Niraj Cement Structurals

Niraj Cement Structurals (NCSL) is a small-sizes construction company focusing on the road segment. It also makes pre-cast paver blocks. Sales of paver-blocks account less than 0.5% of total sales.

The construction contracts business model involves acting as main contractor, contracts through joint venture (JV) and subcontractor. Currently, the order portfolio is spread across Orissa, Madhya Pradesh and Rajasthan.

The proceeds of the issue will be used to fund acquisition of capital equipment worth Rs 20.95 crore and working capital requirement amounting Rs 18.17 crore.

Strengths

The current order book is about Rs 660.29 crore. Out of this, its share of work totals Rs 477.48 crore, which translates to 5 times its FY 2008 revenue. The projects are to be executed over nine to 24 months.

Despite focusing only on the road sector, the operating profit margin was a strong 17.7% in the year ending March 2008 (FY 2008). OPM were 16.7% in FY 2007 and 16.3% in FY 2006. This is way above the normal 8-10% of margin available for players focused on road projects.

Weaknesses

As the focus is solely on road development, lacks diversification in other areas of construction.

In the past, defaulted on payment of interest and repayment of loan to various banks / financial institutions.

Sundry debtors stood at 103.45 crore in FY 2008. This represents about 111.4% of its sales for FY 2008. To fund this, secured and unsecured loans of Rs 18.92 crore and Rs 19.98 crore were raised by March 2007 and Rs 30.86 crore and Rs 58.49 crore by March 2008. The high debts are attributed to delay in receipts from government and also from principal contractors. As a result, interest cost has been racing ahead from 3% of sales in FY 2006 to about 5.5% of sales in FY 2008.

Valuation

Sales grew by 16% in FY 2008. Net profit, however, stood higher by only 2%, limited by higher interest cost and tax incidence. EPS on post-IPO equity stands at Rs 6.3. On the asking price of Rs 175-Rs 190, the PE ratio works out to about 27.8 times FY 2008 earning at the lower price band and 30.2 times at the upper price band. In contrast, peer players such as C & C Construction, Roman Tarmat, PBA Infrastructure, Valecha Engineering trade at 9 to 12 times their trailing 12-month (TTM) EPS.