risks such as non-performance, project delays, or substandard workmanship. These issues can lead to increased costs, liabilities, and may negatively impact the company's business, reputation, and profitability, potentially resulting in litigation or claims. Although the company may seek compensation from subcontractors for such issues, there is no guarantee of successful recovery. Additionally, if subcontractors fail to obtain necessary government or third-party approvals, the company may face legal repercussions. For instance, during the Maharashtra Samruddhi Mahamarg project, a subcontractor's inability to secure required permissions led to legal proceedings against the company.

Financial Snapshot:

Interest Coverage Ratio – Interest Coverage Ratio determines the ability of a company to fulfill its interest obligations. It is a ratio that compares company earnings (before interest and taxes) to interest expenses. Essentially, it shows how many times a company can pay its interest charges using its operating profit. A higher ICR suggests a company is in a good financial position to handle its debt, while a lower ICR could signal potential financial difficulties.

Debt to Equity Ratio - The debt-to-equity (D/E) ratio is used to evaluate a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources.

KPI comparison with Industry Peers

Conclusion:

A comparative analysis of the company's financial statements against its peers highlights several positive aspects, demonstrating its ability to outperform in various key performance indicators (KPIs) while aligning closely with industry standards in others. When comparing the Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios, the company appears to be relatively undervalued compared to its competitors. Its operational excellence in managing complex projects, coupled with a robust order book and high bill-to-book ratio, serves as a unique selling proposition (USP). Therefore, investors with a long-term perspective may find the company's IPO to be a compelling investment opportunity.