ICRA has assigned IPO Grade 2,indicating below average fundamentals, to the proposed initial public offer of Brahamputra Consortium Limited (BCL). ICRA assigns IPO gradings on a scale of IPO Grade 5 to IPO Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals.

BCL is proposing a public issue of 4.2 million equity shares of face value Rs 10/- each, through 100% book building route.
The company proposes to use the proceeds from the proposed IPO to invest in construction equipment, BOT projects and augment its working capital.

The IPO grade assigned by ICRA reflects BCL’s demonstrated project execution capability and currently strong order book position, which along with the buoyant outlook for the construction industry, is expected to provide for healthy growth in the company’s revenues and profits. The IPO grading also factors in BCL’s entry into new business segments and locations, which is expected to not only diversify its revenue streams,but also enable it to tap new business
opportunities. The grading is however constrained by the relatively small scale of BCL’s operations, and the challenges involved in scaling up operations to successfully execute large and more complex projects in new geographical locations. The grading also takes into account the risks arising out of the concentration of BCL’s order book in the North-East region and Jammu & Kashmir.

Further, the company’s proposed investments in BOT projects exposes it to the operational risks associated with such projects, given that it has been a pure contractor so far with no experience in running a BOT project.
The grading is also constrained by ICRA’s expectation that BCL’s funding requirements would increaseas its working capital and capital expenditure requirements (to support higher business volumes) both move up. This in turn is likely to increase the company’s dependence on borrowed funds, and its ability to raise such funds at competitive interest rates would influence its liquidity position, profitability, and future growth. Nevertheless, ICRA notes that the proceeds of the proposed IPO would strengthen BCL’s capital structure and increase its leveraging power.

Entity Profile Originally established as a proprietorship firm in 1987 and incorporated in September 1998,BCL is a relatively small player in the domestic construction industry. Its primary areas of focus have been civil works, land development, road construction, and construction of buildings. The company has recently ventured into the mining, civil construction works for hydropower projects, and real estate sector. In the past, BCL executed most of its projects for public sector undertakings (PSUs) and Government bodies. Over the years,it concentrated mainly on the North-
East region, especially Assam, which has been the base for the promoter family. Given its history of operations in the North-East, BCL has a strong execution track record there and enjoys a good reputation among its clients in the region. Some of the large and reputed clients of the company are National Highways Authority of India (NHAI), Airport Authority of India (AAI), Indian Railways Construction Company (IRCON), Northeast Frontier Railways (NFR), and West Bengal Housing Infrastructure Development Corporation (WBHIDCO). Over a period of time, BCL has increased its sectoral diversification and moved into newer segments, besides diversifying geographically bysecuring construction orders in Jammu & Kashmir and Punjab. For the 9 Months ended December 2006, the company reported an operating income of Rs 907.2 million and Profit after tax of Rs 42.1 million.