'Avoid' A2Z Maintenance IPO: Aditya Birla Money

MUMBAI: Aditya Birla Money has advised investors to ‘Avoid’ subscribing to initial public offering of A2Z Maintenance and Engineering. The IPO at the cap-price is commanding a huge premium to its peers, the brokerage says.

The company has entered the primary market to raise Rs 675 crore by issuing shares in the price-band of Rs 400-410. The issue closes Friday.

“Company’s sales have grown at a CAGR of 137.7% to Rs.11.3 billion from FY06-FY10 while PAT has risen by a CAGR of 120.5% to Rs.1 billion. The company is enjoying operating margin and PAT margin of 16% and 9% respectively well above the industry average of 12-14% and 4.2-4.5%.It has also been consistently delivering superior return (RoNW) of 35-40% above industry average of 20%.

At the higher price band of Rs 410 the stock would be trading at 30.2x its FY10 EPS of Rs 13.6 against the industry average of14x; which is a huge premium over its peers despite considering the margins and returns the company is enjoying.

The company is operating in areas where there is tremendous potential available; however valuations are on a higher side and hence we recommend investors to avoid subscribing to the stock,” the report said.