Valuation and Recommendation
IRCON is the largest PSU carrying out EPC projects in railways. It faces no competition domestically for all projects it bags from the railway ministry as they are on nomination basis. IRCON is on a strong footing on the back of revival in government capex in railways and roads since FY16 which has translated into topline CAGR of 29% over FY16-18 for the company. IRCON has one of the highest order book to sales ratio across all EPC companies at 5.6x FY18 sales and possesses a healthy balance sheet which can support further growth in order book. By leveraging its strong execution skills in railways, IRCON has successfully created an additional growth engine in the form of roads which now contributes 21% to the company's revenue.
IRCON is being offered at a valuation of 10.9x FY18 (vs. Pvt road EPC companies' average of 19.3x).
Thus based on the business capabilities, industry growth prospects and valuations, we believe IRCON is attractively priced and recommend subscribing to the issue.