Dilip Buildcon's IPO opens today, Should you subscribe?

The IPO season is booming, after 8 successful IPOs already during the current financial year, Dilip Buildcon opens today for bidding. 

Bhopal-based Dilip Buildcon comes up with initial public offering (IPO) of around 1.02 crore shares and is raising Rs 430 crore.

The IPO subscription opens on August 1 and closes on August 3,2016. 

The price band for it is fixed at lower band of Rs 214 and upper band at Rs 219.

Should you subscribe?

Devam Modi, analyst, Equirus Securities, said, “Dilip Buildcon is a proven executor in Madhya Pradesh and has demonstrated the consistent ability to complete projects ahead of schedule. While this is a strong plus, we think that some of the negatives include high leverage, a huge machinery base and high working capital levels. As we have seen in the past (especially with many other contractors over 10-12 years), this model will work very well when there is a vibrant order inflow environment but a slowdown in new order could lead to trouble. ”

The task ahead is significant, given their high base of Rs 40 billion revenues and more than Rs 110 billion order book, they need Rs 150 billion of road orders in the coming 3 years for them to deliver a reasonable growth, added Modi.

While the valuations appear reasonable at lesser than 15x with Standalone PAT of Rs 2.2 billion, some of the factors highlighted above could be the reason behind this. ”However, before investing in this issue, we would think that investors should also evaluate opportunities already available in the listed space. As such, we continue to like Ashoka, PNC, KNR and Sadbhav group in this broader space.”

In comparison with Dilip Buildcon's peer, Dalal Street Investment Journal said, “Dilip Buildcon with EPS of 16.79 looks attractive at PE of 13.04 as compared to other peers like J Kumar Infraprojects, Ashoka Buildcon and PNC Infratech. Company also enjoys higher return on net worth of 19.64 per cent among peers. We believe that one can go for subscription as we can see 15-20 per cent upside stock movement after the issue.”

While Nitin Bhasin and Utsav Mehta analyst of Ambit Capital said, “We expect the money raised from minorities should be used to strengthen the balance sheet or protect from future shocks of growth, margins, and cash (very frequent in this industry). Valuation should be at discount to peers for corporate governance issues. ”

Dilip Buildcon is among-st the largest road EPC contractors in the country with an order book of Rs 103 billion.