Afcons Prepares for IPO with Emphasis on Core Strengths
Afcons, a company under the Shapoorji Pallonji Group, is preparing for its initial public offering (IPO) with a distinct strategy that hones in on its unique strengths in high-margin engineering, procurement, and construction (EPC) projects, setting it apart from its peers.
Strong Performance and Expertise
Afcons has achieved a compounded annual growth rate (CAGR) in revenues of over 16% for the past three years. The company’s top executives highlighted its proficiency in executing technologically complex construction projects, often ahead of schedule, contributing to its robust cashflows and high profitability ratios.
S. Paramasivan, Managing Director of Afcons, emphasized, “Afcons is a pureplay infrastructure EPC company managed completely professionally. Our profitability ratios are some of the highest. We have consistently delivered technologically complex, challenging projects on or before schedule.”
Conservative Approach to Business
Unlike some of its peers, Afcons is not looking to diversify beyond the infrastructure EPC business. Paramasivan clarified that the company will not venture into other business models like build-operate-transfer (BOT). However, Afcons remains open to diversifying into new areas as needed within the EPC segment.
Krishnamurthy Subramanian, Executive Vice Chairman, noted, “If you see our bidding pattern, technologically complex projects are what we target. And there, the competition is not more than two or three players.”
Strong Financial Position
As of 31 December 2023, Afcons boasted an order book worth ₹32,556 crore, a figure that is approximately 2.6 times its FY23 revenue of ₹12,637 crore, as reported by Icra. The company’s A+ credit rating and stable outlook from Icra underscore its robust financial position, which is underpinned by a long-standing track record, large-scale operations, and a diversified order book.
Business Composition and IPO Plans
Afcons derives about 68% of its business from government contracts, 22% from multilateral agreements, and 10% from the private sector. Geographically, around 30% of its business comes from overseas markets.
IPO Details and Utilization of Funds
Afcons has outlined its intention to raise ₹7,000 crore through its IPO, with ₹5,750 crore to be generated from a secondary sale of shares by promoter Goswami Infratech and ₹1,250 crore to be raised through a fresh issue of shares. The company has a clear plan for the utilization of these funds, which includes debt settlement, working capital needs, and investment in construction equipment.
The IPO is a strategic move for Afcons to manage its high debt load. The company plans to utilize ₹500 crores from the fresh equity capital to settle high-interest debt, demonstrating its commitment to responsible financial management. Additionally, ₹350 crores will be allocated for working capital needs, ₹150 crores for the purchase of construction equipment, with the remainder earmarked for general corporate purposes.
According to its draft red herring prospectus, Afcons’s net debt stood at ₹2,140 crore as of 31 September 2023.
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Conclusion
Afcons remains steadfast in leveraging its core strengths in infrastructure EPC projects. This commitment, a solid financial position, and a conservative approach to business expansion inspire confidence in its operational capabilities. The IPO is expected to strengthen its financial health further, enabling the company to pursue growth opportunities in the infrastructure sector with renewed vigor.
