A2Z Maintenance & Engineering Services Ltd: Some Points Worth Considering

Buy: CMP: Rs.19.10

(i) In 2006, the ace investor, Rakesh Jhunjhunwala paid Rs.20 crore for a 21% stake in A2Z Maintenance & Engineering Services Ltd, an engineering, procurement and construction (EPC) company engaged in power distribution and facility management services (FMS) among other interests. 

(ii) In 2010, it went public, raising Rs.776 crore (fresh issue of Rs.675 crore and offer for sale of Rs.101.25 crore). Under the offer for sale, Jhunjhunwala sold over 1 million shares at Rs.400 a share, pocketing over Rs.40 crore.

(iii) Though the analysts had panned the IPO at aggressive multiples [26 times, against the then-industry multiple of 15x for EPC companies], on the first of listing the stock tanked. To soothe frayed nerves, Big Bull bought 1.375 million shares at Rs.350.77 a share, forking out Rs.48 crore. At the end of the quarter his 19.11% stake was still worth a respectable Rs.450 crore. But the stock continued to head southward. Again on May 22, 2012, Jhunjhunwala bought 2.65 million shares for Rs 26 crore at Rs 100 a share, thus pumping in an additional Rs.75 crore in the company and raising his stake to 22.68%.

(iv) Today, the stock has come off more than 90% to Rs 20.20 as on  May 10, 2013. Though Jhunjhunwala sold part of his stake in March, but still at 18.03% he is the biggest non-promoter shareholder and the stock remains the biggest bet, in percentage holding terms, within his portfolio; though its value is now  is just a little above Rs.27 Cr. This means the ace investor will do all possible to recover his money back. 

(v) The company recently through a postal voting decided to revise the utilization of the proceeds from the IPO of equity shares made in pursuance of the Prospectus and have got approval from the shareholders to utilize the proceeds  other than those mentioned in the Prospectus.

(vi) The company which started off as an FMS provider, moved on to installing power distribution lines and sub-stations, too fast, bringing in problems for the company. However, now with the talks of restructuring of "discoms" and efforts made to solve the coal issue, the power sector outlook has improved, than it was a couple of months back. Moreover, the management referred the company to the corporate debt restructuring cell. It remains to be seen when the company gets bailed out. Meanwhile, we can take positions due to improved sentiment in the sector and also due to new initiave taken by the management to turnaround the company. Moreover, as long as we have Rakesh Jhunjhunwala to force the management to do things in order to improve the fundamentals, we do not have to worry much. For more on the company please, CLICK HERE.

Concern:  An eye-sore is that though A2Z allocated a chunk of the IPO proceeds for its biomass plants of 60 MW, but still it is facing delays in execution and signing of power purchase agreements. The IPO of the company came in Dec’10 at a price of range of Rs.400-410. The company listed on 23 Dec’10 at a price of Rs.398, which was a tad below the IPO price. Since, then it has never touched the IPO price and Rs.398 remains the all-time-high traded price.