IPO Analysis ARSS Infrastructure Projects Ltd.

Registered Office AddressPlot No. 38, Sector –A, Zone- D, Mancheswar Industrial Estate, Bhubaneswar-751 010 (Orissa)Phone91-674-258 8554Fax91-674-258 5074Emailipo@arssgroup.inWebsitehttp://www.arssgroup.inIssue Open08-Feb-2010Issue Close11-Feb-2010Issue SizeRs. 10,300 LacsIssue TypeBook BuildingFace ValueRs.10/-Price RangeRs. 410/- to Rs. 450/-Tick SizeRe.1/-Market LotMinimum Order Qty15Listing Stock ExchangeBSE, NSERegistrar To The IssueBigshare Services Pvt. Ltd.Book Running Lead ManagersIDBI Capital Market Services Ltd., SBI Capital Markets Ltd. Analysis

Company Background

• ARSS Infrastructure Projects Ltd. (ARSS) was originally incorporated as ARSS Stones Private Ltd. in 2000. However, the company got converted into public limited company and the name changed to present in 2005.
• ARSS Infrastructure is one of the largest infrastructure companies in the eastern zone and is engaged in the business of construction of railway lines, highways, irrigation and building projects. ARSS has crusher plants at six locations in various districts of Orissa and necessary equipment required for quarrying and crushing granite stone to produce required sizes of rock products for railway track ballast or highway work or any other civil construction work.
• As on January 10, 2010, ARSS had an Order Book of Rs. 2,87,753.11 lacs which is 4.60 times of the FY09 sales. As on January 12, 2010 the composition of Order Book is as follows:

Particulars	Amount (Rs. lacs)	%
Railway work	1,18,414	41.15
Road work	1,16,405	40.45
Irrigation	7270	2.53
Other work	45,664	15.87
Total	2,87,753.11	100.00

• Clients of ARSS include Ministry of Railways, State Government of Orissa; Rail Vikas Nigam Ltd., RITES Ltd. Vendata, Nalco, Jindal Steel & Power, IRCON International Ltd., National Thermal Power Corporation, Hindustan Steel Corporation Ltd., PWD – Orissa, IOCL and the National Highway Authority of India.
• Some of the standalone and joint venture projects currently being executed include the Rs 208 crore Cuttak-Paradeep Road construction and widening project, Rs 261-crore rail infrastructure work for Jindal Steel & Power's Angul project, and construction of roadbed including minor & major bridges, facilities and general electrification works on the Haridaspur-Paradeep new broad-gauge (BG) line.
• Post issue promoter and promoter group’s shareholding will reduce to 54.43-55.24% from the current ownership of 65.32%.

IPO Grading / Rating CARE has assigned an IPO Grade 2 to ARSS’s IPO indicating below average fundamentals. CARE assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. Objects of the Issue

Sr. No.	Particulars	Fund Requirement (Rs. lacs)
1	Investment in joint ventures.	500
2	Funding long term working capital requirements	8,600
Total		10,300

Strength

• Project management expertise and track record The company has successfully executed over 86 projects involving construction of approximately 300 km of roads and highways, 200 km of rail tracks, 10 minor and major bridges and other general civil engineering works over the span of 9 years.
• Long-term relationship with reputed clients Majority of the contracts are received from Government, Public Sector Undertakings and other Government agencies, which reduces the risk of default and delayed payment. As on January 10, 2010 the percentage of work order from Government and Government entities was 87.50%. The client-oriented approach enables the company to receive repeat orders from them. As of January 10, 2010, 73% of Order Book comprised of repeat order. Clients from whom ARSS has received repeat orders include State Government of Orissa, Railways Department, Rail Vikas Nigam Ltd. and RITES.

Weakness

• ARSS had negative cash flows in recent fiscals

  (Rs. Lacs)

  Particulars	9 months period ending on December 2009	FY 2009	FY 2008
  Net cash from Operating Activities	(5382.22)	1,018.96	(1,643.46)
  Net cash from Investing Activities	(6997.43)	(7,421.77)	(5,428.92)

• Limited geographical diversification More than 54.28% of the Order Book as on January 10, 2010 and more than 44.26% of the revenues for FY09 are attributable to projects located in the State of Orissa. In the event that demand for infrastructure activities in general and roads / highways / bridges construction in particular, reduces or stops by any reason including political strife or instability or change in policies of State / Central Government, then the financial condition and results of operations will be materially and adversely affected.
• Pending litigations against the company and/or the promoters There are a number of pending litigations against the company and/or the promoters and group companies, including a criminal case.
• Some of the group companies have incurred a loss

  (Rs. Lacs)

  Particulars	FY 2009	FY 2008	FY 2007
  ARSS Engineering Ltd.	(0.09)	--	--
  ARSS Biofuel Private Ltd.	28.35	(8.78)	(21.71)

Financials The operating income of the company has grown from Rs. 2,957.77 lacs in FY05 to Rs. 62,437.52 lacs in FY09 at a CAGR of 84%. PAT has grown from Rs. 150.71 lacs in FY05 to Rs. 5,104.33 lacs in the in FY09 at a CAGR of 102%. The following table sets forth contract income of ARSS from different sections, i.e., road, railway and other projects for the periods.

(Rs. In lacs)

Particulars	FY 09		FY 08		FY 07
	Amount	%	Amount	%	Amount	%
Railway work	16,884.75	27.04	10195.75	32.50	7626.42	57.34
Road work	29,126.60	46.65	10479.51	33.41	3141.84	23.62
Irrigation	2,995.50	4.80	2122.53	6.77	-	-
Other work	13,430.68	21.51	8,569.30	27.32	2531.88	19.04
Total contract income	62,437.52	100.00	31,367.09	100.00	13300.14	100.00

For the period of 9 months ending on December 2009, the company had operating income and PAT of Rs 2,067.8 lacs and Rs 160.2 lacs.

Ratios

Particulars	FY09	FY08	FY07
EPS (Rs.)	40.66	21.35	9.47
Operating Profit Per Share (Rs.)	80.47	38.71	17.42
Book Value Per Share (Rs.)	118.17	78.68	27.45
Operating Margin (%)	16.17	15.49	14.13
Net Profit Margin (%)	8.12	8.49	7.64
Return On Net Worth (%)	34.41	27.14	34.55
Long Term Debt / Equity	1.50	0.99	1.28
Fixed Assets Turnover Ratio	3.87	3.63	4.22
Current Ratio	2.59	2.29	3.90
Inventory Turnover Ratio	3.32	5.04	18.15
Financial Charges Coverage Ratio	3.88	5.32	5.23

Valuation ARSS’s shares are offered at a price band of Rs. 410 to Rs. 450 per share. Post issue the P/E of the company comes out to 9.25x at the lower price band and 10x at the upper price band. Peer Analysis (results of 9 months period ending on December 2009)

Particulars	Pratibha Industries	C C C Ltd	Tantia Constructions	Simplex Projects	ARSS
Sales (Rs Lacs)	66,298.91	131,378.46	34,606.94	27,628.31	60,525.73
PAT (Rs Lacs)	3,559.00	5,995.30	1,684.29	2,025.52	5,008.53
OPM	13.65%	8.42%	14.36%	11.93%	12.96%
NPM	5.37%	4.56%	4.87%	7.33%	8.28%
P/BV (Times)	2.30	3.14	1.95	1.95	3.11-3.37+
TTM PE (Times)	11.51	20.61	8.21	13.75	9.25-10*

+Post issue *Based on post issue annualized EPS of 9 months period December 2009