Exploring the IPO of Afcon Infrastructure Limited
A Look into the Engineering Marvels
Welcome, everyone! , bringing you another insightful IPO summary. Today, we’ll dive into Afcon Infrastructure Limited—a name that stands out in the engineering and construction sector and is part of the renowned Chapori Pooji Group.
What is EPC?
Afcon specializes in EPC projects, which stands for Engineering, Procurement, and Construction. Let me illustrate this with an example. One of their notable achievements is the Sami Mahamar project in Maharashtra. I’ll also showcase some remarkable projects like the CH Bridge, the tallest single-arch railway bridge globally, and the Atal Tunnel, the world’s longest high-altitude tunnel at 3,000 meters above sea level. Such projects highlight the exceptional capabilities of any Indian infrastructure company.
Understanding EPC Projects
To grasp EPC, let’s revisit the Sami Mahamar project. First, engineers determine the best route for the highway, taking into account the landscape requirements. After securing necessary approvals, materials are procured, leading to the construction phase. This comprehensive process demonstrates how Afcon executes complex, unique EPC projects both in India and internationally.
Project Accomplishments
In the last 11 years, Afcon has successfully completed 79 projects across 17 countries, totaling a remarkable ₹5,630 billion in contract value. Currently, they have 65 ongoing projects, contributing to an impressive order book of ₹317 billion.
Diverse Infrastructure Verticals
Afcon operates across five infrastructure verticals:
- Marine and Industrial: Projects like the JNPT Fourth Container Terminal.
- Surface Transport: Including highways like the Sami Mahamar.
- Urban Infrastructure: Notable contributions to the Kolkata and Pune Metro.
- Hydro and Underground: Including the construction of an underground sea tunnel.
- Oil and Gas Projects.
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Understanding India’s GDP Growth
Let’s discuss GVA (Gross Value Added) compared to GDP (Gross Domestic Product). The GVA in the construction sector surged from ₹7.8 trillion to ₹14.4 trillion from 2012 to 2024, marking nearly 100% growth.
Financial Overview
In terms of financials, Afcon’s revenue from operations grew from ₹110,000 million to ₹132,000 million, a CAGR of 9.72%. Profit increased from ₹3,576 million to ₹4,497 million, reflecting a 12% CAGR. However, a PAT margin of 3.3% raises concerns, primarily due to the long-duration projects they undertake.
Industry Comparison
When comparing Afcon to peers, L&T significantly outpaces them in revenue and return on net worth. However, Afcon performs better than KC International and Kalpataru in terms of PAT margins.
Valuation Insights
The industry PE stands at 47.91, while Afcon’s PE is 35.07, indicating that their price is lower than the industry average—potentially a positive sign for investors.
Key Risks
Afcon faces notable risks, including ongoing litigations amounting to ₹50,000 million, which is approximately 11 times their annual profit. Additionally, nearly 70% of their revenue comes from government contracts, adding another layer of risk.
The Upcoming IPO
Afcon’s IPO comprises an offer for sale of ₹41,800 million, with a fresh issue of ₹12,500 million. The proceeds will primarily repay costly loans and meet working capital needs. The IPO opens on October 25 and closes on October 29.
Conclusion
Afcon Infrastructure is undeniably a fascinating company, especially given the government’s focus on infrastructure development. We’ve covered everything from the company’s core activities to risks and financials.