A B Infrabuild: the Mumbai contractor building on the Railways

A B Infrabuild is a Mumbai construction contractor ¹ that builds railway platforms, station buildings, bridges and roads ² and runs a ready-mix concrete plant ³ at Kashimira in Thane district, Maharashtra. ¹ Its customers are overwhelmingly government bodies (Western Railway, Central Railway, the Municipal Corporation of Greater Mumbai, the Mumbai Metropolitan Region Development Authority and the Mumbai Railway Vikas Corporation) ³ and it wins work the way most contractors do: by bidding in tenders and, usually, quoting the lowest price. ⁴ The company is now proposing a public issue of 44,28,000 equity shares of ₹10 each at a price that has not yet been fixed, and says the money will go mainly into working capital. ⁵ The rest of the filing is the counterweight to that pitch: one promoter holds 90.949% of the pre-issue paid-up capital, ⁶ revenue has declined in each of the three most recent reported years, ⁷ and the largest customer is Indian Railways. ⁸

What the company does

The business splits into two segments: creating infrastructure and operating a ready-mix concrete (RMC) plant, a facility that produces pre-mixed concrete delivered to construction sites. ³ The infrastructure side is specific about what it builds: railway platforms and station buildings, gauge conversion and track laying, bridges of several types (beam, cantilever, arch, suspension, cable-stayed and truss) and bituminous and concrete roads. ² The provided excerpts do not disclose a revenue split between the two segments.

How contracts are won matters more than what is built. The client floats a tender, the contractor bids, and the work is awarded to the lowest quote. The winner receives a Letter of Acceptance, then deposits a performance guarantee before the site is handed over. ⁴ This is a bid-driven, cost-competitive business. What the company sells is not a proprietary product but the ability to price low, deliver on time and execute technically. The filing’s own list of strengths is cost efficiency, timely delivery, technical expertise and quality. ⁹

The client list is dominated by public bodies: Municipal Corporation of Greater Mumbai, Western Railway, Central Railway, Mumbai Railway Vikas Corporation Ltd, Mumbai Metropolitan Region Development Authority and Dedicated Freight Corridor Corporation of India Ltd, plus private names like Sky Way Infrastructure, Dev Engineers, GCC Hotel and Krypton Corp. ³ The concentration is stark. Western Railway alone made up 52% of orders on hand, ¹⁰ and the top customers contributed 57% of total revenue in FY2018. ¹ The company describes itself as a major player in developing infrastructure in Mumbai, slowly consolidating its position in Maharashtra with a strong order book; it notes that Western Railway has been a client since 2006. ¹

The market the company operates in

The filing’s own framing of the industry is that construction is a highly fragmented and working-capital-intensive market contributing around 8% of India’s GDP at constant prices. ¹¹ The demand drivers it cites are the familiar government programmes (the 100 Smart Cities Mission, AMRUT, Make in India, Power for All) plus eased FDI (foreign direct investment) norms in 15 sectors including real estate and construction, rising urbanisation, higher disposable incomes and population growth. ¹²

The macro numbers in the filing are large and positive. India has an infrastructure investment requirement of ₹50 trillion (US$777.73 billion) by 2022, ¹³ and the logistics sector is expected to grow at a 10.5% CAGR (compound annual growth rate) from US$160 billion in 2017 to US$215 billion by 2020. ¹⁴ India’s GDP growth was estimated above 7% in 2017, the working-age population is expected to reach 64% by 2021, and India is projected to be the world’s third-largest middle-class consumer market by 2020. ¹⁵

Against that backdrop, the company’s own SWOT section (strengths, weaknesses, opportunities and threats) names the headwinds it fears: the slow pace of government projects, a working-capital crunch that could affect profitability, and changes in government policies. ¹⁶ Competition is split between organised and unorganised players. ¹⁶ In a tender-driven market, pricing power is weak: the lowest quote wins, so margins are squeezed by design.

What the company is selling and why

The issue consists of 44,28,000 equity shares of face value ₹10 each. The issue price is not disclosed in the extracted page; it is shown as ₹[●]. ¹⁷ The lead manager is Mark Corporate Advisors Private Limited and the registrar is Bigshare Services Private Limited. ¹⁸

The stated object of the issue is to meet working capital requirements of ₹1,130 lakh (₹11.3 crore) plus general corporate purposes, the amount for which is not disclosed in the excerpts. ¹⁹ The extracted pages do not explicitly show an offer-for-sale component or name a selling shareholder; every clue points to a fresh issue, new shares sold by the company for its own balance sheet, but the fresh-versus-OFS split is not spelled out in the provided facts. ¹⁷

The DRHP (draft red herring prospectus) acknowledges it has not appointed any independent agency to appraise the project, and says there is no monitoring agency for the proceeds; deployment is at the discretion of management and the board, monitored by the audit committee. ²⁰ That is a disclosure of how the money will be watched, not a judgment on whether it should be raised.

The numbers: shrinking revenue, a volatile profit line, heavy short-term debt

The restated financials tell a clear story across five years. Revenue from operations was ₹86.61 crore in FY2014, rose to ₹90.21 crore in FY2015, and then fell for three straight years to ₹74.53 crore (FY2016), ₹73.44 crore (FY2017) and ₹60.53 crore (FY2018). ⁷ The decline from FY2015 to FY2018 is roughly a third of the revenue base. ⁷

Net profit after adjustments is wildly uneven: ₹0.96 crore (FY2014), ₹0.78 crore (FY2015), ₹0.33 crore (FY2016), ₹0.16 crore (FY2017), then a jump to ₹3.15 crore in FY2018. ⁷ The FY2018 figure is nearly twenty times the FY2017 figure; the extracted pages do not explain the swing. ⁷

Profit before interest, depreciation and tax, the closest figure the filing gives to EBITDA (earnings before interest, tax, depreciation and amortisation), moved from ₹7.84 crore (FY2014) to ₹9.46 crore (FY2015), ₹7.83 crore (FY2016), ₹6.76 crore (FY2017) and ₹9.29 crore (FY2018). ²¹ The pattern is the same as revenue: a peak in FY2015, a trough in FY2017, a partial recovery in FY2018.

₹ crore	FY2014	FY2015	FY2016	FY2017	FY2018
Revenue from operations	86.61	90.21	74.53	73.44	60.53
Profit before interest, depreciation and tax	7.84	9.46	7.83	6.76	9.29
Net profit after adjustments	0.96	0.78	0.33	0.16	3.15
Long-term borrowings	5.87	6.73	1.89	1.32	1.33
Short-term borrowings	30.82	32.28	30.21	33.12	35.37

Source: DRHP pages 26, 27 and 111. Figures converted from ₹ lakh to ₹ crore. ²²

The balance sheet leans on short-term debt. Short-term borrowings rose from ₹30.82 crore (FY2014) to ₹35.37 crore (FY2018), while long-term borrowings fell from ₹5.87 crore to ₹1.33 crore over the same period. ²³ Total assets grew from ₹70.62 crore (FY2014) to ₹82.32 crore (FY2018). ²³

The filing itself warns that the company had negative cash flow in recent financial years and that sustained negative cash flow could hurt the business. ²⁴ The actual cash-flow statement figures are not in the supplied excerpts, so the magnitude of that negative cash flow cannot be stated here. The funding pattern is clear: short-term borrowings have risen in each of FY2017 and FY2018, ²³ and as of 31 March 2018 the company had ₹405.02 lakh (₹4.05 crore) of unsecured loans repayable on demand. ²⁴ A business that funds itself with demand-repayable loans is a business one phone call away from a liquidity squeeze.

What the filing says about price

The basis-for-issue-price section discloses earnings per share of ₹1.31 (FY2016), ₹0.63 (FY2017) and ₹12.59 (FY2018). ²⁵ Return on net worth for the same three years is disclosed as 4.14%, 1.97% and 28.14%. ²⁵ The FY2018 jump in both metrics tracks the FY2018 jump in net profit.

Metric	FY2016	FY2017	FY2018
Earnings per share (₹)	1.31	0.63	12.59
Return on net worth (%)	4.14	1.97	28.14

Source: DRHP page 54. ²⁵

The face value is ₹10 per share, and the DRHP notes the issue price will be a multiple of this face value, with the multiple itself redacted as [●]. ²⁶ A comparison-of-ratios page shows two figures that appear to belong to a peer-comparison table (12.39 and 44.71) as well as the company’s own 28.14 (likely FY2018 return on net worth), but the extract does not name the peer or label the columns. ²⁶ No named peer list with price-to-earnings, earnings per share, net asset value or return on net worth figures is available in the provided digest, and the issue price is not fixed. An implied price range cannot be honestly computed from these excerpts. What can be said: the issue price, when set, will determine where the company is positioned against whatever peer set the filing ultimately discloses.

Who controls the company and what the filing admits about governance

Amit Bholanath Mishra is the Promoter of the company ⁶ and its Managing Director. ²⁷ He holds 74,95,476 equity shares, or 90.949% of the pre-issue paid-up capital. ⁶ The three other whole-time directors, Bharat Kumar Parmar, Shree Prakash Singh and Mukesh Pandey, each hold only 300 shares. ²⁷ The CFO, Anchal Pachori, is a 28-year-old chartered accountant, and the company secretary, Mohit Soni, is 26. ²⁸ Hatim Sakerwala holds 9% of the equity shares as of the date of the draft prospectus. ²⁹

The DRHP states that no director is on the RBI list of willful defaulters and that no criminal cases have been filed against any director. ³⁰ The promoter has confirmed he has not been declared a willful defaulter by the RBI or any other governmental authority. ⁶

Related-party transactions are disclosed: ₹68.4 lakh of loans taken, ³¹ ₹57.7 lakh of director remuneration, and ₹324.3 lakh of payables. ³² The filing concedes such transactions may continue. ³³

Other flags the company itself lists: two companies promoted by Mishra, Al-Noor Chickens Private Limited and A B Magma Automobiles Private Limited, were struck off by the Registrar of Companies in March 2016 for non-operation, ²⁰ and equity shares were issued in the last 12 months at a price that may be lower than the issue price. ²⁴

Five material risks the filing admits

Customer concentration. Indian Railways is the largest customer, contributing 57% of FY2018 revenue, ⁸ and Western Railway alone is 52% of orders on hand. ¹⁰ The filing says its financial condition would be materially and adversely affected if it fails to obtain new contracts. ⁸

Tender dependence. Revenue depends on government and PSU (public sector undertaking) clients accepting the company’s bids, and the filing cautions that attempts to secure such projects may not always be successful. ⁸ The company’s own SWOT lists the slow pace of government projects as a weakness. ¹⁶

Negative cash flow and receivables. The company had negative cash flow in recent financial years, and failure to recover trade receivables on time could hurt its financial condition. ²⁴ For a contractor, receivables are the gap between work done and money received; a slow-paying client is a direct strain on the balance sheet.

Working-capital strain. As of 31 March 2018 the company had ₹405.02 lakh of unsecured loans repayable on demand, ²⁴ and it operates in a market that is inherently working-capital intensive. ¹¹ A crunch could directly hit profitability. ¹⁶ The issue’s stated object is to fund working capital, an admission of where the pressure sits. ¹⁹

Governance and regulatory exposure. Litigation involving the company, promoter and directors is pending at various stages; ³⁴ two promoter companies were struck off by the ROC; ²⁰ and no independent agency has appraised the project or been appointed to monitor the use of proceeds. ²⁰

Footnotes

1. DRHP, page 67 ↩ ↩² ↩³ ↩⁴

2. DRHP, page 71 ↩ ↩²

3. DRHP, page 63 ↩ ↩² ↩³ ↩⁴

4. DRHP, page 72 ↩ ↩²

5. DRHP, pp.29–48 ↩

6. DRHP, page 100 ↩ ↩² ↩³ ↩⁴

7. DRHP, page 27 ↩ ↩² ↩³ ↩⁴ ↩⁵

8. DRHP, page 12 ↩ ↩² ↩³ ↩⁴

9. DRHP, page 66 ↩

10. DRHP, page 65 ↩ ↩²

11. DRHP, page 58 ↩ ↩²

12. DRHP, pp.58–59 ↩

13. DRHP, page 22 ↩

14. DRHP, page 59 ↩

15. DRHP, page 62 ↩

16. DRHP, page 76 ↩ ↩² ↩³ ↩⁴

17. DRHP, page 29 ↩ ↩²

18. DRHP, page 31 ↩

19. DRHP, page 48 ↩ ↩²

20. DRHP, page 18 ↩ ↩² ↩³ ↩⁴

21. DRHP, page 111 ↩

22. DRHP, pp.26–111 ↩

23. DRHP, page 26 ↩ ↩² ↩³

24. DRHP, page 16 ↩ ↩² ↩³ ↩⁴ ↩⁵

25. DRHP, page 54 ↩ ↩² ↩³

26. DRHP, page 55 ↩ ↩²

27. DRHP, page 93 ↩ ↩²

28. DRHP, page 97 ↩

29. DRHP, page 98 ↩

30. DRHP, page 90 ↩

31. DRHP, page 129 ↩

32. DRHP, page 130 ↩

33. DRHP, page 15 ↩

34. DRHP, page 11 ↩