Analysts at JainMatrix Investments have issued an AVOID recommendation on Dilip Buildcon IPO (DBL IPO) which opened for subscription today. The INR654 crore IPO will see partial exit by private equity investor Banyan Tree Growth Capital LLC as well by its promoters Dilip Suryavanshi, Seema Suryavanshi and Devendra Jain.
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Here are the main points of the research conducted by JainMatrix Investments. For the full report, scroll down.
- Overview: DBL is a construction firm undertaking projects in the roads and irrigation sectors like national and state highways, city roads, culverts and bridges.
- DBL had revenues and profits of Rs 4,315 crores and Rs 197 cr. resp. in FY16. Its revenue, EBITDA and PAT have grown 58.1%, 61.0% and 38.1% CAGR over 6 years.
- DBL has a policy of no subcontracting and no equipment on rental. It owns the equipment fleet of 7,345 vehicles and is a large employer with 19,746 employees. In this sector Dilip Buildcon has built a good momentum of business, and is growing from an MP centric firm to an all India operating entity. It has good policies and business model. It has a 3.9% market share in its industry.
- Valuations, with a PE of 15.2 times, look expensive compared to high quality peers such as IRB.
- Sector specific challenges like cash flows, debt, litigation and regulatory issues worry us. The roads construction sector by its very nature currently offers very few attractive opportunities. Investors need to look at profitable / high certainty sectors other than real estate.
Outlook: As an investment, we recommend an AVOID on DBL IPO.
The report also mentions that grey market premium on DBL is INR17-19 per share, a positive indication (on 29th July). Here is the full report.
To check the latest subscription status and to participate in a lively discussion, check this page out on Dilip Buildcon IPO.