Gammon India: Subscribe

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S. Muralidhar

GAMMON India Ltd (GIL), the Mumbai-based civil construction company, is issuing rights equity shares at a premium of Rs 20 each in the ratio of 1:1 to its shareholders.

The rights issue, which opened on October 15, 2001, is being made to part-fund the company's requirement of resources for investment in infrastructure development projects.

Taking into consideration the construction industry's future prospects, the company's past performance and standing in the industry, and the favourable issue price, shareholders can opt for the rights offering, taking a medium-to-long-term outlook as regards capital appreciation.

GIL, which has been in the business for nearly eight decades, has created a niche for itself in the civil construction business and has executed prestigious and renowned projects in the country such as the construction of the Konkan Railway tunnel, the Ganga bridge at Patna and the Khopili dam. The company has also been involved in a number of projects abroad, particularly in Nepal, the Middle East, Iraq and Libya.

GIL is primarily engaged in contract execution of infrastructure and civil engineering projects. The company undertakes contracts for designing and construction of concrete bridges, cooling towers, chimneys, power stations, aquaducts, dams, wires, silos, tunnels, industrial and marine structures, including harbours and container freight stations, and general civil engineering works.

GIL has 60 sites spread across the country and claims to have contracts under execution worth approximately over Rs 1,200 crore on hand. It has also been pre-qualified or invited to submit tenders for civil engineering projects of approximately upto Rs 2,900 crore, the company said.

The ex-rights price of the GIL stock has been hovering in the Rs 85-Rs 55 range. The company's profitability has also witnessed a consistent growth during the last few years. The average earnings per share of GIL for the last three years was Rs 20.06. The company had reported a net profit of Rs 14.86 crore during the year ended March 2001 compared to a net profit of Rs 13.98 crore achieved during the year ended March 2000.

Most of the contracts being executed by the company are for the Central Government, public sector undertakings or State governments, such as the Maharashtra State Road Development Corporation, National Hydroelectric Power Corporation, Indian Institute of Technology, Guwahati, Chennai Corporation, Delhi Development Authority and Brihan Mumbai Corporation. GIL's client profile by nature offers a certain level of investment comfort to its shareholders, since the company's funds flows and business interests are protected to some extent.

Some of GIL's major competitors are Hindustan Construction Corporation, Larsen and Toubro ECC, UP Bridge Corporation, Skanska Cementation India Ltd, AFCONS and Simplex.

The construction industry has been considered as one that needs continued focus by consecutive Governments. While the current economic slowdown and the possibility of lower public spending by the Government could affect infrastructure projects, the long-term prospective for the industry continues to be bright.

Offer price :Rs 30 (Rs 10 + premium Rs 20 per share).

Offer size :63,20,572 equity shares for Rs 30 each aggregating Rs 18,96,17,160.

Promoter group :Mr Abhijit Rajan and associates.

Offer opening date :October 15.

Offer closing date :November 15.

Lead manager to the issue :Imperial Corporate Finance and Services Pvt. Ltd.

Registrar to the issue :Sharepro services.

Bankers to the issue :Canara Bank.