A B Infrabuild Limited: Inside the DRHP

A Mumbai-based infrastructure contractor that builds railway platforms, bridges, and roads for government clients is seeking to raise capital through an SME IPO. A B Infrabuild Limited operates in two segments: infrastructure creation and running a ready-mix concrete (RMC) plant.¹ The plant is located at Kashimira, Thane.² The company’s projects include designing and constructing railway platforms, station buildings, gauge conversion and track laying, various types of bridges, and bituminous and concrete roads.³ Its major clients are government entities: Western Railway, Central Railway, Mumbai Railway Vikas Corporation Ltd (MRVCL), Municipal Corporation of Greater Mumbai (MCGM), and Mumbai Metropolitan Region Development Authority (MMRDA).¹

The company is offering 44,28,000 equity shares of ₹10 each, with the issue price yet to be determined.⁴ The filing shows only fresh issue of equity shares, with no offer for sale component. Every share sold is newly issued, meaning all proceeds go to the company, not to existing shareholders. The primary purpose is to meet working capital requirements of ₹11.30 crore, with the remainder allocated to general corporate purposes at an undisclosed amount.⁵ The lead manager is Mark Corporate Advisors Private Limited, and the registrar is Bigshare Services Private Limited.⁶

What the company does

A B Infrabuild wins contracts through a competitive tender process. The client floats a tender, holds a pre-bid meeting, bidders submit quotes, and the lowest bidder is awarded the job. The contractor must then deposit a performance guarantee.⁷ This means the company’s revenue depends entirely on winning bids. There is no recurring income stream from long-term contracts.

The company’s work spans three categories. Railway projects include designing and constructing platforms, station buildings, gauge conversion, and laying railway tracks. Bridge projects cover beam bridges, cantilever bridges, arch bridges, suspension bridges, cable-stayed bridges, and truss bridges. Road projects involve constructing bituminous and concrete roads connecting highways and district roads.³ The RMC plant at Kashimira produces ready-mix concrete for construction projects.²

Revenue is heavily concentrated. Western Railway alone contributed 52% of the orders on hand.⁸ The top customers accounted for 57% of total revenue in fiscal 2018.² Majority of the company’s revenue is dependent on one customer, Indian Railways, which contributed 57% of revenue in fiscal 2018.⁹ This dependence on a single client, Indian Railways, shapes the company’s business model.

The company’s operations are focused on Mumbai and Maharashtra. The filing describes a “strong order book” but does not disclose its absolute value.²

The construction and infrastructure market

Construction and infrastructure contribute about 8% to India’s GDP and are highly fragmented and working-capital intensive.¹⁰ Demand is driven by government flagship programs including the 100 Smart Cities Mission, Atal Mission for Urban Rejuvenation and Transformation (AMRUT), Make in India, and Power for All. FDI norms in 15 sectors including real estate and construction development have been eased.¹¹

The logistics sector, part of infrastructure, is expected to grow at a CAGR of 10.5% from US$160 billion in 2017 to US$215 billion by 2020.¹² India jumped 19 places in the World Bank’s Logistics Performance Index in 2016, to rank 35th among 160 countries.¹⁰ The working-age population is expected to increase to 64% by 2021, and India is projected to be the world’s third-largest middle-class consumer market by 2020, behind China and the US.¹³

The company faces competition from both organized and unorganized players.¹⁴ Headwinds identified in the filing include a slow pace of government projects, working capital crunches affecting profitability, and changes in government policies.¹⁴

Financial performance across five years

The company’s revenue has declined steadily over the five-year period from fiscal 2014 to fiscal 2018. Net profit has been volatile, with a sharp jump in the most recent year. Debt levels are high relative to the company’s size.

Source: Restated financial statements.¹⁵

Revenue dropped from ₹90.21 crore in fiscal 2015 to ₹60.53 crore in fiscal 2018, a decline of about 33%.¹⁶ This is the central financial fact about the company: its top line has been shrinking for four consecutive years.

Net profit tells a different story. After falling from ₹0.96 crore in fiscal 2014 to just ₹0.16 crore in fiscal 2017 — a five-year low — profit jumped to ₹3.15 crore in fiscal 2018.¹⁶ The filing does not explain what drove this sharp reversal, but the jump occurred despite lower revenue, suggesting an improvement in margins or a one-time gain.

EBITDA (Profit Before Interest, Depreciation and Tax) ranged from ₹6.76 crore in fiscal 2017 to ₹9.46 crore in fiscal 2015, and was ₹9.29 crore in fiscal 2018.¹⁷ The EBITDA margin in fiscal 2018 was about 15.3% of revenue, compared to roughly 9.2% in fiscal 2017.¹⁸

Short-term borrowings increased from ₹30.82 crore in fiscal 2014 to ₹35.37 crore in fiscal 2018.¹⁹ Long-term borrowings were ₹5.87 crore in fiscal 2014, rose to ₹6.73 crore in fiscal 2015, then fell sharply to ₹1.33 crore by fiscal 2018.¹⁹ Total debt (short-term plus long-term) stood at ₹36.70 crore as of March 31, 2018, compared to total assets of ₹82.32 crore.¹⁹ Debt represents about 45% of total assets as of that date.¹⁹

The company has experienced negative cash flows in recent years, a risk noted in the filing. The disclosure states that sustained negative cash flow could adversely impact the business, financial condition, and results of operations.²⁰ Specific cash flow figures were not extracted from the filing, but the risk disclosure makes clear this is a material concern.

The company also had ₹405.02 lakhs (₹4.05 crore) in unsecured loans as of March 31, 2018, which are repayable on demand. Any demand from lenders for repayment could affect cash flow and financial condition.²⁰

Total assets grew from ₹70.62 crore in fiscal 2014 to ₹82.32 crore in fiscal 2018.¹⁹

Valuation and peer comparison

For fiscal 2018, the company’s basic earnings per share (EPS) was ₹12.59, and diluted EPS was ₹3.82. Return on net worth (RoNW) was 28.14%, and net asset value (NAV) per share was ₹44.71.²¹

The DRHP includes a comparison of accounting ratios with peer group companies on page 55, but the peer names and their financials are not disclosed in the extracted facts. Therefore, we cannot compute an implied price range or build a peer comparison table. The issue price will be determined by the company in consultation with the lead manager and will be justified by reference to these accounting ratios, according to the filing.²²

The face value of each equity share is ₹10, and the issue price will be a multiple of that face value, to be determined.²²

Promoters, management, and governance

Mr. Amit Bholanath Mishra is the sole promoter, holding 74,95,476 equity shares, representing 90.949% of the pre-issue share capital.²³ This is a concentrated ownership structure — the promoter controls nearly 91% of the company before the IPO.

The board of directors includes Amit Bholanath Mishra as Managing Director, Bharat Kumar Parmar as Whole Time Director, Shree Prakash Singh as Whole Time Director, and Mukesh Pandey as Whole Time Director. Each of the three non-promoter directors holds only 300 equity shares.²⁴ Mr. Hatim Sakerwala, a key management personnel, holds 9% of the equity shares.²⁵

Key management personnel include Ms. Anchal Pachori, aged 28, a Chartered Accountant serving as Chief Financial Officer, and Mr. Mohit Soni, aged 26, an Associate Member of the Institute of Company Secretaries of India serving as Company Secretary and Compliance Officer.²⁶

Related-party transactions for fiscal 2018 include a loan taken from KMP/Board of Directors of ₹68.4 lakhs, director remuneration of ₹57.7 lakhs, and outstanding payables to related parties of ₹324.3 lakhs as on March 31, 2018.²⁷

Several governance flags emerge from the filing. Two companies promoted by the promoter (Al-Noor Chickens Private Limited and A B Magma Automobiles Private Limited) were struck off by the Registrar of Companies in March 2016 due to non-operation.²⁸ The company has issued equity shares in the last 12 months at a price that may be lower than the issue price.²⁰ No monitoring agency has been appointed for fund deployment; the deployment of funds is at the discretion of management and the board, though monitored by the Audit Committee.²⁸

On the positive side, no criminal cases have been filed against directors, and none are on the RBI list of willful defaulters.²⁹

Key risks from the filing

Heavy dependence on Indian Railways. Western Railway alone contributed 52% of the order book, and the top customers accounted for 57% of revenue in fiscal 2018. The filing states that majority of the company’s revenue is dependent on one customer, Indian Railways, which contributed 57% of revenue in fiscal 2018.³⁰

Revenue depends on winning government bids. The company relies on government tenders awarded to the lowest bidder. Failure to win bids or negotiating lower values could materially affect performance. The filing notes that attempts to secure government and PSU projects may not always be successful, and financial condition would be materially and adversely affected if the company fails to obtain new contracts.⁹

Negative cash flows. The company has experienced negative cash flows in recent years, which could strain operations and lead to default on obligations. Sustained negative cash flow could adversely impact business, financial condition, and results of operations.²⁰

Geographical concentration. A major portion of revenue comes from Mumbai and surrounding regions. Any adverse developments affecting operations in these regions could have an adverse impact on revenue and results of operations.³¹

Unsecured loans repayable on demand. As of March 31, 2018, the company had ₹405.02 lakhs in unsecured loans that can be called in at any time. Any demand from lenders for repayment could affect cash flow and financial condition.²⁰

This report is based solely on the Draft Red Herring Prospectus (DRHP) filed by A B Infrabuild Limited. The issue price has not yet been set. All figures are as disclosed in the filing and have been converted to ₹ crore where the filing used lakhs.