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ARSS Infrastructure Projects Ltd 03 February, 2010 Issue Details Particulars Introduction Price band (Rs) 410-450 Face value (Rs) 10 ARSS is engaged in construction activities of railway infrastructure, roads, Issue open date 8th Feb'10 highways, bridges and irrigation projects. It started operations as a construction Issue close date 11th Feb'10 company in the field of railway infrastructure development, mainly in the state of Issue size (No)(in mn) @ UB 2.29 Orissa and subsequently expanded business activities in the zonal jurisdictions of Issue size (Rs mn) 1030 East Coast Railway, South Eastern Railway, South East Central Railway, Southern Pre issue equity capital (Rs mn) 125.54 Post issue equity capital (Rs mn) 148.43 Railway and North Western Railway. Company has developed expertise in railway Post issue market cap (Rs mn) at UB 6679.30 construction projects, which includes earthwork, major and minor bridges, supply of Pre issue Promotor Holding 65.31% ballast, sleepers, laying of sleepers and rails, linking of tracks etc. over the years Post issue Promotor Holding 55.18% company has diversified into development and construction of roads, highways, Listing NSE, BSE bridges and irrigation projects as well as undertaking EPC activities for railways. IDBI Cap, BRLM SBI Cap Sunidhi, Objects of the issue Almondz, (R s I n M n s) Syndicate Member SBICAP Sec, O bjec ts O f the Issue Am ount ENAM Inves tm ent In J Vs 50.0 IPO graded by CARE 2/5 Funding Long Term work ing C apital require ments 860.0 Registrar BSS Private Ltd G ener al Cor porate P urpos e -- - P ublic Is sue expens es -- - Issue Allocation % of net Issue Nos in mn Total 1030.0 Public Issue 2.29 QIB 60% 1.37 Non QIB 10% 0.23 Highlights Employees 0.00 As on 10th January, 2010, ARSS has an order backlog of Rs 28.77 bn to Retail 30% 0.69 be executed over next two years. Order book stands at 4.61x FY09 Bid Lot 15 sales of Rs 6.24 bn. This gives high revenue visibility for the company. Total 2.29 Company operates in the eastern region and has consistently delivered high operating and net margin of ~ 17% and ~ 7%. http://www.arssgroup.in 40% of the current order book is from railways segment where ARSS Amber Singhania commands a higher margin compared to other segments. Amber.firstname.lastname@example.org SBI has subscribed to 1 mn Equity Shares of Rs. 10/- each at a premium of Rs.305/- per Equity Share on 7th January, 2008. Suryakanta Behera Suryakant.email@example.com Company has a fleet of strategic construction equipment assets worth Rs 2.24bn. It has 8 crusher units at six locations in various districts of Orissa and equipment storage, maintenance and repair facilities at Phone: +91- 22- 66318634 Crusher plants. For 9M FY10 ARSS has posted Net Sales and PAT of Rs 6.09 bn and Rs 0.5 bn respectively with an operating margin of 18.8% which has gone up significantly from OPM of 16.2% for FY09. ARSS has over 2700 employees on its payroll with a huge pool of qualified engineers and professionals. Company’s clientele includes Indian Railways, NTPC, Rail Vikas Nigam, NHAI, Indian Oil etc from public sector and JSPL and Vedanta group from private sector. ARSS Infrastructure Projects Ltd Business Company is engaged in construction activities in India. ARSS undertakes construction of railway infrastructure, roads, highways, bridges and irrigation projects. Railways Company started as a construction company in the field of railway infrastructure development. ARSS have developed an expertise in railway construction projects, which include earthwork, major and minor bridges, supply of ballast, sleepers, laying of sleepers and rails, linking of tracks etc. The major clients include Rail Vikas Nigam Limited, RITES, IRCON International Limited and railway authorities spread across various zonal jurisdictions of East Coast Railway, South Eastern Railway, South East Central Railway, Southern Railway and North Western Railway. Chart: Railway works undertaken Supply of ballast, construction of bridges, subways etc Construction Work Engineering Work Linking of tracks, laying of sleepers and rails Civil Work Earthwork, excavations, construction of roadbeds As on 10th January, 2010 ARSS has orders worth Rs 11841.3 mn in this segment. Roads ARSS also has developed expertise in the business of road construction, which includes road widening, strengthen, repair and maintenance activities. In the last nine years, company have built over 300 km of road network (including highways), primarily in eastern India. Major clients include state Government organizations like Central PWD and the State PWD. Construction Work Earthwork, sand filling, excavation, construction of establishments, drain works, construction of granular sub-bases Widening and Improvement Increasing lanes, providing rigid pavements, broadening of roads, Work strengthening of roads etc Repairs and Maintenance Work Repair and maintenance of certain damaged sections of the roads As of January 10, 2010 Company has Rs 11640.5 mn of work order for roads and highways. Irrigation ARSS ventured into irrigation projects during the year 2008-2009. The scope of activities includes digging of canals and construction of dam. Currently ARSS is involved in two irrigation projects and clients include state Government organizations like Haryana Irrigation Department and Executive Engineer Konar Canal Divisions. Company has entered into joint venture and MOU with Patel Engineering Limited to pre-qualify and bid for larger projects. (In mns) Nature of Work Client Amount Project Status Start Date Const of Koshallia dam and its appurtenant works Haryana Irrigation Department 1130 Joint Venture 7-Mar-08 Construction of Baharagora distributory dam Exec Engg Konar Canal Division 360 Independent 24-Dec-07 Sunidhi Research Page 2 of 8 ARSS Infrastructure Projects Ltd Strong and diversified Order Book Order Book as on January 10, 2010 stands at Rs 28775.3 mn. The composition of Order Book is well diversified over various segments such as railways, roads and highways and ROB(s). (In mns) Particulars As on 10th Jan 2010 FY09 FY08 FY07 Amount % Amount % Amount % Amount % Railway work 11841.4 41% 9912.1 65% 8122.3 53% 2762.8 43% Road work 11640.5 40% 4214.9 28% 6085.4 39% 3715.6 57% Irrigation 727 3% 571.0 4% 870.5 6% 0 0% Other work 4566.4 16% 554.5 4% 364.8 2% 0 0% Total 28775.3 100% 15252.6 100% 15443.1 100% 6478.4 100% Revenue Break Up 9M FY10 Revenue Break Up FY09 Revenue Break Up Other Other Work* Railw ay Work*, 22% Work 14% Irrigation, 27% 7% Railw ay Irrigation Work, 46% 5% Road Work, 33% Road Work 46% Strengths Project management expertise and track record ARSS has executed over 86 projects involving construction of approximately 300 km of roads and highways, 200 km of rail tracks, 10 minor and major bridges and other general civil engineering works over the span of nine years. Large fleet of construction equipment As of December 31, 2009 total investment in plant, machinery and equipment was Rs. 2247 mn. Company has 8 crusher units at six locations in various districts of Orrisa with a total capacity of 1000 mtpa. ARSS has own construction equipment comprising of Hydraulic Excavator, Tippers, Excavator cum Loader, Vibrator Roller, Vibrator Soil Contractor, Motor Grader, Hot Mix Plant, Batch Mix Plant, Concrete Batching Plant, Wet Mix Plant, Transit Mixture, Crane and other miscellaneous equipment. Long-term relationship with reputed clients Majority of the contracts are received from Government, Public Sector Undertakings and other Government agencies, which reduces the risk of default and delayed payment. As on January 10, 2010 the percentage of work order from Government and Government entities was 87.50%. As of January 10, 2010, 73.11 % of Order Book of Rs 28775.3 mn comprised of repeat order works from Government and Government authorities. Sunidhi Research Page 3 of 8 ARSS Infrastructure Projects Ltd Competitor Analysis In Mns Order FY09 FY09 FY09 EPS FY09 FY09 EV / OB / Mcap / Price Company Price * Equity MCap Book ** Sales EBITDA PAT FY09 P/E OPM NPM EBITDA Sales Sales BV / Bv ROCE ROE Supreme Infra 187 138.0 2581 6820 3822 651 270 19.6 9.6 17.0% 7.1% 7.2 1.8 0.7 83.7 2.2 16% 23% Pratibha Industries 309 166.8 5154 25000 8074 932 447 26.8 11.5 11.5% 5.5% 7.4 3.1 0.6 134.7 2.3 19% 20% Kalindee rail 210 122.4 2570 4000 2812 253 104 8.5 24.6 9.0% 3.7% 12.2 1.4 0.9 84.9 2.5 14% 10% Unity infra 592 134.0 7933 40400 11479 1599 695 51.9 11.4 13.9% 6.1% 7.1 3.5 0.7 312.5 1.9 16% 17% Subhas Projects 144 73.3 5278 40000 12671 1547 532 14.5 9.9 12.2% 4.2% 6.1 3.2 0.4 110.0 1.3 22% 13% Sadbhav Engg 1221 125.0 15263 45000 10625 1083 633 50.6 24.1 10.2% 6.0% 22.2 4.2 1.4 281.7 4.3 10% 18% Tantia Construction 130 155.7 2025 20860 4495 582 173 11.1 11.7 12.9% 3.8% 8.1 4.6 0.5 70.7 1.8 13% 16% ARSS Infra @ UB 450 125.5 5648 28775 6244 1012 510 40.7 11.1 16.2% 8.2% 7.1 4.6 0.9 118.2 3.8 26% 34% * Prices as on 2nd February 2010 ** OrderBook as on December 2009 *** All data are for FY09 except orderbook # Post issue ARSS's equity would be Rs 148.4mn Some of the important projects being currently executed on standalone/joint venture basis are as follows: Construction, rehabilitation and widening of Cuttack - Paradeep road, Orissa, for a contract value of Rs. 2082.6 Mns. Construction of Roadbed including Major and minor Bridges, Facilities and General Electrification in connection with construction of New BG line between Haridaspur and Paradeep in East Coast Railway in the State of Orissa, India. The contract value for the project is Rs. 1009.6 Mns. Work Order for execution of Rail Infrastructure Work of Rs. 2610 Mns for the Angul project of Jindal Steel & Power Construction of new broad gauge line, bridges, earthwork cuttings, road over bridges, road under bridges and sub ways between Salem-Karur, Chennai. The contract value for the project is Rs. 513.9 Mns. Construction of Kaushilia Dam and appurtenant works in Panchkula district of Rs. 1129.9Mns Shareholding Pattern Equity shares held before the Equity shares held after the Category issue issue No of Shares % No of Shares % Promoter and Promoter Group 8,199,950 65% 8,199,950 55% SBI 1,000,000 8% 1,000,000 7% Others 3,354,050 27% 3,354,050 23% Public Issue -- -- 2,288,889 15% Total No of Shares 12,554,000 100% 14,842,889 100% Promoter Back Ground Subhash Agarwal - 18 years of industrial and entrepreneurial experience in the execution of railway and road projects Rajesh Agarwal - Over 14 years of industrial and entrepreneurial experience; He is a Civil Engineer by education Anil Agarwal - 14 years of work experience in railway and road projects Sunil Agarwal - 10 years of work experience in the field of construction Risk factors Company has high working capital requirements as per the industry standards. Increase in various raw material cost could adversely affect the operating margins of the company. ARSS’s order backlog is dependent on Government and Government agencies to a large extent and any change in Government related policies or regulations may affect business and financial performance. Large part of order book is from road projects and railways which are dependent on land allocation from government and private agencies. Any delay in land allocation would delay the projects. One of the Promoters is involved in a criminal proceeding and is accused in a murder case. However as specified by the company the High court of Orissa has issued a stay order on the hearing and the matter is sub-judice. Sunidhi Research Page 4 of 8
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