Ceigall India IPO review (May apply)

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Review By Dilip Davda on July 30, 2024

•    CIL is a reputed EPC contractor and has posted fastest growth in its performance.
•    It has become a preferred partner for NHAI projects and has recently joined hands with Delhi Metro for rail infra developments.
•    It has posted remarkable CAGR growth in its top and bottom lines for the reported periods.
•    As of March 31, 2024, it had an order book worth Rs. 9470+ cr. on hand. Thus it's a long term play.
•    Based on FY24 earnings, the issue appears aggressively priced. 
•    Investors may park moderate funds for the long term. 

ABOUT COMPANY:
Ceigall India Ltd. (CIL) an infrastructure construction company with experience in undertaking specialized structural work such as elevated roads, flyovers, bridges, railway over bridges, tunnels, highways, expressways and runways. It is one of the fastest growing engineering, procurement and construction ("EPC") company in terms of three-year revenue CAGR as of Fiscal 2024, among the companies with a turnover of over Rs. 1000 cr. in Fiscal 2024 (Source: CARE Report) with over 20 years of experience in the industry. 

It has achieved one of the highest year-on-year revenue growth of approximately 43.10% in Fiscal 2024 among the peers. The company has grown at a CAGR of 50.13% between Fiscals 2021 to 2024 (Source: CARE Report). Over the last two decades, the Company has transitioned from a small construction company to an established EPC player, demonstrating expertise in the design and construction of various road and highway projects including specialized structures across 10 states in India (Source: CARE Report). 

Its principal business operations are broadly divided into EPC projects and hybrid annuity model ("HAM") projects, which are spread over ten states in India. The Company was incorporated in July 2002 and since then, it has gradually increased execution capabilities in terms of size of the projects. One of its initial road projects that it executed for the Punjab Public Works Department, Ludhiana division, was awarded in 2006 with an aggregate project cost of Rs. 6.29 cr. for 20.42 lane km. In 2014, it was awarded the first four lane highway EPC project from NHAI for 24.08 lane km with a project cost of Rs. 37.81 cr. and the most recent four lane elevated corridor EPC project, which consists of one of the longest four lane elevated corridor portion of 14.26 kms in India as per CARE Report, was awarded
by NHAI with a project cost of Rs. 1969.39 cr. and total length of 100.32 lane km. 

As on the date of this Red Herring Prospectus, it is eligible to bid for single NHAI EPC projects up to a value of Rs. 5700 cr. and for single NHAI HAM projects up to a value of Rs. 5500 cr. As on the date of this Red Herring Prospectus, it has been empaneled to participate with the Delhi Metro Rail Corporation Limited in its upcoming tenders involving inter alia construction of railways, mega bridges and tunnels in India and abroad and also with a public sector undertaking for highways, bridges and tunnel construction work in north-eastern states of India, and such empanelment is mutually extendable. 

As on the date of this Red Herring Prospectus, the Company has completed over 34 projects, including 16 EPC, one HAM, five O&M and 12 Item Rate Projects, in the roads and highways sector. Currently, it has 18 ongoing projects, including 13 EPC projects and five HAM projects which includes elevated corridors, bridges, flyovers, rail over-bridges, tunnels, expressway, runway, metro projects and multi-lane highways. In addition to undertaking operation and maintenance ("O&M") activities in accordance with its contractual obligations under the EPC/HAM concession agreements, it has also undertaken independent O&M projects. Further, it has also undertaken in the past and continue to undertake sub-contracting projects.

Its Order Book, as on June 30, 2024 and Fiscals 2024, 2023 and 2022, amounted to Rs. 9470.84 cr., Rs. 9225.78 cr., Rs. 10809.04 cr., and Rs. 6346.13 cr. respectively. Over the years, the Company has become an infrastructure construction company with experience in undertaking specialized structural work such as elevated roads, flyovers, bridges, railway over bridges, tunnels, highways, expressways and runways and has a reputation of delivering quality projects. It has a consistent track-record of execution of projects either on time or ahead of schedule. As of March 31, 2024, it had 2256 employees on its payroll, and is also hiring contract labourers as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 684.25 cr. (approx. 17063591 shares at the upper cap), and an Offer for Sale (OFS) of 14174840 equity shares (worth Rs. 568.41 cr. at the upper cap). The company has announced a price band of Rs. 380 - Rs. 401 per equity shares of Rs. 5 each. The overall size of the issue will be approx. 31238431 shares worth Rs. 1252.66 cr. The issue opens for subscription on August 01, 2024, and will close on August 05, 2024. The minimum application to be made is for 37 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 17.93% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 99.79 cr. for purchase of equipments, Rs. 413.40 cr. for repayment/prepayment of certain borrowings by the company itself and its subsidiary, and the rest for general corporate purposes. 

The company has reserved equity shares worth Rs. 2.00 cr. for its eligible employees and offering them a discount of Rs. 38 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., IIFL Securities Ltd., and JM Financial Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 525 per share (based on Rs. 5 FV), in February 2020. It has also issued bonus shares in the ratio of 39 for 1 in March 2022, and 1 for 1 in August 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.02, Rs. 0.06, and Rs. 9.30 per share. 

Post-IPO, its current paid-up equity capital of Rs. 78.57 cr. will stand enhanced to Rs. 87.10 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 6985.40 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 1146.50 cr. / Rs. 125.86 cr. (FY22), Rs. 2087.04 cr. / Rs. 167.27 cr. (FY23), and Rs. 3066.19 cr. / Rs. 304.31 cr. (FY24). 

For the last three fiscals, the company has posted an average EPS of Rs. 14.57 and an average RoNW of 31.05%. The issue is priced at a P/BV of 6.95 based on its NAV of Rs. 57.68 as of March 31, 2024, and at a P/BV of 4.39 based on its post-IPO NAV of Rs. 91.31 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 22.95. Based on FY23 earnings, the P/E stands at 41.77. Thus the issue appears aggressively priced discounting near term positives.

The company reported PAT margins of 11.10% (FY22), 8.09% (FY23), 10.05% (FY24), and RoCE margins of 29.84%, 28.67%, 31.98% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has paid dividends for FY23 (15%) and FY24 (15%).  It has already adopted a dividend policy in March 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown PNC Infra, G R Infra, HG Ingra, KNR Constructions, ITD Cementation, and J Kumar Infra as their listed peers. They are trading at a P/E of 14.4, 15.4, 20.4, 15.3, 32.9, and 19.4 (As of July 30 2024) However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 78 pubic issues in the past three fiscals, out of which 20 issues closed below the offer price on the listing date. 

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