RPP Infra Projects IPO - Expensive - SPA Securities

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. The firm entered the Sri Lanka market recently and is currently executing a project in the Railway Sector.

Issue: The issue comprises a fresh issue of 6,100,000 shares and an offer for sale of 400,000 shares by promoters. 400,000 shares are reserved for the employees. Net Issue to public is 6,100,000 shares.

Investment Rationale

Presence in diverse segments

RPP Infra has civil construction expertise in diverse segments of the construction and infrastructure industry such as Roads, Bridges, Highways, SEZ Development, Irrigation, Water Supply Management and Power Projects.

Comfortable Order Book

The value of Order book stands at INR 6129mn as on June 30, 2010 which is equivalent to 4.24x FY10 Contract Revenue.

Investment in construction equipment to sustain future growth

Company has invested INR 1287.5mn in last three years on equipment purchase. Ownership ensures continuous availability of critical equipment resulting in several advantages like lower cost and rapid mobilization.

Valuation & Recommendation

On the post issue FY10 earnings per share, the shares are offered at a P/E of 18.6x and 20.3x on upper and lower band respectively which is high compared to its peers. Company's ability to win BOT/BOOT projects and execution capabilities has not yet established. The offer is expensively priced.

Source : Equity Bulls

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