Evaluating Garuda Construction and Engineering Ltd IPO opportunity; Should you invest?

Mandar Wagh
/ Categories: Trending, IPO, IPO Analysis
Evaluating Garuda Construction and Engineering Ltd IPO opportunity; Should you invest?

The company is actively involved in multiple construction projects, with a total order book amounting to Rs 1,408 crore.

About the issue  

Garuda Construction and Engineering Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.

IPO Details
IPO Opening Date  October 08, 2024
IPO Closing Date  October 10, 2024
Issue Type  Book Built Issue IPO
Face Value Rs 5 per equity share
IPO Price  Rs 92 to Rs 95 per equity share
Min Order Quantity  157 shares
Listing At  BSE, NSE
Total Issue 27,800,000 shares of FV Rs 5*
(Aggregating up to Rs 264.10 Cr)*
Fresh Issue 18,300,000 shares of FV Rs 5*
(Aggregating up to Rs 173.85 Cr)*
Offer for Sale 9,500,000 shares of FV Rs 5*
(Aggregating up to Rs 90.25 Cr)*
QIB Shares Offered  50% of the Offer
Retail Shares Offered  35% of the Offer
NII (HNI) Shares Offered 15% of the Offer
*At Upper Price Band  

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Working capital requirements of the company

2. Unidentified inorganic acquisitions and general corporate expenses.

Promoter holding  

Pravinkumar Brijendra Kumar Agarwal, PKH Ventures Limited and Makindian Township Private Limited are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 96.81 per cent in the company.

Company profile  

Garuda Construction and Engineering Ltd is a civil construction company offering comprehensive end-to-end services across residential, commercial, residential-cum-commercial, infrastructure, industrial, and hospitality projects.

Its civil construction services encompass every stage from detailed route surveys, design, and engineering to resource mobilisation, micro-scheduling of construction activities, obtaining necessary permissions, conducting soil and water testing, hiring contractors and manpower, procuring materials, performing lab tests, executing construction as per the approved plan, and finally delivering the completed project in line with agreed terms.

In addition to its core construction services, the company also offers operation and maintenance (O&M) services, mechanical, electrical, and plumbing (MEP) services, as well as finishing works, enhancing its comprehensive construction solutions.

Currently, the company is engaged in the civil construction of six residential projects, two commercial projects, one industrial project, and one infrastructure project, with an order book totalling Rs 1,408 crore.

DSIJ's 'Value Pick' service recommends long-term stocks based on Value Investing Philosophy. If this interests you, do  download the service details here.

Financials  

Rs (in crore) FY22  FY23  FY24 
Revenue 77.03 161.02 154.47
Profit before tax 24.78 55.09 49.65
Net profit 18.78 40.8 36.44

Despite achieving significant topline and bottom-line growth in FY23, the company was unable to sustain this momentum in FY24. The annualized revenue for FY25 showed a marked decline, with the company reporting a revenue of just Rs 11.88 crore in April 2024. The company's trade receivables stood at Rs 176.24 crore as of March 31, 2024, and further increased to Rs 182.56 crore by April 30, 2024, exceeding the reported topline figures. This raises significant concerns and is a matter of serious worry.

Valuation and outlook 

Company Name P/E P/B RoE (%)
Garuda Construction and Engineering Ltd 24 5.97 31
Listed Peers
PSP Projects Ltd 21 2.14 14
Capacit'e Infraprojects Ltd 21 2.05 9
Vascon Engineers Ltd 21 1.4 7
Ahluwalia Contracts (India) Ltd 21 4.55 27
B.L. Kashyap and Sons Ltd 32 3.94 11

The issue is priced with a P/BV ratio of 5.97 times, calculated using its Net Asset Value (NAV) of Rs 15.92 as of March 31, 2024. When we calculate the PE ratio for the company by considering the FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 24. As a result, the issue appears to be relatively aggressively priced.

Last year, group company PKH Ventures withdrew its IPO due to poor investor response in challenging market conditions. Given the company's inconsistent financial performance, elevated trade receivables relative to revenue, and aggressive valuation, we recommend skipping this IPO without hesitation.

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