Introduction

Afcons Infrastructure Limited, part of the Shapoorji Pallonji Group, was founded in 1959 and has over six decades of experience in infrastructure engineering and construction.

As of September 30, 2023, Afcons has completed 76 projects in 15 countries, with a total contract value of ₹522.20 billion. The company is currently executing 67 active projects across 13 countries, with an order book worth ₹348.88 billion.

Afcons operates globally in Asia, Africa, and the Middle East, focusing on five key infrastructure business verticals.

The company’s extensive experience and strong knowledge management practices have led to a project management system that ensures efficient planning, monitoring, and timely delivery of infrastructure projects.

Objective of the issue

Afcons Infrastructure IPO is a book-built issue of Rs 5,430.00 crores. The issue is a combination of fresh issue of 2.7 crore shares aggregating to Rs 1,250.00 crores and offer for sale of 9.03 crore shares aggregating to Rs 4,180.00 crores.

Afcons Infrastructure IPO opens for subscription on October 25, 2024 and closes on October 29, 2024. The allotment for the Afcons Infrastructure IPO is expected to be finalized on Wednesday, October 30, 2024. Afcons Infrastructure IPO will list on BSE, NSE

IPO LOT SIZE

Investment Rationale

Strong Reputation

Afcons Infra is the flagship infrastructure engineering and construction company of the Shapoorji Pallonji Group, one of the leading conglomerates in India operating for over 150 years in the construction industry. The company leverages its construction industry expertise and reputation to drive business development. With a long-standing history and strong brand recognition, the clients perceive the group as a symbol of excellence, trustworthiness, and timely project delivery.

Growth in Infra spending

The Indian infrastructure sector is set for rapid growth due to the government’s push for large-scale infrastructure development. India’s National Infrastructure Pipeline (NIP) aims to invest ₹111 lakh crore between 2020 and 2025. This presents a massive opportunity for companies like Afcons, which specialize in core infrastructure areas such as transportation and marine infrastructure.

International Presence

In addition, global infrastructure development is also picking up pace, especially in emerging markets across Africa and Asia. Afcon’s international experience gives it an edge in tapping into these opportunities.

Optimizing project Execution

The company seeks to enhance project execution and management through three key strategies: optimizing project design, value engineering, and implementing technical innovations. It plans to strengthen its in-house design team's skills through targeted development initiatives while expanding its network of external design consultants. Additionally, as part of its digitization strategy, the company aims to identify opportunities for automation to replace manual processes, thereby improving overall efficiency.

Financial Snapshot

Key Risks.

·       High Debt Risk: Although the IPO offers potential for reducing debt, Afcons currently holds a substantial amount of outstanding debt. This presents a significant financial risk, particularly if the company experiences slower revenue growth or faces unexpected market challenges.

·       Cyclical Nature of the Industry: The infrastructure sector is inherently cyclical, with its performance closely tied to government policies, public spending, and overall economic conditions. A reduction in project awards or delays in government initiatives could adversely impact Afcons' revenue and growth prospects.

·       Intense Competition: Afcons operates in a highly competitive environment, both in India and internationally. The company faces competition from other major infrastructure players, making it essential to focus on innovation, cost efficiency, and maintaining high operational standards to sustain its market position and profitability.

Should you SUBSCRIBE?

Afcons Infrastructure, the flagship company of the Shapoorji Pallonji Group, has a well-diversified business with around 30% of its revenue coming from exports. The company has shown consistent growth in both its top and bottom lines over recent periods. As of September 30, 2024, its order book exceeds ₹40,000 crore, indicating a strong pipeline of projects.

Over the last three fiscal years, the company reported an average EPS of ₹12.37.

At the upper price band, the asking P/E is 46.49 based on FY25 annualized earnings and 37.86 on FY24 earnings, suggesting the issue is fully priced. However, management expects to surpass FY24 performance in FY25, driven by ongoing contracts and a growing order book. However, as a dividend-paying company with steady growth, it offers a solid opportunity for investors looking for medium- to long-term returns.