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Wednesday, March 29, 2006

Tantia Constructions - IPO


Established in 1964, the Tantia family promoted Tantia Constructions (TCL) caters to the Indian Railways. Its services include earthwork and ballast, rail track linking and welding, bridges and tunnels, electrification and signalling. It is among the five Indian companies capable of providing 'foundation to finish' for mega railway bridges spanning 2 km.

TCL has its own steel fabrication unit and is the only Indian company to have fabricated a 100-meter span steel girder on site, 400 metres above sea level. The company's other areas of construction services include roads, bridges, water sewerage, girders fabrication, jetties, tunnels and power transmission lines.

Apart from projects in India, TCL has also executed projects in Bangladesh, Bhutan and Nepal. The company's clientele includes almost all zonal railways, Central and state PWDs, Kolkotta metro rail, Hoogly River & Bridge Commission, NEEPC, Indian Oil Corporation, Ircon International, DSIDC, and PIDB. It had made an initial public offering of 1.44 lakh equity shares in 1982 (listed on the Calcutta Stock Exchange and the Delhi Stock Exchange).

TCL proposes to use the proceeds of the current issue for (a) investment in capital equipment; (b) enhancement of long-term working capital; (c) repayment of unsecured loan; (d) repayment of public deposit; (e) investment in BOT/BOOT projects and joint ventures.

Strengths

* TCL's current order book (on 20 March 2006) is about Rs 880 crore with a backlog of about Rs 650 crore, i.e., 6.3 times FY 2005 revenue. Rail projects and urban development account for 56% of the current order book

* The government is giving a major thrust to improving the railway infrastructure. Plans for building rail freight corridor projects (connecting Delhi with other metros), port connectivity projects, and up-gradation of projects under the national rail Vikas Yojana are in the pipeline. The Railway Budget 2006-07 has emphasised major technological up-gradations; completion of up-gradation and repair of over-aged tracks, bridges and track circuiting work on all stations on A, B and C routes by March 2007; and public-private partnership in rail projects. Targets for 2006-07 include over 550 km of new lines, over 1,100 km of gauge conversion and 435 km of doubling; and 23 new lines, one gauge conversion, and eight doubling. As it has been associated with the Indian Railways for the last four decades, these new projects hold a major opportunity for the company.

Weaknesses

* TCL has been generating a negative cash flow at the operating level: Rs 7.99 crore (FY 2003), Rs 7.90 crore (FY 2004), Rs 1.67 crore (FY 2005), Rs 5.32 crore (nine months of FY 2006). Debtors outstanding for more than six months stood at Rs 18.40 crore end December 2005.

* The debt-equity ratio of TCL on 31 March 2005 and 31 December 2005 (nine months) stood at an abnormally high level of 5.1 and 3.9, respectively.

* TCL's claim of Rs 16.86 crore for extra work from the Tamil Nadu Agricultural Development Project is disputed and unpaid.

Valuation

At the offer price band of Rs 45 – Rs 50, TCL's PE works out to 37.6- 41.7 x FY 2005 EPS on a post-issue equity and 12.9 – 14.3 x 9-month FY 2006 annualised earning on the post-issue equity. TTM PE for the construction sector is abnormally high at 37.