Afcons Infra To Focus On Corporate Governance To Woo Investors

Shares of Afcons Infrastructure Ltd. made a tepid debut on the exchanges, listing at an 8% discount on the National Stock Exchange. The stock listed at Rs 426 a piece on the NSE as against the IPO’s upper price band of Rs 463.

At the end of day two of the bidding, the public issue had struggled to garner investor interest and was subscribed only 36%. However, on the last day, Afcons Infrastructure managed a subscription rate of 2.63 times with some push. 

Commenting on the subdued response to the IPO and the way forward, Afcons Infrastructure’s management said that the focus will now be on corporate governance to attract investors.  

On being asked if the IPO's higher pricing led to a subdued response from investors, Afcons Infrastructure Managing Director Paramasivan Srinivasan said that the price was advised by its book-running lead managers “based on extensive feedback from domestic investors and international investors".

The IPO price band of the multinational construction and engineering company was set in the range of Rs 440–463. The Shapoorju Pallonji Group company raised Rs 5,430 crore from the market.

“Our entity is compared with that of L&T by most of the investors. If we look at some of our accounting principles like accelerated depreciation for TBMs and others, we are priced, roughly, at cash profit level at a one-third discount to L&T, and Ebitda level at a 50% discount to L&T,” he told NDTV Profit, adding, “We believe it has a definitive upside possibility for investors.”

The company’s Executive Vice Chairman Subramanian Krishnamurthy noted that with the listing, the company will focus more on corporate governance. “Whatever comes to the company will reflect in the market. All the positives and negatives will be reflected. So there will be more accountability, more corporate governance,” he said.

A confident Srinivasan added, “We have been following strict corporate governance for the last 17–18 years, despite not being a listed entity. Therefore, our governance, which was private, will now be public and I am sure investors will value the governance standards and execution excellence of Afcons going forward.”

“It is perceived by international companies and investors that a listed entity has far better corporate governance than an unlisted entity. From that perspective, it creates a perceptional shift for companies. For international markets, this could help significantly,” the managing director added.

As for the method of calculating profit, Executive Vice Chairman Krishnamurthy explained, “If you look at our Ebitda margins, they are the highest. The issue comes in net profit. In terms of net profit, we follow accelerated depreciation for our tunnel boring missions.”

He added, “If a normal depreciation policy is adopted, there will be a 150–200 basis points upward figure as far as net profit is concerned and that is quite good, considering the space we are in and the kind of projects that we do.”

Shares of Afcons Infrastructure Ltd. rebounded after listing at a discount. The shares touched an intraday high of Rs 474.70 apiece, up by 11.43% from its opening price, at the NSE on Monday.

The stock ended the session 10.94% higher at Rs 472.60 apiece on the NSE against the benchmark Nifty 50's decline of 1.27%.