Afcons Infrastructure IPO: Offer subscribed to 0.28x on day 2. Should you invest?

On the second day of offer, the IPO (initial public offer) of Shapoorji Pallonji Group's flagship construction company, Afcons Infrastructure Limited, was subscribed to around 0.28 times. As of 1 pm today, investors had bid for only 1,71,49,632 shares as against the 6,13,13,722 shares on offer. The Rs 5,430 crore worth of IPO, which includes a fresh issue of Rs 1,250 crore and an OFS (offer for sale) worth Rs 4,180 crore, closes for subscription tomorrow.

The company is set to list on BSE and NSE next month, on November 4, 2024. With a price band of Rs 440 to Rs 463 per share, the company's last traded GMP (grey market premium) stood at Rs 23. This means that the investors are expecting the stock to list at around Rs 486 (upper end of price band, i.e., Rs 463+ GMP of Rs 23), which will translate into a potential listing gain of around 4.97% per share.

Globally, Afcons has undertaken multiple "first of its kind" infrastructure projects, like building Zambia's first flyovers and Ghana's largest rail project. Additionally, the company, which was incorporated in 1969, has a legacy of around 60 years. Some of their prominent projects in India include:

• Chenab Bridge in Jammu and Kashmir, which was completed in 2023. It is the tallest single-arch railway bridge in the world.
• The Atal Tunnel in Himachal Pradesh, the world's longest highway tunnel constructed 3,000 meters above sea level, was completed in 2020.
• Kolkata Metro, a part of which will be underwater, and will also include India's deepest metro station at Howrah.
• Afcons is also working on constructing a 21-kilometer-long tunnel for Mumbai-Ahmedabad High Speed Railway, which will comprise a 7-kilometer-long underseas rail tunnel, a first in India.

Steady Financials

The company has a sturdy order book, standing at Rs 31,747.43 crore as of June 30, 2024. Its revenue from operations also surged from Rs 12,637.38 crore in FY23 to Rs 13,267.50 crore in FY24. On an average, around 30% of its revenues are sourced from exports. The company's PAT (profit after tax) jumped from Rs 418.86 crore in FY23 to Rs 449.74 crore in FY24.

For the quarter ended June 30, 2024, the company's revenue from operations stood at Rs 3,154.36 crore, and profit after tax stood at Rs 91.59 crore. As of the second quarter of FY25, the company has 65 ongoing projects across 12 countries. Compared to its peers like Larsen and Toubro, which has a return on net worth (RoNW) of 15.24% and Kalpataru Project International, whose RoNW stands at 10.17%, Afcons has an RoNW of 15.24%.

Anand Rathi Research recommends subscribing to this IPO from a long-term perspective, noting that the issue appears fully priced.

"At the upper band, the company is valued at 37.9x its FY24 earnings, along with being valued at 46.3x if we annualize FY25 earnings. Following the issuance of equity shares, the company's market capitalization stands
at Rs 1,70,261.8 million, with a market cap-to-sales ratio of 1.34 based on its FY24 earnings. We believe that the issue is fully priced and recommend "Subscribe-Long-term” rating to the IPO, it adds.