Man Infraconstruction has entered the capital market on 18 th Feb 2010 with an IPO of 56.25 lakh equity shares, with a face value of Rs.10 per share. It is offering the shares in the price band of Rs.243 to Rs.252 per share. This means, it will raise Rs142 crore at the upper-end of the price band and Rs.137 crore at the lower band.

A contracting company in the garb of an infra construction company? When the existing investors are running as far away as possible from the bigwig realty companies, how did the promoters of Man think that mankind would be interested in an expensive, pure realty company at this point of time? Maybe the company felt that investors would bite the bait, as it is a zero debt company.

Man Infra is basically a realty contracting company, and though it says i t provides construction services for port infrastructure, residential, industrial, commercial and road infrastructure projects, its main bread winner is through building residential properties. As at 31 st Dec 2009, 83% of the outstanding order book of the firm of Rs. 3,020 crore was in residential projects of which about 50% was for slum redevelopment and 10% for commercial and less than 5% is for ports. One question comes to mind – does building homes also come under the umbrella of ‘infrastructure building'? Just wondering about it as the name of the company seems to suggest that!

Financially, for FY09, the company has a topline of Rs.440 crore on which it posted a PAT of Rs.60.30 crore, giving an EPS of Rs.13.75. For 9MFY10, the company posted a revenue of Rs.381 crore and PAT of Rs.66.40 crore, with EPS at Rs.15. NPM was at 17% and this is currently higher than the average industry NPM of around 8%. Clearly, the forthcoming IPO has acted like a steroid when it comes to performance. But will this NPM be sustainable, that is the biggest question? Seems highly unlikely.

Market cap is currently at Rs.1,100 crore and post IPO, it would be at Rs.1,250 crore, based on the upper price band of Rs.252. This means we are looking at a market cap turnover ratio of 2 times as against the ratio of 0.5 times for most of the listed peers. The IPO does get the adrenalin going for companies! And once again the big question that pops up is – will this be sustainable?

The question of sustainability does not end here. For FY10, based on the performance till 9MFY10, we can safely estimate that the company would have a topline of Rs.550 crore and PAT of Rs.100 crore, meaning we are looking at an EPS of Rs.22. This means, on the upper price band of Rs.252, it is at a PE of 11 times. Most of the existing companies are currently quoted at a PE of around 7 to 9 times. Man, the company really thinks it's the cat's whiskers! The entire effort of the company, post IPO would be wasted on sustaining these existing margins and not about growth.

The IPO is way too expensive, both at the upper as well as the lower price band. When realty companies are wooing people with ‘affordable housing', how can its contractors make handsome profits? Would investors be really interested in a company whose shares are being offered at an unaffordable price?