Summary
Shapoorji Pallonji Group's AFCONS Infrastructure is preparing for its long-awaited IPO, which is a momentous event in India's infrastructure sector. From the company’s humble beginnings to Shapoorji Pallonji's rare listing move, we explore AFCONS' history, financials, and Shapoorji Pallonji’s unique reluctance to go public.
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Update on Afcons Infrastructure IPO - October 6, 2024
As of today, Afcons Infrastructure Limited is gearing up for its Initial Public Offering (IPO) in late October 2024. The IPO is expected to raise between ₹7,000 crore and ₹8,000 crore, including a fresh issue of ₹1,250 crore, which will be used for debt repayment, purchasing construction equipment, and meeting working capital needs. A large portion of the offering will come from a secondary sale by the promoter, Goswami Infratech, which will use the proceeds to repay bondholders.
A notable development is Afcons' plan to conduct a ₹4,000 crore pre-IPO placement, likely with domestic and international institutional investors. This placement is expected to enhance the credibility of the offering and may scale down the final IPO size.
AFCONS Infrastructure IPO: The Billion-Dollar Bet by Shapoorji Pallonji Group
So, AFCONS is going public! As someone who follows India’s business landscape closely, the impending IPO of AFCONS Infrastructure—a key subsidiary of the Shapoorji Pallonji Group—has been on my radar for a while. For years, the Shapoorji Pallonji Group has quietly built its empire behind the curtains, opting to remain private. But now, with AFCONS’ listing in the works, all eyes are on one of India’s largest infrastructure companies. In this article, we’ll dig into why this IPO matters, the curious history of Shapoorji Pallonji, and, of course, whether this could be a good investment. But remember, this is not financial advice—just some insights for those curious about one of the most awaited IPOs of the year.
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How did Shapoorji Pallonji acquire AFCONS?
Before we talk about the IPO, let us wind back to where it all started: how did AFCONS become a part of the Shapoorji Pallonji empire?
AFCONS originally started in 1959 as a construction company and, over the years, became one of India’s most respected engineering and construction firms. Specialising in infrastructure like bridges, tunnels, highways, and ports, AFCONS built a reputation for its engineering prowess.
This move aligned with Shapoorji Pallonji’s long-term strategy of expanding into large-scale infrastructure. For a group that already had its fingers in numerous pies—from real estate to energy—AFCONS was a strategic acquisition, especially considering India’s infrastructure boom.
With this acquisition, Shapoorji Pallonji fortified its position as a top player in India’s booming infrastructure sector. Fast forward two decades, and here we are, awaiting AFCONS' public debut.
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What is the story behind AFCONS Infrastructure?
AFCONS may not have the glamour of some tech startups, but in the world of heavy engineering and construction, it's a giant. The company specialises in complex infrastructure projects across multiple sectors—bridges, roads, tunnels, ports, and metro rail systems. In fact, if you've driven across a bridge or taken a metro in a major Indian city, there's a good chance AFCONS had a hand in building it.
AFCONS has completed over 350 infrastructure projects in more than 22 countries and works with both the public and private sectors. Known for its cutting-edge technology and impressive engineering solutions, the company’s reputation makes this IPO particularly intriguing for those interested in infrastructure investments.
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Did AFCONS pay dividends regularly?
One of the things investors typically look for is dividend history, so let us get into AFCONS' financial track record.
Unlike some high-growth tech companies, AFCONS has maintained a conservative dividend policy. Historically, AFCONS hasn’t been very aggressive in distributing profits back to shareholders, preferring to reinvest in the business for expansion.
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Remember the Sterling and Wilson Solar IPO debacle?
Now, a quick flashback to another Shapoorji Pallonji-led IPO: Sterling and Wilson Solar (SWSL). Ah, the fiasco that was! Launched with great fanfare in 2019, SWSL’s IPO was seen as a litmus test for the group’s ability to navigate the stock market waters.
Unfortunately, SWSL tanked shortly after the listing. Although now sold off to Reliance, the shares prices are yet to reach their IPO allotment price.
The group’s handling of that IPO raised eyebrows, and, frankly, some skepticism about how they approach the public market. It is selling its majority shares in the company or pledging them off, depending upon which day you open up the newspaper.
This time around, with AFCONS, it will be crucial for Shapoorji Pallonji to avoid any such missteps. The stakes are high, and market watchers will be following closely.
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What are the key dates for AFCONS’ IPO?
IPO Opening Date: Expected around December 2024
Listing Date: 7-10 days after the allotment
What about the IPO financials and the book-running managers?
IPO financials are the heart of any pre-listing analysis. While final figures are yet to be disclosed, early reports suggest that AFCONS could be looking to raise upwards of ₹4,000 crore, which will primarily go towards debt reduction and working capital. The funds raised will also enable the company to undertake more large-scale projects, both in India and abroad.
The IPO will be managed by book-running managers such as Kotak Mahindra Capital, Axis Capital, and ICICI Securities. These names lend credibility to the offering, but always remember that even the best managers can't guarantee a successful listing. Investors need to dig into the details (read the DRHP, folks!) before making any decisions.
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Isn't it curious how Shapoorji Pallonji handles debt?
Let us talk about the elephant in the room: debt. After all, that is why AFCONS is being listed. It was a part of a lenders agreement as a chunk of money which promoters will gain will be used to clear debt.
Shapoorji Pallonji Group has a reputation for carrying hefty loans on its balance sheet. And while many large business houses in India have taken massive haircuts on their loans, the Mistry family—who controls Shapoorji Pallonji—has a different strategy. Instead of negotiating for a haircut or restructuring, they have been slowly paying off their debt in full.
Over the past few years, Shapoorji Pallonji has been selling off assets—commercial real estate, ports, land, and even stakes in certain businesses—to meet their debt obligations. While it is a commendable approach, it also highlights the group’s debt-heavy structure. As of their latest filings, Shapoorji Pallonji was still carrying over ₹20,000 crore in debt. And remember, the Sterling Wilson Renewable IPO was also actioned to reduce debt.
This debt load is something potential investors need to be mindful of. Even with the best intentions, high debt levels can make or break a company, particularly in the capital-intensive infrastructure sector.
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What about Eureka Forbes and Gokak Textiles—did they create wealth?
This brings us to a critical question: have Shapoorji Pallonji’s other listed companies performed well?
Eureka Forbes
Eureka Forbes, known for its water purifiers and vacuum cleaners, has been a household name for decades. However, its performance on the stock market has been anything but stellar. Eureka Forbes was listed after its demerger from Forbes & Company, and while it showed some initial promise, the stock has largely remained stagnant. Despite being a strong brand, the company has faced stiff competition and operational challenges, leading to underwhelming returns for its shareholders over the past decade. The consumer business has been hived and sold off, of course you know why
Gokak Textiles
Then there’s Gokak Textiles, which was once a leading player in the textile industry. But over the past decade, Gokak has struggled to maintain relevance. With shrinking revenues, high operational costs, and a slow decline in market share, Gokak Textiles has disappointed long-term investors. If you held Gokak Textiles stock in your portfolio over the past 10 years, chances are you wouldn’t be too pleased with your returns.
The performance of these two companies raises an important question: can AFCONS break this pattern and create real wealth for its investors?
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Why is Shapoorji Pallonji so reluctant to list companies?
It is fascinating, really. Shapoorji Pallonji is one of India’s largest business groups, with interests ranging from real estate to engineering. And yet, for decades, they have kept most of their companies away from the public eye. Why the secrecy?
One theory is that the Mistry family, which controls Shapoorji Pallonji, prefers to keep a low profile. After all, they’ve never been publicity-hungry like some of their corporate peers. Another reason could be their cautious approach to managing public scrutiny, debt, and shareholder expectations.
But here is the kicker: in today’s world, transparency isn’t just a buzzword—it is a necessity. The more public companies you have, the more scrutiny you are under, and that keeps you accountable.
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What are the financials of the AFCONS IPO?
AFCONS Infrastructure is aiming to raise anywhere between ₹2,500 crore to ₹4,000 crore through its IPO. The funds will primarily be used to pare down debt, finance new projects, and bolster working capital. The IPO is a mix of a fresh issue of shares and an offer for sale (OFS) from existing shareholders, including the Shapoorji Pallonji Group.
The exact price band is yet to be determined, but given the company’s past performance and future prospects, analysts are predicting a fair valuation. Book running managers for the IPO include top-tier investment banks such as ICICI Securities, Axis Capital, and JM Financial.
How is Shapoorji Pallonji Group paying back loans when others aren’t?
One of the most fascinating aspects of this IPO is the timing. Shapoorji Pallonji, like many other business groups, has faced enormous financial stress in recent years. The group has accumulated over ₹30,000 crore in debt. However, unlike many high-profile Indian firms who have sought bailouts or offered creditors ‘haircuts’, Shapoorji Pallonji has been diligently paying off its debt.
How are they doing this? Asset sales. The group has sold a significant stake in Sterling and Wilson Solar, divested part of Eureka Forbes, and is in talks to sell additional assets, including prime real estate holdings. This ability to honour their financial obligations adds a layer of credibility to AFCONS' upcoming IPO, as it suggests the group is committed to financial discipline.
Both examples serve as a cautionary tale for investors considering any Shapoorji Pallonji-backed IPO. Past performance, as we know, is no guarantee of future success, but it does highlight the need for due diligence.
What are the positives and negatives of AFCONS' IPO?
Let us break down some pros and cons:
Positives:
- Strong Track Record: AFCONS has a proven history in complex infrastructure projects.
- Resilient Financials: The company’s steady cash flows and robust project pipeline are encouraging.
- Global Presence: AFCONS’ work in international markets like the Middle East adds a layer of diversification.
Negatives:
- Shapoorji Pallonji Group Debt: The promoter group's overall debt is a concern, and asset sales might not be enough.
- Sterling and Wilson hangover: The failure of Sterling and Wilson Solar's IPO casts a shadow over AFCONS’ offering.
- Sector-Specific risks: Infrastructure is a high-risk, capital-intensive sector, susceptible to economic downturns.
Should investors apply for AFCONS' IPO?
As with any IPO, it is essential to read the Draft Red Herring Prospectus (DHRP) carefully. The IPO market can be unpredictable, and while AFCONS has several things going for it, it is important to weigh those against the potential risks.
This article is not a recommendation to apply for the IPO or not – it is simply to provide you with the relevant information.
Upcoming IPOs in India
Swiggy IPO: One of India's largest food delivery platforms, Swiggy, is eyeing the public markets with an IPO expected to raise around ₹3,750 crore. The funds will likely be used to expand its core food delivery business and invest in its hyperlocal delivery service, Instamart.
Hyundai Motor India IPO: A significant player in the Indian automobile market, Hyundai plans to launch its IPO later in late October or November 2024. The offering is expected to raise a substantial amount, boosting India's automotive sector.
NTPC Green Energy IPO: This IPO from the green energy subsidiary of NTPC will focus on the renewable energy space, which has seen increased interest from investors globally. The offering aims to raise substantial capital to expand its clean energy portfolio.
Swiggy IPO: One of India's largest food delivery platforms, Swiggy, is eyeing the public markets with an IPO expected to raise around ₹3,750 crore. The funds will likely be used to expand its core food delivery business and invest in its hyperlocal delivery service, Instamart.
Hyundai Motor India IPO: A significant player in the Indian automobile market, Hyundai plans to launch its IPO later in late October or November 2024. The offering is expected to raise a substantial amount, boosting India's automotive sector.
NTPC Green Energy IPO: This IPO from the green energy subsidiary of NTPC will focus on the renewable energy space, which has seen increased interest from investors globally. The offering aims to raise substantial capital to expand its clean energy portfolio.
FAQs:
1. What does AFCONS specialise in?
AFCONS is an engineering and construction company known for projects in marine, railways, and urban infrastructure.
2. Is AFCONS debt-laden like its parent group?
While AFCONS carries some debt, it is more financially stable compared to the Shapoorji Pallonji Group.
3. How does this IPO compare to Sterling and Wilson Solar?
Sterling and Wilson's IPO failed due to corporate governance issues. AFCONS is being closely scrutinised to avoid a repeat.
4. Will Shapoorji Pallonji list more companies?
Time will tell. If AFCONS' IPO is successful, it could signal more public listings from the group.
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Tushar Mangl writes on business, finance, mental health, food, leisure, and a greener, better society. Speaker, author of Hey Honey Bunch, Ardika and I Will Do It.
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