BSE-SME COMPANY RESEARCH REPORT BRONZE INFRA- TECH LTD. December 19, 2012 www.careratings.com
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Bronze Infra-Tech Ltd. Construction & Engineering December 19, 2012 ISSUE DETAILS Issue price Rs. per share 15.00 Face value Rs. per share 10.00 No. of shares offered No. in lakhs 57.04 Total no. of shares (post issue) No. in lakhs 171.97 Issue size Rs. crores 8.56 Pre-issue net-worth Rs. crores 17.36 Post-issue net-worth Rs. crores 25.91 Source: Draft Red Herring Prospectus (DRHP) SHAREHOLDING PATTERN BACKGROUND AND BUSINESS OVERVIEW Bronze Infra-Tech Ltd (BITL) was originally incorporated as Shivpujan Agencies Private Limited on October 12, 2004. The company changed its name to Bronze Infra-Tech Private Limited on July 02, 2012. The company was subsequently converted into a public limited company, and consequently, the name was changed to Bronze Infra-Tech Limited vide fresh certificate of incorporation dated July 04, 2012. Currently, BITL is engaged in the business of land development, construction and execution of infrastructure projects. The company has been executing four diversified projects, two of which are land development-based projects, one project for civil work and another project related to the supply of IT equipments. 49.60% 75.41% 50.40% IPO OBJECTIVE Rs. Crore Meet expenses of construction and development of certain ongoing and forthcoming projects 8.0 Issue related expenses Source: DRHP 0.6 Promoter Others # Inner ring represent pre-issue shareholding pattern, outer ring represents post-issue shareholding pattern. Source: DRHP FINANCIAL SNAPSHOT (Rs. lakh) FY08 FY09 FY10 FY11 FY12 Net operating income 1,563 521 2,188 27 347 EBITDA (5.5) (4.0) 5.5 0.1 (29.5) Adjusted PAT 0.4 0.3 3.7 0.1 3.5 Adjusted EPS* (Rs.) - - 0.1 0.0 0.1 Dividend, incl. tax - - - - - P/E (times) 1,156 1,924 137 5,557 142 EV/EBIDTA (times) NM NM 56.8 7,145. NM Source: DRHP and CARE Research; Valuation ratios calculated @ IPO price of Rs. 15 per share. EPS has been adjusted for bonus shares INDUSTRY OUTLOOK The construction industry in India is the second largest economic activity after agriculture and provides employment to large amount of people. Broadly, construction can be classified into two segments infrastructure and real estate. The infrastructure segment involves construction projects in different sectors like roads, rails, ports, irrigation, power, etc. Investment in the infrastructure sector plays a crucial role in the growth of the economy of the country. Development of infrastructure in the country mainly depends upon the spending by GoI in various sub-segments of infrastructure. The Government of India has given importance to infrastructure spending, which has widened the growth opportunity for players in EPC segment. The Planning Commission has envisaged an outlay of about $500bn during the 11th five year plan for infrastructure development in the country. In the 12th five year plan, the infrastructure spending is going to get doubled to touch at $1025 bn, which is 10% of GDP compared with average yield of 7.55% of GDP in 11th plan and 5% of GDP 10th plan. 1 This report has been sponsored by BSE Investors Protection Fund
BACKGROUND BITL was originally incorporated as Shivpujan Agencies Private Limited on October 12, 2004. Subsequently, the company changed its name to Bronze Infra-Tech Private Limited on July 02, 2012. The company was subsequently converted into a public limited company, and consequently, the name was changed to Bronze Infra-Tech Limited vide fresh certificate of incorporation dated July 04, 2012. The company was initially incorporated with the object of trading in textiles. Till FY12 (refers to the period April 1, 2011 to March 31, 2012), it was engaged in the business of textile trading. Furthermore, it started construction and IT Supply activities in FY12-13. Currently, the company is engaged in the business of land development, construction and execution of infrastructure projects. Key milestones of the company Year Milestone 2004-05 Incorporation as Shivpujan Agencies Pvt. Ltd. 2010-11 Management of the company was taken over by Competent Textiles Pvt. Ltd. Change of name from Shivpujan Agencies Pvt. Ltd to Bronze Infra-Tech Pvt. Ltd. The main objects of 2012-13 the company were altered to include the current business activities. 2012-13 Conversion of the company into a Public Limited Company. 2012-13 Bonus Issue in the ratio of 12:1. Source: DRHP BUSINESS OVERVIEW Currently, BITL engaged in the business of land development, construction and execution of infrastructure projects. The company has been executing four diversified projects, two of which are land development-based projects, one project for civil work and another project related to supply of IT Equipments. The company was originally incorporated as Shivpujan Agencies Private Limited on October 12, 2004, with the object of trading in textiles. Till FY12, it was engaged in the business of textile trading. Further, it started construction and IT Supply activities in FY12-13. Also, the company subcontracts specific construction, development and execution work related to their projects to third party contractors. In the construction sector, the company provides construction services for various types of civil construction and infrastructure projects. This variety of project types enables to keep business diversified and reduces dependence on any one segment, while benefiting from the overall growth in the Indian infrastructure sector. BITL operates out of its leased office located in Kolkata. 2 This report has been sponsored by BSE Investors Protection Fund
MANAGEMENT STRUCTURE As on October 12, 2012, the company had seven employees. Organization structure Board of Directors Chairman & Managing Director Company Secretary & Compliance Officer Chief Financial Officer Project Manager Source: DRHP CORPORATE GOVERNANCE BITL has a four-member Board, and half of the Board comprises Independent Directors. The company also has three sub-committees under the Board, i.e., Audit Committee, Shareholders Grievances Committee and Remuneration Committee. All the three committees are headed by the Independent Directors, as per the listing guidelines of the exchange. Board of Directors Person Age Qualification Role Mr. Manoj Kumar Bajaj 34 Chairman & Managing Director Mr. Punit Sureka 33 B.Com Non Executive Director Mr. Sumit Sharma 34 B.Com Independent Director Mr. Niraj Jewrajka 24 Independent Director Source: DRHP and CARE Research There are no litigations against the company, its promoters/promoter group or directors. 3 This report has been sponsored by BSE Investors Protection Fund
IPO DETAILS Size The issue comprises an offer for sale of 57.04 lakh equity shares of face value of Rs.10 each at a fixed price of Rs.15 per share. This would constitute 33.17% of the post-issue paid-up capital. Terms The offer comprises 57.04 lakh equity shares of face value of Rs.10 each to be issued at a price of Rs.15 per share, of which 8.64 lakh equity shares are reserved for market maker i.e. Sherwood Securities Private Limited and remaining 48.40 lakh equity shares, i.e., the net issue would be available for subscription by public. The net issue would constitute 28.15% of the post issue equity share capital. The issue is being made through fixed price process, and at least 50% of the net issue to public would be available to allocation on proportionate basis to retail individual applicants. The trading lot for the issue has been fixed at 8,000 equity shares. Objective The main objects of the issue are as follows: Particulars Rs. Crore Meet expenses of construction and development of certain ongoing and forthcoming projects 8.0 Issue-related expenses 0.6 Source: DRHP Means of Finance Particulars Rs. Crore IPO 8.6 Source: DRHP As per the DRHP, the fund requirements and the intended use of the proceeds of this issue have been estimated internally by the company s management and have not been appraised by any bank or financial institution or independent third party entity. 4 This report has been sponsored by BSE Investors Protection Fund
GROWTH DRIVERS Diversified order book to reduce concentration risk. Increased government spending on infrastructure. Increase in the per capita income and corporate spending on IT hardware. Develop and maintain strong relationships with clients and strategic partners. RISK AND CONCERNS The company does not have experience in the construction industry and IT supply activities. The company operates in a highly competitive and fragmented industry. Construction industry is highly dependent on the state of the economy and government spending. The company of the current order book has sub contracted a significant portion, any delay by the subcontractor could result in delayed payments. The company operates in a capital intensive business with long gestation projects which require timely injunction of funds. No entry barriers in this industry, which put the company to the threat of competition from new entrants. FUTURE STRATEGY AND EXPANSION PLANS As per the DRHP, BITL plans to: Maintain diversified nature of order book. Capture the high growth opportunities in the India Infrastructure sector. Develop & Maintain strong relationships with clients and strategic partner. Focus on quality projects and on timely project schedule delivery. Alliances with reputed and large players. Management speak: BITL was initially incorporated with the object of trading in textiles. Till FY12, it was engaged in the business of textile trading. Further, we started construction and IT Supply activities in FY12-13. Currently, we are engaged in the business of land development, construction and execution of infrastructure projects. We are currently executing four diversified projects, two of which are land development based projects, one project for civil work and another project related to supply of IT Equipments 5 This report has been sponsored by BSE Investors Protection Fund
INDUSTRY OUTLOOK Construction Industry in India The construction industry in India is the second largest economic activity after agriculture and provides employment to large amount of people. Broadly, construction can be classified into two segments infrastructure and real estate. The infrastructure segment involves construction projects in different sectors like roads, rails, ports, irrigation, power, etc. Investment in the infrastructure sector plays a crucial role in the growth of the economy of the country. Development of infrastructure in the country mainly depends upon the spending by GoI in various sub-segments of infrastructure. Characteristics of Construction Industry Highly fragmented Labour intensive Working capital intensive Close linkage with economic growth Rising trend of Joint ventures Low mechanisation levels compared with global standards Varied gestation period and profitability across different construction projects. The real estate industry comprising construction and development of properties has grown from family-based entities with focus on single products and having one market presence into corporate entities with multi-city presence having differentiated products. The industry has witnessed considerable shift from traditional financing methods and limited debt support to an era of structured finance, private equity and public offering. The construction sector is a major employment driver, being the second largest employer in the country, next only to agriculture. This is because of the chain of backward and forward linkages that the sector has with other sectors of the economy. About 250 ancillary industries such as cement, steel, brick, and timber and building material are dependent on the construction industry. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. Outlook for construction industry The Government of India has given importance to infrastructure spending, which has widened the growth opportunity for players in EPC segment. The Planning Commission has envisaged an outlay of about $500 bn during the 11th five year plan for infrastructure development in the country. In the 12th five year plan, the infrastructure spending is going to get doubled to touch at $1025 bn, which is 10% of GDP compared with average yield of 7.55% of GDP in 11th plan and 5% of GDP 10th plan. Growth drivers are: Increased government spending on infrastructure. Key constituent for sustainable economic development. 6 This report has been sponsored by BSE Investors Protection Fund
FINANCIAL ANALYSIS In FY12, BITL reported revenue from operations of Rs.346.80 lakhs. Raw material cost forms the largest portion of cost for BITL. In FY12, raw material cost as a percentage of revenue from operations was at 95.0%. During FY12, the company reported EBITDA loss of Rs 29.5 lakhs. However, on back of other income it reported a PAT of Rs 3.5 lakhs with PAT margin of 0.9%. The company has no debt on its books as on March 31, 2012. The company has not paid any dividend since inception. However past financials of the company may not provide an indication of future especially given the change in the business of the company from trading in textiles up till FY12 to construction and IT supply activities in the current year. 7 This report has been sponsored by BSE Investors Protection Fund
FINANCIAL STATISTICS Income statement (Rs. lakh) 2008 2009 2010 2011 2012 Net operating income 1563 521 2188 27.1 346.8 EBITDA -5.5-4 5.5 0.1-29.5 Depreciation and amortization 0.3 0.2 0.2 0.1 0.1 EBIT -5.8-4.2 5.4 0-29.6 Interest 0.2 0.2 0.2 0 0 PBT 0.7 0.4 5.3 0.1 5.2 Ordinary PAT 0.4 0.3 3.7 0.1 3.5 Adjusted PAT 0.4 0.3 3.7 0.1 3.5 Adjusted EPS* (Rs.) 0 0.1 0 0.1 Dividend, including tax - - - - * Calculated based on Ordinary PAT on Current Face Value of Rs. 10/- per share, EPS has been adjusted for bonus shares Balance sheet (Rs. lakh) 2008 2009 2010 2011 2012 Tangible net worth 495 496 499 499 503 Debt 0 0 0 0 0 Deferred tax liabilities 0 0 0 0 0 Total capital employed 495 496 499 499 503 Net fixed assets (incl. refundable security deposits) 1 1 1 0 0 Investments 398 571 288 429 471 Inventory 0 0 0 0 0 Receivables 42 103 87 36 54 Cash and cash equivalents 1 1 186 0 3 Current assets, loans and advances 158 124 360 122 65 Less: Current liabilities and provisions 62 200 150 52 33 Total assets 495 496 499 499 503 Cash flow statement (Rs. lakh) 2009 2010 2011 2012 EBT 0.4 5.3 0.1 5.2 Depreciation 0.2 0.2 0.1 0.1 Interest paid 0.2 0.2 0 - Tax paid -0.2-1.6-0.1-1.6 Change in deferred tax liability - - - - Net working capital 172-101 -46 41 Operating cash flow 172.5-97.2-45.8 44.6 Capital expenditure -0.2-0.2 0.9-0.1 Investments -173 283-141 -42 Investing cash flows -173.2 282.9-140.1-42.1 Change in borrowings - - - - Issuance of equity 0.7-0.7-0.1 0.5 Dividend paid - - - - Financing cash flow 0.7-0.7-0.1 0.5 Net change in cash - 185-186 3 Closing cash balance 1 186-3 8 This report has been sponsored by BSE Investors Protection Fund
Ratios analysis 2009 2010 2011 2012 Growth in net operating income -66.7% 320.0% -98.8% 1180.3% Growth in EBITDA -27.1% -238.6% -98.7% NM Growth in PAT -38.1% 1307.7% -97.5% 3822.2% Growth in EPS -39.9% 1307.7% -97.5% 3822.2% EBITDA margin NM 0.3% 0.3% NM PAT margin 0.0% 0.2% 0.3% 0.9% Return on capital employed (RoCE) NM 0.8% 0.0% NM Return on equity (RoE) 0.1% 0.7% 0.0% 0.7% Net debt-equity (times) (0.0) (0.4) - NM Interest coverage (times) (24.8) 35.9 NM NM Current ratio (times) 0.6 2.4 2.3 2.0 Inventory (days) - - - - Receivable (days) 50.8 15.8 828.6 47.4 Price/EPS (P/E) (times) 1923.7 136.7 5557.5 141.7 Price/Book value(p/bv) (times) 1.0 1.0 1.0 1.0 Enterprise value (EV)/EBITDA (times) NM 56.8 7145.4 NM Source: DRHP and CARE Research; Valuation ratios are calculated @ IPO price of Rs. 15 per share. 9 This report has been sponsored by BSE Investors Protection Fund
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