CRISIL has come out with a report on Vascon Engineers IPO. It has assigned CRISIL IPO Grade 3/5 to the proposed initial public offer of Vascon Engineers (VEL). This grade indicates that the fundamentals of the issue are average relative to other listed equity securities in India.

The repot says, “However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy/sell or hold the graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular investor.”

The report also says, “The grading reflects VEL’s track record as a building construction specialist with an ability to deliver quality construction on time. The grading also reflects the company’s diversified business portfolio, which has helped VEL protect its revenues from downturns in the real estate sector. The company’s EPC business registered a growth of 48.22% in 2008-09, while its real estate development business witnessed degrowth of 89%. As a result, VEL’s total income declined by 15%. The grading also considers the company’s strong order book position and stable client profiles in the EPC business. Most of VEL’s clients in the EPC business operate in the hospitality and educational sectors, which are relatively less affected during the real estate downturns. Margins in the EPC business were at 15% in 2008-09.”

“However, the company’s real estate development business is primarily concentrated in Maharashtra, especially in-and-around Pune, exposing it to high levels of geographic and price risks. Moreover, Pune has been witnessing oversupply of residential and commercial space, and this scenario is forecast to continue over the next few years. This is likely to impact Vascon’s real estate development plans. The IPO proceeds are expected to be utilised for funding the company’s EPC contracts and real estate development projects and for repaying debt”, the report said.

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