Chavda Infra NSE SME IPO review (Apply)

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Review By Dilip Davda on September 7, 2023

•    CIL is an integrated civil construction company offering diverse services.
•    It has posted steady growth in its top and bottom lines.
•    Based on FY23 earnings, the issue is reasonably priced. 
•    It has ongoing projects worth Rs. 601 cr. on hand.
•    Investors may consider parking funds for medium to long-term rewards. 

ABOUT COMPANY:
Chavda Infra Ltd. (CIL) is an integrated civil construction company offering a diversified range of construction and allied services across residential, commercial and institutional projects in Gujarat, especially in Ahmedabad and Rajkot. It provides services across the construction value chain, ranging from planning and design to construction and post-construction activities to its clients. The company is ISO 9001:2015 certified for quality management systems by BCQ Assessment Private Limited. The quality certification is towards the construction of commercial, residential, and institutional buildings.

It has in-house capabilities to deliver a project from conceptualization to completion with a fast turnaround time from acquisition to launch to completion, which focuses on de-risking and improving return on investment. Its core competence lies in professionally managing the real estate value chain and attracting and retaining talent to maximize value creation.

Since incorporation, the company has constructed well-known buildings in Ahmedabad namely Straft Laxuria, Shivalik Parkview and Shivalik Sharda Harmony, being residential projects. AAA Corporate House, Sadbhav House, Solitaire Sky, Sandesh Press, Suyash Solitaire and Solitaire Connect, are commercial projects. AIS Toddler's Den, Nirma University (old Building) and Zydus School & Excellence are institutional projects.

While CIL has completed over 100 projects worth Rs. 671 cr. so far, as of May 31, 2023, it had 26 ongoing projects worth approximately Rs. 601 cr. indicating a strong order book. Out of 26 ongoing projects 4 are commercial Projects, 4 are institutional projects and 18 are residential projects. As of May 31, 2023, it had 217 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of 6656000 equity shares of Rs. 10 each. It has announced a price band of Rs. 60 - Rs. 65 per share and mulls mobilizing Rs. 43.26 cr. at the upper cap. The issue opens for subscription on September 12, 2023, and will close on September 14, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27% of the post-IPO paid-up capital of the company. From the net proceeds of the issue, it will utilize Rs. 27.00 cr. for working capital, and the rest for general corporate purposes. 

After reserving 336000 shares for market maker, the company has allocated not more than 3160000 shares for QIBs, not less than 948000 shares for HNIs and not less than 2212000 shares for Retail investors. 

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. Spread X Securities Pvt. Ltd. is the market maker for the company. 

Having issued the entire equity capital at a par value so far, the company has also issued bonus shares in the ratio of 99 for 1 in March 2018 and 11 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. Negligible, Rs. 0.02, and Rs. 0.42 per share. 

Post-IPO, CIL's current paid-up equity capital of Rs. 18.00 cr. will stand enhanced to Rs. 24.66 cr. At the upper band of IPO pricing, the company is looking for a market cap of Rs. 160.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CIL has posted a total income/net profit of Rs. 91.31 cr. / Rs. 4.44 cr. (FY21), Rs. 109.88 cr. / Rs. 5.22 cr. (FY22), and Rs. 162.03 cr. / Rs. 12.05 cr. (FY23). Thus the company has posted steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 4.72 and an average RoNW of 34.91%. The issue is priced at a P/BV of 3.85 based on its NAV of Rs. 16.89 as of March 31, 2023, and at a P/BV of 1.59 based on its post-IPO NAV of Rs. 40.86 per share (at the upper cap). 

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 13.29. 

For the last three fiscals, the company posted PAT margins of 4.86% (FY21), 4.75% (FY22), and 7.44% (FY23) and its RoCE margins were 34.99% (FY21), 29.42% (FY22), and 43.62% (FY23). 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown PSP Projects, and Ahluwalia Contracts as their listed peers. They are currently trading at a P/E of 20.98, and 23.49 (as of September 07, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 17th mandate from Beeline Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest with premiums ranging from 0.39% to 85.71% on the day of listing. 

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