IPO Update:ERA Constructions

ERA Constructions : Excuse me please !
Era construction is offering 68 lac shares through a public issue at an offer price of Rs. 72 (fixed price) per share with a face value of Rs. 10.
Issue Opens : June 24,2005
Issue closes : June 29, 2005

Let’s Dig into the Company:
1. The company quotes that the issue proceeds will be used to acquire plant and machinery and augment the long-term working capital.

2. The shares of the company are already listed on BSE and is currently quoting at Rs.85 (lowest Rs. 66 during May2005)

3. Assuming a weighted average price of Rs. 80 till the allotment of shares is done, the issue gives a 10% return on the shares alloted.

4. The company earned an EPS of Rs. 8 per share (3 years weighted average EPS of Rs.6.5). This translates into a P/E of 10. However the P/E after the issue of shares will be 20, which looks expensive.

5. The company is a profit making company since its inception.

6. The company is dependant on few large orders rather than a large customer base.

7. Company has sizeable debtors as compared to its sales. It needs an agrresive strategy to improve its debtor’s turnover.

Though Investment Guru has a positive opinion on the construction sector, the valuations of ERA constructions look stretched.
Investment Guru recommends investors to stay away from this public offer. The stock is already listed and hence the valuations on listing of new shares will not be at par with the other IPO’s.

There are host of other IPO’s coming in the month of July and it is recommended to keep your money parked for those issues which will provide much better returns.
Stay tuned for an update on the forthcoming issues!
Happy Investing!