S&P Viewpoint

Issue aims to raise Rs.1.5-2.0billion; offers 5,000,000 equity shares at a price range of Rs.300-400 per share

CRISIL has assigned a CRISIL IPO Grade '3/5' (pronounced 'three on five') to the proposed Initial Public Offer of Shriram EPC Ltd. (SEPCL). This grade indicates that the fundamentals of the issue are average in relation to other listed equity securities in India.

SEPCL is a strong engineering, procurement, and construction (EPC) player in the metallurgy and captive power sectors in southern India. Both the sectors are on an upswing. The booming finished steel sector will see average annual capacity addition of 9-10 million metric tones, and CRISIL expects about 2,000-3,000 MW of captive power capacity addition annually, over the next five years. Prospects for the company's existing business are therefore solid.

SEPCL has a capable and experienced top and middle management team, which has helped it attract large orders and prestigious collaborators.

However, there are still some uncertainties for the company to overcome. As on September 30, 2007, about 30 per cent of its order book consisted of a single EPC order for a cement plant. This is the first time that SEPCL is venturing into the cement sector in a big way. Additionally, the company's principal collaborator for wind power, Leitwind, lacks experience in manufacturing MW-class Wind Electric Generators (WEGs). Attracting experienced and capable staff to power the company's expansion plans will also prove to be a challenge, given the high demand and limited supply of such professionals.

The company's governance processes, have improved after the induction of one director nominated by private equity player Bessemer.

SEPCL executes EPC projects in sectors such as power (mostly small biomass-based thermal plants), metallurgy, and municipal services (pipe rehabilitation and water/sewage treatment). The company also manufactures 250-Kilowatt (Kw) windmill generators. SEPCL has set up an associate company, Leitner Shriram Manufacturing (49 per cent owned by SEPCL and 51 per cent by Leitwind BV, Netherlands), and a subsidiary company, Shriram Leitwind (49 per cent owned by Leitwind BV, Netherlands, and 51 per cent by SEPCL) to manufacture and market 1.35 MW-class WEG machines. These entities are expected to commence operations in early 2008. Through its subsidiary, Hamon Shriram Cottrell (50 per cent plus 2 shares), SEPCL also erects cooling towers and air pollution control units.

For the year ended March 31, 2007, the company registered a net profit of Rs.103 million on a turnover of Rs.3.06 billion. This is as compared with a net profit of Rs.76 million and turnover of Rs.1.53 billion in the preceding financial year.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

About CRISIL Limited
CRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company.

About CRISIL Research
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