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MEP Infrastructure Developers (MEP), which got listed today, has swung wildly in a sharply falling market. From its issue price of Rs 63, the stock hit a low of Rs 55.4 on the BSE, a 12 per cent fall from the issue price. On the NSE, the stock fell much more, to Rs 52.8 recording a 16 per cent dip.
The stock then recouped a good bit of the losses and is currently trading around 4 per cent below its offer price.
A similar gyration in listing day trade occurred for Adlabs Entertainment too, which fell 13 per cent before climbing back up to end the day with a 6 per cent gain.
Of the IPOs that have listed this calendar, Ortel Communications is the only one to have made losses on listing day, not including MEP. MEP’s issue was subscribed just over 1 time, with support coming in from non-institutional bidders.
Dragged by losses
The company takes on maintenance and toll collection for fully-developed road stretches – by the NHAI or state highway departments - for a set number of years. Else, it acquires the right to collect toll on completed stretches in exchange for revenue share or payments to the authorities. Capital investment and project costs are lower and gestation periods shorter, which is a significant advantage.
But while it has no listed competition, since other road players are developers or contractors, MEP suffers from a string of loss-making years. This detracts significantly from the good potential of the business itself. Apart from the broad market decline, the aversion to high-debt companies could also have dragged the stock down.
MEP’s revenues have grown at a rapid 40 per cent annually over the past three years, partly due to a low base. But debt is high at Rs 3,021 crore, as on October 31, 2014. This is thanks mostly to the upfront payment of Rs 2,100 crore made to the Maharashtra state road development authorities for an OMT and toll collection project.
High interest costs have pulled down reasonably the healthy operating profit margins of 30 per cent and, along with depreciation, sent the company careening into losses. Networth has been negative from the 2012 fiscal onwards. About Rs 262 crore of the issue proceeds will be used to repay part of this loan. High debt apart, the company is embroiled in litigations with various authorities.
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