Know Your IPO: VKJ Infradevelopers

Delhi-based VKJ Infradevelopers (VKJIL) has filed the DRHP to list its equity shares on the BSE SME platform. Recently, Silverpoint Infratech, another company from the same sector, had also filed a DRHP to get listed on the same platform. The issue of company, VKJIL will open on Aug 12, 2013 and will close on Aug 16, 2013. 

The company intends to offer 51 lakh equity shares to raise Rs 12.75 crore at a fixed price of Rs 25 per share. The issue price is being offered at a premium of Rs 15 per share of its face value of Rs 10. Out of the total issue, 2.64 lakh equity shares are reserved for market makers. The lead manager for the issue is Inventure Merchant Banker Services.

VKJIL commenced its operations in March 2010 as a trader of construction-related materials like soils, sand etc. Currently, along with trading, it also carries out civil work like land filling, site development, fencing etc. The company has its operations mainly in Delhi and Noida.

In FY12, VKJIL posted a revenue of Rs 1.72 crore, marking an 89% growth from the FY11 revenue of Rs 91 lakh. Further, its operating expenses increased by 86% to Rs 1.64 crore, which is 95% of its overall revenue. This rise was due to the increase in the cost of materials consumed in FY12. In FY11 too, the operating expenses made up 97% of the total revenue. VKJIL's EBITDA in fiscal 2012 grew to Rs 8 lakh from Rs 2.84 lakh in FY11. Its net profit for the period stood at Rs 5.11 lakh against that of Rs 1.77 lakh in FY11.

The company’s main objective behind raising funds is to meet its working capital requirements. It intends to utilise Rs 10.65 crore for the execution of its ongoing as well as forthcoming projects. VKJIL is also looking forward to acquire some land for its future projects in Delhi, Noida and NCR.

On the valuations front, with its issue price of Rs 25 per share, VKJIL's shares are likely to trade at an annualised FY13 PE of 1083x its EPS of Rs 0.02. Its competitors in the listed space like Jaypee Infratech, RPP Infra Projects, Era Infra Engineering and NCC are currently trading at a trailing 12-month PE of 4.8x, 6.76x, 16.75x and 12.29x respectively. This makes it clear that the company has offered this issue at a very expensive price.

The company is in the initial stage of its business, and FY13 is only the third year of its operations. Being a young player in industry with no brand image to speak of and aggressive pricing, this offering surely looks like an unattractive option. Hence, we advise investors to stay away from this issue.