Interarch Bldg IPO review (Apply)

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Review By Dilip Davda on August 14, 2024

•    The company has created a niche place in PEB segment and is one of the leading player in India.
•    It posted steady growth in its top and bottom lines with higher margins following product mix and in-time completion of projects.
•    As of April 01, 2024, it had orders on hand worth Rs. 1100 cr. 
•    Based on FY24 earnings, the issue appears fully priced. 
•    Investors may park funds for the medium to long term in this specialized PEB contractor.

ABOUT COMPANY:
Interarch Building Products Ltd. (IBPL) is one of the leading turnkey pre-engineered steel construction solution providers in India with integrated facilities for design and engineering, manufacturing, on-site project management capabilities for the installation and erection of pre-engineered steel buildings ("PEB"). (Source: CRISIL Report) It is ranked third in terms of operating revenue from PEB business in the Financial Year 2023 among integrated PEB players in India. (Source: CRISIL Report) The Company further had the second largest aggregate installed capacity of 141,000 metric tonnes per annum ("MTPA") as at March 31, 2024 and a market share of 6.5% in terms of operating income in Financial Year 2024 among integrated PEB players in India. (Source: CRISIL Report).

Its PEB offerings are designed, engineered and fabricated by it in accordance with customer requirements, and find use in construction for industrial, infrastructure and building (residential, commercial and non-commercial) end-use applications. It has delivered PEBs for projects ranging from multi-level warehouses for customers engaged in e-commerce to paint production lines for customers engaged in manufacturing of paints and, fast-moving consumer goods ("FMCG") sector for setting up manufacturing units for manufacturing their products. It has also supplied large-span PEBs for indoor stadiums and customers engaged in the cement industry. From Financial Year 2015 to Financial Year 2024 IBPL completed execution of 677 PEB Contracts, thereby demonstrating its extensive track record in the PEB industry.

The Indian PEB industry is expected to grow at a CAGR of 11-12 % CAGR over Financial Year 2024 Financial Year 2029 (Source: CRISIL Report), and IBPL's extensive track record, domain experience, established brand presence and market position, paired with its in-house design and engineering, manufacturing, supply, and on-site project management capabilities for the installation and erection of PEBs supplied by it, position the company to benefit from such growth. It offers PEBs by way of: (a) pre-engineered steel building contracts ("PEB Contracts"), wherein it provides complete PEBs on a turn-key basis to customers, and as a part of which, it also provides on-site project management expertise for the installation and erection of PEBs supplied by it at customers' sites; and (b) sale of pre-engineered steel building materials ("PEB Sales"), which includes (i) sale of metal ceilings and corrugated roofing (comprising metal suspended ceiling systems (under the brand, "TRAC®"), metal roofing and cladding systems (under the brand, "TRACDEK®") and permanent/metal decking (lost shuttering) over steel framing (under the brand, "TRACDEK® Bold-Rib")); (ii) supply of PEB steel structures (comprising, amongst other things, primary and secondary framing systems; as well as complete PEBs, such as non-industrial PEB buildings for non-industrial use, such as farmhouses and residential buildings (under the brand, "Interarch Life")) for erection and installation by third party builders/erectors, and (iii) light gauge framing systems ("LGFS").

IBPL incorporated in 1983 and has presence of over 30 years in the PEB industry under its brands, "TRAC®" and "TRACDEK®". As of the date of this Red Herring Prospectus, it has evolved into a turn-key PEB solutions provider, with integrated facilities for design and engineering, manufacture, and on-site project management capabilities for the installation and erection of PEBs supplied by it which enable the company to deliver end-to-end solutions to customers. As of March 31, 2024, it had 2114 employees on its payroll. In addition, it also employs contract labourers as and when needed. As of the said date, it had 381 contract labourers. 

According to the management, the company has been gaining order inflow that will keep them busy for next one and half years based on its current status. The Management is confident of maintaining the trends of growth in top and bottom lines for the coming years. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its combo IPO of fresh equity shares issue worth Rs. 200 cr. (approx. 2222222 shares at the upper cap), and an Offer for Sale (OFS) of 4447630 equity shares (worth Rs. 400.29 cr. at the upper cap). The company has announced a price band of Rs. 850 - Rs. 900 per equity shares of Rs. 10 each. The overall size of the issue will be approx. 6669852 shares worth Rs. 600.29 cr. The issue opens for subscription on August 19, 2024, and will close on August 21, 2024. The minimum application to be made is for 16 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 40.09% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 58.53 cr. for capex on setting up of the project, Rs. 19.25 cr. for capex on upgradation of manufacturing facilities, Rs. 11.39 cr. for investment in IT upgradation, Rs. 55.00 cr. for working capital, and the rest for general corporate purposes. 

As the company has not encased its earnings so far and giving the benefits of the pulled amount to new investors, it has priced the IPO mirroring this aspect. 

The company has reserved equity shares worth Rs. 2 cr. for its eligible employees and offering them a discount of Rs. 85 per share. From the rest, it has allocated not more than a50% 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 Ambit Pvt. Ltd., and Axis Capital Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued entire initial equity shares at par value. It has also issued bonus shares in the ratio of 1 for 1 in September 2017. The company bought back 584708 shares at Rs. 667 per share from some of the promoters in September 2023.The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.00, Rs. 0.25, Rs. 4.99, Rs. 5.56, and Rs. 500.00 per share. 

Post-IPO, its current paid-up equity capital of Rs. 14.42 cr. will stand enhanced to Rs. 16.64 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1497.43 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 840.86 cr. / Rs. 17.13 cr. (FY22), Rs. 1136.39 cr. / Rs. 81.46 cr. (FY23), and Rs. 1306.32 cr. / Rs. 86.26 cr. (FY24). 

For the last three fiscals, the company has posted an average EPS of Rs. 49.35 and an average RoNW of 20.12%. The issue is priced at a P/BV of 3.35 based on its NAV of Rs. 268.80 as of March 31, 2024, and at a P/BV of 2.55 based on its post-IPO NAV of Rs. 353.06 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 17.36. Based on FY23 earnings, the P/E stands at 18.38. Thus the issue appears fully priced. 

The company reported PAT margins of 2.05% (FY22), 7.25% (FY23), 6.67% (FY24), and RoCE margins of 8.30%, 26.75%, 25.79%, for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document.  It has already adopted a dividend policy in January 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Everest Ind., and Pennar Ind. as their listed peers. They are trading at a P/E of 121, and 21.7 (as of August 14, 2024). However, they are not truly comparable on an apple to apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 41 pubic issues in the past three fiscals, out of which 10 issues closed below the offer price on the listing date. 

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