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22 November 2017

New Issue Details

Bharat Road Network Click here for Rating Reckoner
Toiling to build and operate Indian roads
(05 Sep 2017)
CM RATING 37/100
Incorporated in 2006 and promoted by Srei Infrastructure Finance (Srei) and Make in India fund, Bharat Road Network (BRN) is a build-operate-transfer (BOT) company, engaged in the business of development, implementation, operation, and maintenance of roads/highways projects. Company offers a range of project management services, including design, engineering, and quality control, as well as engineering, processing, and construction management; and project advisory services, such as project management consultancy, project conceptualization, commissioning, and operation and management of the projects, as well as undertakes debt syndication, refinancing, and financial restructuring of its projects.

The company is involved in the development, operation and maintenance of national and state highways in several states in India with projects in states of Uttar Pradesh, Kerala, Haryana, Madhya Pradesh, Maharashtra and Odisha through partnerships with experienced EPC players in the local space where the project is located. At present, all of its projects are implemented through special purpose vehicles, either through Subsidiary or in partnership with other infrastructure players.

The Promoter, Srei is one of India’s recognized infrastructures financing institution with over 2 decades of experience in infrastructure sector

As on 31 March 17, the company has a portfolio of 6 BOT road projects covering 2,095.40 lane kms across 6 states which comprises of road asset under management of Rs 6685.76 crore including the road asset under construction. The average residual concession period of these projects is around 18 years and 6 months with average debt maturity profile of around 10 years.

Of these 6 BOT projects, 2 are Projects operational under final date of commencement of the project (COD), 3 are Projects operational under Provisional COD and 1 project under construction.

Its Projects operational under final COD and projects operational under provisional COD are located in Kerala, Madhya Pradesh, and Haryana, Uttar Pradesh and Odisha, respectively. BRN’s project under construction is located in Maharashtra.

Its projects operational under final COD and projects operational under provisional COD cover approximately 1,622.44 lane km, including major and minor bridges and approximately 12 lane km and 60.72 lane km are under construction for which the company is awaiting final COD. The company’s project under construction involves development of 400.24 lane kms, including major and minor bridges.

The Offer and the Objects

The offer comprises fresh issue of Rs 2.93 crore shares, which at lower price band of Rs 195 per share, works out to Rs 571.35 crore and at higher price band of Rs 600.65, the offer works out to Rs 205 crore. The minimum bid lot is 73 equity shares and in multiples of 73 equity shares. The issue is made through the book-building process and will open on 6 September and will close on 8 September, with anchor investor bidding date of 5 September 2017.

The objects of the issue is to spend around Rs 372.25 crore on acquisition of subordinated debt held by promoter Srei in three of the operating SPVs, acquisition of subordinated debt of Rs 51.47 crore in the under-construction solapur project and rest for general corporate purposes, apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

Present in the end-to-end road management services with in-house capabilities right from conceptualization to implementation and further to operational and management services post commission of a project.

Most of the road projects are under near key project influence area provides visibility in future cash flows as and when economic activity picks up in future.

The company has young portfolio of assets with average residual life of more than 18 years and debt maturity profile of around 10 years demonstrating strong cash flow potential in future.

Based on its track record, the company is eligible for bidding single project for value of Rs 2147 crore providing a strong platform for future growth.

Weaknesses

No track record of the past financials. Revenues reached Rs 10.25 crore in FY 2017.

Negative operating cash flows for the past years

No book value until November 2016, when preferential allotment to promoters at Rs 205, helped in turning the net asset value positive.

Any slowdown in economic activity will lead to lower transport activity and overall lesser volumes and thus less toll revenues for the company.

If inflation does not increase, there can not be any increase in toll rates, as it is directly linked to the inflation numbers resulting in company’s revenues only dependent on volumes and traffic growth, which is also uncertain.

Revenues of the company are completely dependent on factors which are external and macro economic activity related and company has no control over it.

Various litigations are going on against the promoter outcome of which can affect the credibility of the company.

One of its associates has done a onetime settlement in the past with a lender.

Valuation

For FY 2017, consolidated net sales stood at Rs 10.25 crore with OP at Rs 2.13 crore. Interest cost stood at Rs 43.53 crore and depreciation at Rs 1 lakh resulting in loss at the PBT level of Rs 36.73 crore. After considering loss from associates of Rs 37.11 crore and MI of Rs 1 lakh, loss at the consolidated PAT level stood at Rs 73.89 crore. The company has been incurring losses in each of the past five years.

The company raised further equity by issuing 2,66,50,000 equity shares to the promoters at a price of Rs. 205 per share in November 2016. This issue helped company in showing positive net worth due to the premium collected. The company’s pre-IPO consolidated book value stands at Rs 109. After the offer to the public at higher price band of Rs 205, the Book Value (BV) will stand at around Rs 142.4 at consolidated level.

The offer at higher price band of Rs 205 is made at a price to BV of around 1.44.

Sadbhav Infrastructure Projects and IRB Infrastructure are two listed companies with similar line of business. IRB reported consolidated net sales of Rs 5846 crore with consolidated PAT at Rs 715.47 crore for FY 2017. The company reported consolidated EPS of Rs 20.36 and consolidated BV of Rs 150 as on Mar 17. At current market price of Rs 216, the scrip is traded at Price to BV of around 1.5. Sadbhav Infrastructure had come out with IPO in September 2005 at price band of Rs 100- Rs 103 after which its consolidated book value worked out to be around Rs 32.8. Due to continuous losses Sadbhav’s consolidated BV has come down Rs 2.77 as of March 2017 and the scrip price remains around the price at which it was offered in IPO. We are not comparing this company with IL&FS Transportation (ITNL) as substantial portion of ITNL’s revenues still comes from construction and execution of BOT projects rather than from toll revenues.

Bharat Road Network: Issue highlights
Fresh Issue ( in Rs crore)
- On lower price band 571.35
- On upper price band 600.65
Total Issue size for fresh issue ( in no of shares in crore) 2.93
Price band (Rs) 195-205
Post issue share capital (Rs crore) 83.95
Post-issue Promoter & Group shareholding (%) 65.1%
Issue open date 06-09-2017
Issue closed date 08-09-2017
Listing BSE, NSE
Rating  37/100

Bharat Road Networks: Consolidated Financials
1303(12) 1403(12) 1503(12) 1603(12) 1703(12)
Net Sales 0.68 9.62 8.43 0.75 10.25
OPM (%) - - - - 20.8%
OP -2.11 -0.05 -0.90 -2.86 2.13
Other in. 2.38 0.02 33.06 3.50 4.68
PBDIT 0.27 -0.03 32.16 0.64 6.81
Interest 16.89 51.36 40.54 50.48 43.53
PBDT -16.62 -51.39 -8.38 -49.84 -36.72
Dep. 0.00 0.00 0.00 0.00 0.01
PBT -16.62 -51.39 -8.38 -49.84 -36.73
Tax (including Deferred Tax) 0.00 0.00 0.00 0.00 0.06
PAT -16.62 -51.39 -8.38 -49.84 -36.79
Loss from Associates 0.25 9.37 18.04 42.70 37.11
MI 0.00 0.00 0.00 0.00 -0.01
PAT after MI -16.87 -60.76 -26.42 -92.54 -73.89
EPS (Rs)* - - - - -
*EPS is on post issue equity capital of Rs 83.95 crore of face value of Rs 10 each
Figures in crore
Source: Capitaline Database
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