RPP Infra Projects Review and Analysis – Expensively Priced,Small Construction Junk IPO

India has seen a rash of junk IPO offerings in the past year due to the strong bullish conditions.Most of these IPOs have managed to raise money based on stock market shenanigans by Market “Operators”.More than 50% of these micro cap IPO junk has given negative returns but the flow seems unabated as India has become an IPO Pump and Dump Heaven.Aster Silicates,Tarapur Transformers,Prakash Steelage,Sea TV are some of the microcap junk that I have written about earlier.R.R.P Constructions joins the infamous bandwagon trying to sucker money from retail investors.The Company is expensively prices,slow growing (compared to other construction peers),has management that you would not want to trust a dollar with,high debt and still wants you to pay ~25x P/E.There are many better opportunities in the Construction and Infrastructure Space in India right now for example Tecpro Systems and VA Tech Wabag.Here are some RPP Infra Projects stock negatives gleaned from its DRHP as I could not find any positive about the company.

1) Untrustworthy Management – “Our Managing Director, Mr. P. Arul Sundaram, has attracted disqualification under section 274(1) (g) of the Companies Act 1956 from being appointed / reappointed as Director on the Board of any other public limited company for a period of five (5) years ending November 30, 2012.”

2) Small Scale,Low Topline Growth,Low Margins,Negative Cash Flows,High Debt – The Company’s Financial don’t paint a pretty picture except for Growth which some may consider good at around 27% sales CAGR but not very high comparatively when you consider bigger constuction companies are growing much faster with better margins.The Company has a debt of Rs 34 crores which is 1.4x times the Net Worth of the Company.The Net Margins are low at around 3-5%.

3) Valuation High – The Company is doing Rs 8 Crore in Profit and asking around Rs Rs 170 crore in market cap which gives it around 20  times P/E which is very high considering the much cheaper valuations for well established bigger construction companies.I think the valuation should half been half of the Rs 68-75 being asked for.

Summary

RPP Infra Projects is another junk stock out to fleece investors and should be safely be kept away from .The investment bankers for the issue Comfort Securities  and VC Corporate Advisors are not known for bringing high quality issues to the market either.Note Comfort Securities was responsible for the Tarapur Transformers IPO which is currently trading at less than half of the issues price.