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Garuda Construction and Engineering Limited IPO: Key Details, Pros, and Cons

Sebencapital

Published
09/10/24
Garuda Construction and Engineering Limited IPO

The Garuda Construction and Engineering Limited IPO opened for public subscription on October 8, 2024, and is scheduled to close on October 10, 2024. This IPO is a book-built issue with a total size of ₹264.10 crore, comprising a fresh issue and an offer for sale. Here's an in-depth look into the key details, objectives, and a balanced analysis of the pros and cons of this offering.

IPO Details

  • IPO Open Date: October 8, 2024
  • IPO Close Date: October 10, 2024
  • Price Band: ₹92 to ₹95 per share
  • Lot Size: 157 shares
  • Minimum Investment (Retail): ₹14,915
  • Fresh Issue: 1.83 crore shares (₹173.85 crore)
  • Offer for Sale (OFS): 0.95 crore shares (₹90.25 crore)
  • Listing: BSE, NSE
  • Total Issue Size: ₹264.10 crore
  • Lead Manager: Corpwis Advisors Private Limited
  • Registrar: Link Intime India Private Ltd
  • Tentative Listing Date: October 15, 2024

About the Company

Founded in 2010, Garuda Construction and Engineering Limited is a Mumbai-based construction company. It provides a broad spectrum of services, including residential, commercial, and infrastructure projects. The company's portfolio also includes operation and maintenance (O&M) services, mechanical, electrical, and plumbing (MEP) services, and finishing works for large-scale projects. Garuda’s established track record includes projects in Mumbai Metropolitan Region (MMR), Karnataka, and Tamil Nadu.


Objectives of the IPO

The funds raised through this IPO will be allocated towards the following purposes:

  1. Working Capital Requirements: To enhance liquidity for ongoing projects and business growth.
  2. General Corporate Expenses: To cover miscellaneous business expenses.
  3. Unidentified Inorganic Acquisitions: To fund potential acquisitions that align with the company's growth strategy.

Strengths of Garuda Construction and Engineering

  • Focused Business Model: The company focuses on the construction of residential, commercial, and infrastructure projects. This clear specialization helps in maintaining a strong market position in these sectors.
  • Proven Track Record: Since its inception, Garuda has successfully executed a range of projects, including luxury hotels like Golden Chariot Vasai Hotel & Spa and residential projects in the MMR region. This established presence gives them credibility and reliability.
  • Strong Financial Performance: Despite a slight dip in revenue for FY 2024, Garuda has maintained healthy profitability margins. For FY 2024, the company reported a Revenue from Operations of ₹154.17 crore and a PAT (Profit After Tax) of ₹36.44 crore.
  • Growing Order Book: As of September 2024, the company has an order book worth ₹1,408 crore. This strong pipeline of projects indicates continued business momentum and potential revenue growth.
  • Experienced Management: The company’s leadership includes promoters like Pravinkumar Brijendra Kumar Agarwal and PKH Ventures Limited, known for their expertise in construction and engineering services.

Key Financials

  • Revenue (April 2024): ₹11.88 crore
  • Revenue (FY 2024): ₹154.17 crore
  • Revenue (FY 2023): ₹161.02 crore
  • PAT (April 2024): ₹3.5 crore
  • PAT (FY 2024): ₹36.44 crore
  • PAT (FY 2023): ₹40.8 crore
  • Assets (April 2024): ₹234.84 crore
  • Reserves (April 2024): ₹85.16 crore

Subscription and Allotment

  • Retail Portion: 35% of the issue (97.30 lakh shares)
  • Non-Institutional Investors (NII): 15% of the issue (41.70 lakh shares)
  • Qualified Institutional Buyers (QIB): 21.6% of the issue (60.04 lakh shares)
  • Anchor Investors: 28.4% of the issue (78.95 lakh shares)

As of October 9, 2024 (Day 2), the IPO has been subscribed 2.75 times, with significant interest from retail investors (4.92x subscription).


Pros of Investing in Garuda Construction and Engineering IPO

  1. Strong Project Pipeline: With a robust order book of ₹1,408 crore spread across multiple states, the company is well-positioned for continued revenue growth.
  2. Profit Margins and Financial Health: Garuda has demonstrated good financial performance, with PAT margins of 23.63% and a healthy return on capital employed (ROCE) of 46.69%. The company’s financial indicators suggest a strong balance sheet and operational efficiency.
  3. Diverse Project Portfolio: The company’s ability to handle a wide range of projects across different sectors, including hospitality, residential, and commercial, demonstrates its versatility and industry expertise.
  4. Experienced Promoters: The promoters have decades of experience in the construction industry, providing a solid foundation for the company’s growth and project execution capabilities.
  5. Established Brand Name: Over the years, Garuda has built a reputation for timely project execution and quality construction, which is reflected in its clientele and repeat business opportunities.

Cons of Investing in Garuda Construction and Engineering IPO

  1. Inconsistent Financial Performance: Despite being profitable, the company witnessed a 4% decline in revenue and an 11% drop in profits between FY 2023 and FY 2024. Such volatility in financial performance could raise concerns about the company's long-term profitability.
  2. High Trade Receivables: The company’s trade receivables are higher than its reported top lines, indicating potential cash flow issues or delays in receiving payments from clients. This could strain the company's liquidity position in the future.
  3. Pricey Valuation: The IPO is aggressively priced at a P/E ratio of 21.03x post-issue, based on the company's FY 2024 earnings. This valuation could be considered high compared to its peers in the construction sector, especially given the company's inconsistent financials.
  4. Previous IPO Withdrawal: PKH Ventures, a group company, had to withdraw its IPO in 2023 due to a lack of interest from investors. This raises concerns about the overall market sentiment towards the group and its subsidiaries.
  5. High Competition: The construction industry is highly competitive, and Garuda faces stiff competition from other established players. This could affect its market share and profit margins in the future.

Conclusion

The Garuda Construction and Engineering Limited IPO presents an opportunity to invest in a growing construction company with a strong project pipeline and a proven track record. However, the inconsistencies in its financial performance, high trade receivables, and competitive valuation make it essential for investors to carefully consider the risks before making an investment decision.


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Written by devesh gupta

I am Devesh Gupta, a Junior Analyst at Seben Capital, where I specialize in finance with a focus on market research and data analysis. I support investment decisions by translating complex financial data into actionable insights. My role at Seben Capital allows me to contribute significantly to our investment strategies, leveraging my analytical skills to drive success.

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