A B Infrabuild: tenders, railways and a blank price tag

A B Infrabuild builds things the government owns. Railway platforms and station buildings, gauge conversion and track laying, bridges of half a dozen structural types, and bituminous and concrete roads, most of it in and around Mumbai, with a ready mix concrete plant at Kashimira in Thane district supplying the concrete side of the business ¹. The filing describes the company as operating in exactly two segments: creation of infrastructure, and operating a ready mix concrete plant ².

Its customers are public bodies. The Municipal Corporation of Greater Mumbai, Western Railway, Central Railway, Mumbai Railway Vikas Corporation Ltd, Mumbai Metropolitan Region Development Authority and Dedicated Freight Corridor Corporation of India Ltd all appear on the client list, alongside a handful of private names ². Work from bodies like these does not arrive through sales calls. It arrives through tenders, and the job goes to the lowest quote ³.

The offer is 44,28,000 equity shares of ₹10 face value, at an issue price the filing leaves as ₹[●] ⁴. The money is earmarked mainly for working capital (₹1,130 lakhs, or ₹11.30 crore), plus general corporate purposes, for which the filing does not disclose an amount ⁵. One number frames everything that follows: Indian Railways was 57% of FY2018 revenue, and Western Railway alone accounts for 52% of the orders on hand ⁶.

What the company does

The infrastructure half of the business covers four kinds of work. Railways means designing and constructing platforms and station buildings, gauge conversion, and laying track. Bridges means contracts across beam, cantilever, arch, suspension, cable-stayed and truss types. Roadways means bituminous and concrete road construction connecting highways and district roads. And the fourth is the concrete itself, produced at the company’s own plant ¹.

How that work is won matters more than what it is. A government client floats a tender for a specific job, holds a pre-bid meeting to answer contractor queries, receives bids, and awards the work to the lowest quote; the Letter of Acceptance goes to the lowest bidder, who then deposits a performance guarantee before the site is handed over ³. The company does not set its price; the competition does, and the award goes to the lowest bidder ³. The filing is direct about the consequence: performance could suffer if most bids are not accepted or awarded ⁷.

The footprint is Mumbai first. The filing describes the company as a major player in developing infrastructure in the city of Mumbai, consolidating its position in Maharashtra ⁸. The only facility described in any detail is the ready mix concrete plant at Kashimira in Thane district, with machinery and quality-control systems attached to the concrete activity ⁸.

Two concentrations define the business, and they are the same concentration seen from two angles. Western Railway has been a client since 2006 and is the largest exposure, at 52% of orders on hand ⁹. Revenue from key customers was 57% of total revenue for the period ended March 31, 2018 ⁸. The filing’s own competitive-strengths section presents this as a long-standing relationship; read as a risk, it is a single counterparty carrying more than half the order book.

The filing also presents Box Pushing as a technique it uses in executing its projects, and cites founders with more than 20 years in the infrastructure industry ⁸. What the excerpts do not carry is a revenue split between the infrastructure segment and the concrete plant, so a reader cannot tell from these pages how much of the business the Thane facility actually is.

The market it sells into

Infrastructure here means power, bridges, dams, roads and urban infrastructure development, the physical build-out of the country ¹⁰. The filing calls that market highly fragmented and working capital intensive, contributing roughly 8% of India’s GDP at constant prices ¹⁰. Those three phrases describe A B Infrabuild’s own balance sheet as neatly as the industry’s.

Demand is a government spending story. Infrastructure spending was assumed at 9.0% of GDP in the 12th Five-Year Plan, and the filing cites an infrastructure investment requirement of ₹50 trillion (US$777.73 billion) by 2022 ¹¹. The named programmes behind that spending are the 100 Smart Cities Mission, AMRUT, Make in India and Power for All; FDI norms were eased in 15 sectors including construction, and the sector drew US$24.67 billion of FDI between April 2000 and December 2017 ¹².

The near-term markers are more modest than the ten-year numbers. The eight core industries grew 4.2% cumulatively in 2017-18, GDP growth was expected to stay above 7% in 2017, and logistics was forecast to grow at a 10.5% CAGR from US$160 billion in 2017 to US$215 billion by 2020 ¹³.

Competition is acknowledged only in the abstract: rivals in both the organized and unorganized sectors, with no named competitor and no market share figure anywhere in the excerpts ¹⁴. The headwinds the filing itself lists are the ones that would hit this business first: slow pace of government projects, a working capital crunch that may affect profitability, and changes in government policies ¹⁴.

The offer and what the money is for

A fresh issue raises new money for the company; an offer for sale lets existing owners sell down their stake to new investors. The distinction matters because only the first puts cash on the company’s balance sheet. The filing states the issue is 44,28,000 equity shares of ₹10 each at an issue price of ₹[●], and the excerpts do not state the split between fresh issue and offer for sale, or name any selling shareholder ⁴.

The objects of the issue point to money going to the company rather than to a selling shareholder. ₹1,130 lakhs (₹11.30 crore) is earmarked for working capital requirements, and general corporate purposes carries no disclosed amount ⁵. The filing also states the face value is ₹10 and that the issue price is ₹[●] times the face value, leaving the multiple blank as well ¹⁵.

Working capital is not an abstract object here. Short-term borrowings stood at ₹3,537.35 lakhs (₹35.37 crore) at March 31, 2018 ¹⁶. Fresh equity raised against the working-capital line is the practical purpose of the raise.

Mark Corporate Advisors Private Limited is the lead manager to the issue; Bigshare Services Private Limited is the registrar ¹⁷. No monitoring agency has been appointed to watch the deployment of the proceeds. The filing says the funds are at the discretion of management, monitored by the audit committee ¹⁸.

Five years of restated numbers

The filing reports in ₹ lakhs; every figure below is converted to ₹ crore by dividing by 100.

Revenue from operations, as restated, runs: FY2014 ₹86.61 crore, FY2015 ₹90.21 crore, FY2016 ₹74.53 crore, FY2017 ₹73.44 crore, FY2018 ₹60.53 crore ¹⁹. The filing’s own summary is blunt about the direction: revenue fell from ₹9,021.12 lakhs in FY2015 to ₹6,053.05 lakhs in FY2018 ¹⁹.

EBITDA (profit before interest, depreciation and tax) was ₹7.84 crore in FY2014, ₹9.46 crore in FY2015, ₹7.83 crore in FY2016, ₹6.76 crore in FY2017 and ₹9.29 crore in FY2018 ²⁰. Read those two lines together and the divergence is clear: earnings rose to their second-highest level of the five years in FY2018, the same year revenue fell to its lowest.

Net profit after adjustments was ₹0.96 crore in FY2014, ₹0.78 crore in FY2015, ₹0.33 crore in FY2016, ₹0.16 crore in FY2017 and ₹3.15 crore in FY2018; the filing describes the last year as a sharp increase, from ₹15.86 lakhs to ₹314.66 lakhs ¹⁹. The FY2018 profit jump is not explained on these pages, and it arrives in the same year revenue hit a five-year low. That is a question for the reader to carry into the RHP rather than a trend to extrapolate.

The balance sheet is a working-capital balance sheet. Total assets were ₹70.62 crore in FY2014, ₹72.67 crore in FY2015, ₹62.95 crore in FY2016, ₹75.37 crore in FY2017 and ₹82.32 crore in FY2018, against FY2018 revenue of ₹60.53 crore ²¹. The asset base grew in four of five years even as revenue shrank. The filing’s own summary of the balance sheet is that shorter-term borrowings rose from ₹3,082.27 lakhs in FY2014 to ₹3,537.35 lakhs in FY2018 ¹⁶.

On the debt stack: long-term borrowings fell from ₹6.73 crore in FY2015 to ₹1.33 crore in FY2018, while short-term borrowings across the same period ran ₹32.28 crore, ₹30.21 crore, ₹33.12 crore and ₹35.37 crore; the funding has moved to the short end ¹⁶. Separately, the company had ₹405.02 lakhs (₹4.05 crore) of unsecured loans outstanding at March 31, 2018, repayable on demand ²².

Cash generation is the soft spot. The filing states the company had negative cash flow in recent financial years, that sustained negative cash flow could hurt the business, and that failing to recover from sundry debtors on time could affect its financial condition ²². The cash flow statement figures themselves are not in these excerpts.

Pricing, peers, and what the filing leaves blank

An Indian IPO is not priced by the issuer alone. The filing has to set out its accounting ratios against listed peers and argue that the price is justified by the comparison. The number at the centre of that section is missing. The face value is ₹10, the issue price is ₹[●], and the filing says only that the price is ₹[●] times face value ¹⁵.

The peer comparison page compares accounting ratios with peer group companies, but the digest of it carries values without peer names or row labels (12.39, 28.14, 44.71, and 6,053.05 alongside a face value of 10), so the peer table itself is not reproducible from the excerpts, and no peer P/E, EPS, NAV or RoNW is captured ¹⁵. The Basis for Issue Price section does set out per-share and return figures for three years: 4.14, 1.97 and 28.14 for FY2016, FY2017 and FY2018, and a second row at 1.31, 0.63 and 12.59 for the same years ²³.

Because the price is blank and no peer multiple is named in the excerpts, an implied price range cannot be built from this filing. Anything that produced a number here would be invented, not sourced.

One pricing-related disclosure does exist and matters: the company issued equity shares in the 12 months before the filing at a price that may be lower than the issue price ²².

Who controls it, and the flags

Amit Bholanath Mishra is the promoter and managing director, holding 74,95,476 equity shares (90.949% of the pre-issue issued, subscribed and paid-up capital) ²⁴. The remaining directors hold 300 shares each (Bharat kumar Parmar, Shree Prakash Singh and Mukesh Pandey), while key management personnel Hatim Sakerwala holds 9% of the equity shares ²⁵. The filing excerpts do not state the promoter’s shareholding after the issue, so the post-issue float cannot be worked out from these pages.

The key management is young relative to the business: chief financial officer Anchal Pachori is 28 and a chartered accountant, and company secretary and compliance officer Mohit Soni is 26 and an associate member of the Institute of Company Secretaries of India ²⁶.

Related-party flows are disclosed. In FY2018 the company took ₹68.4 lakhs of loans from key management personnel or board members, paid ₹57.7 lakhs in director remuneration, and carried ₹324.3 lakhs of outstanding payables to related parties as at March 31, 2018 ²⁷.

The company, its promoter and its directors are parties to litigation pending at various stages; the filing does not quantify the claims or name the forums in these excerpts ²⁸. On the clean side of the ledger: no director appears on the RBI list of willful defaulters, no criminal cases or investigations are recorded against any director, and the promoter confirms he has not been declared a willful defaulter by the RBI or any other government authority ²⁹.

Two promoter-linked companies were struck off by the Registrar of Companies for non-operation of business: Al-Noor Chickens Private Limited on March 12, 2016 and A B Magma Automobiles Private Limited on March 11, 2016 ¹⁸. The filing also flags that no independent agency has appraised the proposed project, and that no monitoring agency will track how the proceeds are spent ¹⁸.

The five risks that matter

Customer concentration is the first risk and the largest. Indian Railways was 57% of FY2018 revenue, and the filing states that the majority of revenues will be dependent on one customer, Indian Railways, its largest customer ³⁰.

Revenue depends on winning government tenders awarded to the lowest bidder. The filing says the company’s attempts to secure government and PSU projects may not always succeed, and that a failure to obtain new contracts would materially hurt its financial condition ³¹.

The order book is not a forecast. The filing says contracts in the order book may be adjusted, cancelled or suspended by clients, and that the order book is not necessarily indicative of future revenues or earnings, which matters when Western Railway is 52% of the orders on hand ³².

The company had negative cash flow in recent financial years, and the filing states that sustained negative cash flow could adversely impact the business, financial condition and results of operations ²².

₹405.02 lakhs (₹4.05 crore) of unsecured loans were outstanding at March 31, 2018 and are repayable on demand; any demand for repayment could affect cash flow and financial condition. Separately, revenue is concentrated geographically in Mumbai, so an adverse development there hits the whole book ³³.