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Karda Construction IPO

Rohan Takalkar
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Karda Construction IPO

IPO Rating-51* 
  
About the issue 

The public issue of Karda construction Limited, a Nashik-based real estate developer, will open on 16-03-2018 and closes on 21-03-2018.  The minimum market lot of the issue is 80 shares for the price range of Rs. 175-Rs. 180 per share with face value of Rs. 10 per share. The company will be listed on BSE and NSE both. The issue comprises of public issue of 43,00,000 shares out of which 23,00,000 will be fresh issue and 20,00,000 shares will be offer for sale by the promoters. The promoter holding in the company will come down to 45.5 per cent post issue versus 76 per cent pre issue 

Purpose of the issue 

The company plans to utilise the funds raised through public issue for part payment of overdraft facilities worth Rs. 23 crore, part repayment of our term loans worth Rs. 7 crore and other general corporate purpose. 

Company Overview 

The Karda Group is an established Nashik-based group having its presence in the construction industry for more than two decades. The group was founded by Naresh Karda in year 1994. In the years following its inception the group concentrated on developing affordable housing in the residential segment and from year 2001 onwards, the group diversified into commercial segment. The company got incorporated in 2007. The company is focused in affordable housing segment and has total residential carpet area of 8.1 lakh sq.ft with 1.9 lakh sq.ft of residential cum office space. The company currently has 13 ongoing projects and 3 planned projects with 17.5 lakh sq.ft carpet area. Out of the total ongoing projects 75 per cent are residential projects and remaining residential cum office space. 

Financial review 

The company’s revenue has grown substantially over past two years.  The company’s revenue grew by 5 per cent yoy in 2017 and 53 per cent CAGR over FY15-17 to Rs. 105 crore. The EBITDA rose 26 per cent yoy in 2017 and 36 per cent CAGR over FY15-17 to Rs. 26.5 crore in FY17. The EBITDA margins also expanded 400 bps to 25 per cent over FY17 versus 21 per cent in FY16. The net profit for the year also grew substantially by 26 per cent yoy and 62 per cent CAGR over FY15-17 to Rs. 8 crore for FY17 as against Rs. 6.37 crore in FY16. 

Valuation 

Post public issue the company will be trading at FY17 P/E of 27x on FY17 EPS of Rs. 6.5 per share. While other industry peers like Kolte Patil, Arihant Superstructures are trading at P/E of 43x and 28x respectively.  However, company’s solvency looks poor with current D/E of 2.47x as of Q2FY18. Post issue company’s debt works out to be Rs.79.6 crore and its overdraft at Rs. 2 crore. While interest coverage ratio of 2.7x gives enough solvency confidence. 

Our View 

We see governments fillip to affordable housing will be catalyst for the future growth of the company. It is also one of the Nashik’s top developers and has significant brand name in the city. We also see that Nashik’s industrial development and expansion will drive the necessary realty demand in coming years. Further, its proximity to other urban centres in state like Mumbai and Pune is an advantage. Structural reforms in realty like Housing for all and RERA will increase the buyers interest in realty market. Over the years company has developed Hari as brand of the company by naming many of their projects with Hari. The company’s ongoing projects have saleable area of 17,13,725 sq.ft this provides strong cash flow visibility.  The company has strong project pipeline ( see below table) across the prime areas of Nashik with low inventories in 1BHKs,2 BHKs. While the premium 3 BHKs, 4 BHKs and bunglows have seen lower bookings. In addition, the company has garnered Rs. 52 crore as advances for the units sold, which gives strong revenue visibility. 


  
The company is also trading at decent valuations with strong interest coverage to service its debt. In addition, the company has posted stellar performance in previous years and we expect the growth to sustain. Hence, we recommend our investors to subscribe to the issue for listing as well as long term gains. 
40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment 
 To know further on rating click here 
  


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