Karda Construction IPO review (May apply)

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Review By Dilip Davda on March 11, 2018

 
Karda Construction Ltd. (KCL) is a well established Nashik based group having its presence in the construction industry for more than two decades. Since inception the group concentrated on developing affordable housing in the residential segment and from year 2001 onwards, the group diversified into commercial segment. Our Company, Karda Constriction Limited was incorporated in 2007 with a view to corporatize the group’s activities in the real estate sector. Company is focused on quality and affordable developments. Karda has an established brand “Hari” with reputation, and a track record of developing innovative projects through our emphasis on contemporary architecture, strong project execution and quality construction in the real estate industry. KCL currently has 11 Ongoing and 3 planned projects, which is expect to provide an estimated total Carpet Area of 17,13,725 square feet. Further in order to expand its portfolio of business activities Company has recently ventured into Construction Contracts as wellto expand its horizons in other cities. Nashik's realty market is geared for rapid growth going forward given its proximity to major cities like Mumbai and Pune and current saturation of the realty markets in both these cities. Another important factor likely to influence the real estate growth of Nashik is its lower entry costs vis-a-vis Mumbai and Pune.

To finance its part repayment of overdraft limits, part repayment of loans and working capital fund needs, KCL is coming out with a maiden IPO of 4300000 equity shares of Rs. 10 each via book building route with a price band of Rs. 175 - Rs. 180 to mobilize Rs. 75.25 cr. – Rs. 77.40 cr. based on lower and upper price bands. Issue comprises of 2300000 fresh equity issue and offer for sale of 2000000 shares by the promoters. Issue opens for subscription on 16.03.18 and will close on 21.03.18. Minimum application is to be made for 80 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 34.96%of the post issue paid up capital of the company. Average cost of acquisition of shares by the promoters is Rs. 5 per share. Company’s entire equity is issued at par. It has also issued bonus shares in the ratio of 4 for 5 in June 2016 and 1 for 9 in July 2017. Post issue, its current paid up capital of Rs. 10 cr. will stand enhanced to Rs. 12.30 crore.

On performance front, KCL has posted turnover/net profits of Rs. 59.07 cr. / Rs. 3.61 cr. (FY14), Rs. 46.53 cr. / Rs. 3.08 cr. (FY15), Rs. 105.93 cr. / Rs. 6.37 cr. (FY16) and Rs. 110.02 cr. / Rs. 8.03 cr. (FY17). For the first half of the current fiscal, it has earned net profits of Rs. 5.52 cr. on a turnover of Rs. 45.70 cr. For last three fiscals, it has posted an average EPS of Rs. 6.65 and average RoNW of 25.81%. Issue is priced at a P/BV of 5.01 on the basis of its NAV of 35.87 as on 30.09.17. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 20 plus against industry composite of 40. As per offer documents, its peers are trading at a P/E of around Kolte Patil (23), Prerna Infra (5), Arihant Super (20) as on 09.03.18. Thus issue appears fully priced.

On merchant banker’s front, this is 26th mandate from its stable in the past three years (including 1 main board IPO and the rest SME). Out of last 10 listings, 4 opened at discount, 1 at par, 4 with the premium ranging from 1% to 20%. The only main board listing (Apollo Micro) opened at a premium of around 73.8% on the day of listing.

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