The MD, R.Vasudevan and AVP, Roopa Mudaliar of Vascon Engineers met theIPOguru.com Team at The Taj Lands End in Mumbai to discuss the prospects of their company whose IPO is currently open for subscription.

Hereunder are a few Key Takeaways from the discussions at the meeting :

The company is an engineering, procurement and construction (EPC) services in addition to also being actively engaged in Real Estate development. Although its business is predominantly Pune-centric, it is spreading its operations to other Indian geographies. Having commenced operations as an EPC services entity in 1986, it subsequently diversified into real estate development, including owning and operating selected projects directly or indirectly through their subsidiaries and other development entities.

Its real estate development business comprises development of residential and office complexes, shopping malls, multiplexes, hospitality properties, IT parks. Over the years, Vascon has completed an aggregate of 181 EPC Contracts ( total contract value of Rs. 8,888.7 million). Significantly, of the said number of contracts, 157 were for third parties and the balance for projects developed by the company or its other development entities.

As of December 31, 2009, the company is engaged in 70 Ongoing and Forthcoming EPC Contracts, with an estimated total contract value of Rs . 40,141.11 million with an Order Backlog of Rs. 32,270.79 million. 47 EPC Contracts of these  are for third parties with an Order Backlog of Rs. 12,147.36 million.

The company is entering the capital markets to fund the construction of the forthcoming projects and repayment of loans.

The realty business model of Vascon bears some resemblance to that of Godrej Properties to the extent that they both have opted for a joint development model which requires entering into agreements with owners of the land for development rather than the more capital intensive approach of purchasing the same outright. The similarity ends there though.

The Company has projects mainly concentrated in the state of Maharashtra (Pune) which gives it a concentration risk apart from the concern that Pune being an IT/ITeS hub, any sharp swings in the IT industry’s fortunes would impact its profitability prospects too. However, Vascon has real estate development projects spread across seven other Indian states, each at various stages of development.

Regards the concern that a fair portion of its owned land fell in the `green belt’ category, Vasudevan opined that this was routine and a mere issue of completion of some paper work before getting the `agricultural land’ tag removed.

Roopa stressed on the company ’s blue chip clientele and its order back log of Rs.3300 crore, but the crucial question is how soon these orders will hit the top-line and then bottom-line. Notably, in the realty space, the company follows the accounting policy of revenue and expenditure recognition only in the year of completion thus suggesting two things, one that revenues will be lumpy rather than linear and second, that the WIP figure in the balance-sheet will merit closer attention than usual.

So, is this company investment worthy or have the investment bankers got its pricing wrong ?