RPP Infra Projects Ltd IPO Update - Religare

Betting on infra play

RPP Infra Projects is a construction company primarily engaged in the business of infrastructure development such as Highways, Roads and Bridges. The company has diversified its civil works expertise into SEZ Development, Water Management Projects, Irrigation and Power Projects. The company has operations in the South Indian region - covering states of Karnataka, Andhra Pradesh, Tamil Nadu and the Union Territory of Pondicherry, Andaman Nicobar Islands. Recently, the firm entered the Srilankan market and is currently executing a project in the Railway Sector.

Offer comprises a fresh issue of 61 lakh equity shares by RPP Infra Projects Limited and an offer for sale of 4 lakh equity shares by the promoters. The issue comprises a reservation of 4 lakh equity shares for eligible employees and a net issue to the public of 61 lakh equity shares.

Rationale: The company intends to deploy the proceeds of the issue for funding margin requirement for working capital, capital expenditure, Investment in SPVs for BOT projects and general corporate expenses.

Competition: The construction industry is highly fragmented with large number of players operating in the unorganized sector and a few of them in the organized sector. Considering the competition in the industry, the award of contracts depends on the successfully bidding tenders. The level of competition depends on whether the project is in the civil construction sector or the infrastructure sector as well as a host of other factors, such as the type of project, contract value and potential margins, the complexity and location of the project, the reputation of the client and the risks relating to revenue generation.

Financials: In the financial years ended March 31, 2010 and 3 months ended 30th June 2010 the gross income from operations (excluding non-operating income) was Rs 14,688.67 lakhs and Rs 3,686.00 lakhs, respectively. For the same period the company reported PAT of Rs 826.36 lakhs and Rs 218.10 lakhs, respectively.

Business Strategy: The company intends to improve its market position in the construction sector in which it operates, by pursuing the following business strategies:

1. Leverage expertise and focus on new territories.
2. Forge Alliances with reputed and large players.
3. Bid for, win and operate BOT and Annuity projects.
4. Improve performance and enhance returns from business.
5. Focus on High Value contracts.
6. Achieve higher operating margins by acquiring further capital equipment and other strategic assets.

Source : Equity Bulls

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