29 January 2008
CRISIL IPO grade 3/5 assigned to the IPO
of Vascon Engineers Ltd.

Proposed issue of 10,680,000 equity shares aims to raise Rs.3 billion to Rs.4 billion

CRISIL has assigned its IPO Grade '3/5' (pronounced 'three on five') to the proposed initial public offering of Vascon Engineers Ltd (VEL). The grade indicates that the fundamentals of the issue are 'average' in relation to the other listed equity securities in India.

VEL is seen in the industry as a construction specialist with strong technical and design expertise, delivering quality work within the scheduled time. It has a strong brand in Pune, where it is an entrenched player with a business track record of more than 20 years. In 2006-07 (refers to financial year, April 1 to March 31), VEL reported a 180 per cent year-on-year jump in its consolidated operating income, thanks to the ongoing boom in the Pune realty market. The IPO will finance seven real estate projects aggregating 2.25 million sq ft of saleable area; most projects will follow the 'build-lease-sell' strategy.

However, VEL's realty business is concentrated in and around Pune, exposing it to the fortunes of the IT/ITES industry. As on October 31, 2007, the company has developed about 3.36 million sq ft of saleable area; it expects to build more than 34.7 million sq ft over the next eight years. Hence, the company's systems, processes, and people will have to be substantially scaled up for it to be able to execute its projects on time. This will be a challenging task, as most other developers are scaling up as well, leading to a possible manpower and material crunch. Also, in a scenario where real estate prices are rising, the build-lease-sell strategy works in favour of the developer; but in a downturn the same strategy of holding on to stock could seriously impair the developer's profitability.

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Ramya Krishnan Anil
Head, Market Development & Communications
Phone: +91-22-6758-8051
Mobile: +91 98203 42671
Facsimile: +91-22-6758-8088
Email: RamyaKA@crisil.com

Analytical Contacts:

Ajay Dwivedi
Director, CRISIL Research
Tel: +91-22-6691 3502
Email: adwivedi@crisil.com

Sudhir Nair
Head, CRISIL Research
Phone: +91-22-6691 3526
Email : snair@crisil.com

Client Servicing Contact:

Client Servicing
Tel: +91-22-6691 3561
Email: clientservicing@crisil.com

About the company
VEL was incorporated in 1986 and commenced operations with the construction of Cipla Ltd's plant at Patalganga. Besides realty, the company has business interests in hospitality and commercial properties. The day-to-day operations are headed by the Managing Director, R Vasudevan, while Mr Amar Lulla (presently joint managing director of Cipla Ltd), the other founder promoter, is now a financial investor. An established second line of management, which has been in place for more than a decade, has ensured continuity and smooth functioning of operations. For 2006-07, the company's consolidated total income and net profits were Rs.3.99 billion and Rs.464.8 million respectively. As on March 31, 2007, VEL had a consolidated net worth of Rs.2.51 billion.

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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.

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January 29, 2008