Vascon Engineers Ltd - Brokerage Views

[chetan]

This thread covers the brokerage views on Vascon Engineers Ltd.

Vascon Engineers Limited (VEL) is one of the leading engineering, procurement & construction (EPC) services company.

Issue Opens on: January 27, 2010
Issue Closes on: January 29, 2010
Price Band:Rs.165 to Rs.185
Issue size:Rs.198 crore

[chetan]

SMC in its Review Writes as follows,

Diversified portfolio of businesses and diverse revenue streams.  Strong EPC order book provides comfort on revenues and margin front. As of August 31, 2009, the company had completed an aggregate of 179 EPC contracts with a total contract value of Rs 8,804.79 mn. Strong track record. Effective development structure to optimize resources. Geographic diversification. Selectively entering into joint ventures and joint development agreements.

The stock trades at a P/BV of Rs.2.82 on the lower side of the band and 3.16 on the higher
side of the band of its Quarter Ending Sep09 book value Rs.58.52. Looking at post issue valuation, the company is trading at a P/E of 31.60x times on the lower side and 35.43x times on the higher side of its post issue annualised FY10 EPS of Rs5.22.

[chetan]

HDFC Securities Analyst Views are as follows,

The issue is priced at 31-35 times FY10(E) EPS. Its listed peers are available at much cheaper valuations, notwithstanding the real estate valuations of VEL (that are expected to kick off from FY11 onwards). On the other hand the order book in EPC segment provides visibility for 6 times its FY07 revenues.

We feel at the lower band the issue could provide listing gains, while the long-term performance of the issue will depend on speed of its execution in the two segments and the speed of its fresh order inflows.

[komal]

IndiaBulls Financial Services Analyst has a SUBSCRIBE recommendation with the following note,

At a lower price band of Rs. 165, as per our estimates the Company would provide an ROE of 11% and 14%, for FY10E and FY11E, which is in-line with an average of its peers set of Brigade Enterprise, Mahindra Lifespace Developers and Gayatri Projects. Moreover, at a lower price band of Rs. 165, the Company proposes an EV/EBITDA for FY11E of 11.1x, which offers an upside against its peers set average of 12x for FY11E. Nevertheless it is fairly valued at the upper band with an EV/EBITDA for FY11E of 12.3x. Moreover, our DCF based valuation (Cost of Capital 14.3% and Terminal Growth rate 5%), suggests a fair value of Rs. 189. Thus, we recommend investors to Subscriber to the issue with a long term view given VEL’s robust order book position, expected improvement in margins with recovery in real estate sector and strong execution capabilities.

[komal]

ICICI Securities' Deepak Purswani has a AVOID recommendation,

After adjusting for the real estate business value of Rs 101 per share, Vascon’s EPC business is available at 13.7x H1FY10 annualised EPS at the lower price band and at 18x H1FY10 annualised FY10 at the higher price band. At these levels of valuation, we see better opportunities in secondary markets with better revenue visibility, margins and return ratios. Hence, we recommend investors AVOID the issue

[chetan]

Retail Individual Investors will get a discount of Rs.5/- per share on “Allotment of Shares”. This retail discount is not to be availed by retail individual bidders at the time of bidding.
 
Accordingly, please note that while bidding the Retail bidders will have to pay full amount as applicable within the price band.
 
Retail Bidders now applying at “cut off” will have to pay at the cap price of Rs. 225/- per equity share.