Hitting markets in March last year, the stock of ARSS Infra closed listing day with a gain of over 60 per cent. It proceeded to build on these gains for a good while longer, turning tail in the second half of 2010. ARSS Infra is a construction contractor for industrial projects, roads and railways.
ARSS Infra benefited in part from riding the first wave of the revival in initial public offers. The offer was also modestly priced. However, the collective rejection of the sector on slowing execution, delay in awarding of projects in roads and prolonged monsoons had a part to play in the nose-diving of the stock's price.
The stock had also commanded trailing valuations of over 20 times at its peak, high for a construction contractor, where valuations typically fall well short of even 16-17 times trailing earnings. The company did not also possess unique aspects that set it apart from other contractors which could have justified premium valuations.
Its order book was fragmented with a large number of small-sized orders, which does not support prospects of scaling up. Governance issues too popped their heads up as one of its promoters was facing criminal litigation proceedings at the time of the IPO. The December 2010 quarter saw net profits grow at just two per cent, against the tripling and doubling of profits in the two quarters before.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.