A2Z Maintenance & Engineering IPO : Analysis

by khalid on 12/12/2010 · 0 comments

A2Z Maintenance & Engineering Ltd is entering into primary market with an Initial Public Offer (IPO) of 18,193,253 Equity Shares of Rs 10 each. The IPO is opening on 8th Nov 2010 and the shares will be available for subscription up to 10th Dec 2010. The premium of the issue will be decided through a 100% Book Building Process. The price band for the issue has been fixed as Rs 400-410/share. The company like to generate Rs 675 crores from the primary market. But it has not able to attract investors as on the final day of subscription ( 10th Dec 2010 ) only 0.96 times bidding came for the IPO. Rakesh Jhunjhunwala offloading 4% of his stake in the company via A2Z Maintenance & Engineering Services IPO. A2Z Maintenance & Engineering Services Limited Started in 2002 as a facility management services company, A2Z has evolved into an engineering, procurement and construction (EPC) services provider to the power transmission and distribution companies.

The objects of the IPO are to be utilized to fund the company’s several projects across the renewable energy and waste management. The company diversified itself into waste management and plans to scale up this business after the IPO.

The company is also involved in other businesses like generating power from renewable energy sources, providing municipal solid waste management services, providing facility management services and developing information technology (“IT”) solutions for power utilities. The company has been awarded a contract on a BOOT basis with an aggregate municipal solid waste (MSW) capacity of 3,800 tons per day in six cities.

Company Financials:-
(Rs in Crores)

For the year ended 31-Mar-10For the year ended 31-Mar-09For the year ended 31-Mar-08For the year ended 31-Mar-07
Total Income1,225.29723.88481.34181.28
Profit After Tax (PAT)98.5259.0549.8411.14

Risk Factors:-
1. The company proposed to enter into Power generation through MSW but does not have prior expertise in the filed.
2. Most of the contracts are with government and public sector undertakings.
3. The company had negative cash flows from FY 06.
4. The company operates in highly competitive segments with high working capital requirements.
5. Price band is Rs 400-410/share and looks overpriced.

Positive Factors:-
1. IPO grade 4 by CARE. So its an ‘Above Average Fundamentals’ and that is good.
2. The big investor Rakesh Jhunjhunwala has a significant holding in the company and off loading only 4% of that.

Valuation and Recommendation :-
A2Z Maintenance & Engineering IPO is like SKS Micro IPO which had big name with it like Narayna Murthi but share is 30% down within 3 months of its listing. AT Rs 400-410/share, the company is demanding a valuation of around 30 times on its FY10 earnings, which is expensive. The CAGR, profitability has no meaning, since the company has experienced negative cash flow for the last four years. So the advice from most of the analysts is that “AVOID” this IPO.

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