The IPO of Bharat Road Network Limited (BRNL) will open for subscription on the 6th September and close on the 8th September 2017. The company is a fully owned subsidiary of SREI Infrastructure Finance group which is listed on the NSE and the BSE. SREI Infrastructure which owns the company has seen it’s share price double over the past one year as many expect that a successful public issue will directly benefit the company.
The company was incorporated in 2006 as a developer and operator of highways. BRNL does this on a BOT basis which means Build, Operate and Transfer of roadways. Under BOT a company will build the highway on government lands and collect a toll for a fixed period of time which might range from 10 – 30 years. This is allowed so that it can recover the cost of highway construction after which the ownership of the project will revert back to the government.
The profitability of such projects largely depends on the benefits conferred on the construction firms by the State and Central Governments. If the company has friendly relations with ruling government it can mange to get highly profitable terms of operation. One such examples of a highly profitable toll booth operated in India is the NICE Bangalore Mysore Expressway operated by Nandi Infrastructure Corridor Enterprises (Listed as BF Utilities on the NSE).
Bharat Road Networks is a Kolkata based company and currently operates six highway projects out which two are operational while the remaining four are in different stages of construction. Given below is a drone video of one of it’s highways which is operational in the Chandikhole-Jagatpur-Bhubaneswar section of National Highway 5.
The company’s road networks are based in the states of Haryana, Madhya Pradesh, Kerala, Uttar Pradesh, Orissa, Maharashtra, Karnataka and Andhra Pradesh. It’s pan India footprint means that the company’s growth and profits will be closely related to how the Indian economy performs in the coming years. If there is growth in the traffic of goods carriers who pay the highest toll fees then the company can be expected to turn a profit very soon.
The company reported a loss of Rs 62.70 Crore in the results declared for the financial year 2016-2017. BRNL has been operating at a loss for the last five years because of the high capital investments required for it’s projects. The company has proposed to sell 2.93 Crore Equity shares in the IPO. The chairman of the company said in a statement to DNA last week that he expects the IPO to bring in Rs 700 Crore to the group company when it sells a 35% stake.
The promoters of the company as listed in the DHRP are Srei Infrastructure Finance Limited and Make in India Fund. The funds raised will be used to finance road projects and retire debt of the company which exists in the form of unsecured loans, warrants and debentures.
Grey Market Premium
Since the company is backed by experienced promoters and has the support of the current government, some researchers have predicted that it will list at a premium of 20-30 % of it’s issue price. This is pure speculation and investors must understand the risks of investing in a loss making company. The issue is being managed by INGA Capital Pvt, Investec Capital Services and SREI Capital Markets. These investment bankers are not really well known, which is a factor to consider before you apply for this IPO.
Important Documents related to the IPO for Investors
IPO Listing Date and Issue Price
The company has today disclosed a price band of Rs 195 to Rs 205 for it’s equity shares. It usually takes 12-14 days after the issue closes for the shares to list on the stock exchanges. So you can expect Bharat Road Network to list sometime after 20th September 2017. The registrar for the issue is Karvy Computer-share Pvt Ltd. After you have applied for the shares you can find out about the allotment status at http://kosmic.karvy.com
Our View – What is driving this company?
With the markets at an all time high, it is most likely that the issue will be profitable. As it will list just before Diwali, the time period is quite favorable for IPO’s in terms of market sentiment. If shares are issued at the upper end of the price band of Rs 205 then investors can expect 10-15% listing gains. Subscribe to our newsletter in the sidebar to get regular updates about the IPO and technology news.