Karda Construction Ltd IPO Note (May apply)

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Review By Rudra Shares & Stock Brokers Ltd on March 16, 2018

VALUATION

The company has Strong project pipeline providing cash flow visibility, currently company has 13 ongoing projects and 3 planned Projects with 17,13,725 square feet carpet area. Recently in order to expand its portfolio of services the Company has ventured intoGovernment as well as private sector Construction Contracts, leading to aconglomerate diversification.

Further, the government is backing the sector with several initiatives like a push to develop 100 cities into smart cities, initiatives like “Housing for all by 2022. Moreover, on the upper price band of Rs 180 with expected EPS of Rs 11.2 for FY18,Estimated P/E works out at 16.07 xs.

Taking into risk consideration, company generates entire sales from

Certain geographical regions of Nasik oversupply in real estate sector and non unique Business model shows that valuations are not reasonable hence; we recommend to be 'NEUTRAL' for this IPO.

THE OFFER

• Issue Open: 16 Mar 2018 to 21 Mar 2018
• Issue Type: Book Built Issue IPO
• Issue Size: 4,300,000 Equity Shares @ 10 aggregating up toRs 77.40Cr
• Face Value: Rs 10 per Equity Share
• Issue Price: Rs 175 - Rs 180 per Equity Share
• Market Lot: 80 Shares
• Minimum Order Quantity: 80 Shares
• Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company, is set forth below (Amount in Rs except share data)

• Authorized Share Capital:- 1,40,00,000 Equity Shares @10 Aggregate values 14,00,00,000
• Issued, subscribed and paid up capital before the Issue :- 1,00,00,000 Equity Shares @10 Aggregate value 10,00,00,000
• Present Issue: - 4,300,000 Equity Shares @ 10 aggregating up to Rs 77.40Cr

OBJECT OF THE OFFER

The Issue comprises of a Fresh Issue and an Offer for Sale by the Selling Shareholder.

The Offer for Sale

Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder.

The Fresh Issue

The Objects of the Fresh Issue is to raise funds for:

• Part repayment of overdraft facilities
• Part repayment of term loans
• General corporate purpose
• Issue related expenses

Further, Company expects that the listing of the Equity Shares will enhance visibility and brand image among existing and potential customers.

COMPANY OVERVIEW

The Karda Group is an established Nashik-based group having its presence in the construction industry for more than two decades. The group was founded by Naresh Karda in year 1994. In the years following its inception the group concentrated on developing affordable housing in the residential segment and from year 2001 onwards, the group diversified into commercial segment.

The company is focused in affordable housing segment and has total residential carpet area of 8.1lakh sq.ft with 1.9 lakh sq.ft of residential cum office space.

The company currently has 13 ongoing projects and 3 planned Projects with 17,13,725 square feet carpet area space. These include 12 Ongoing and 3 Planned residentialprojects with approximately 12,85,311 square feet of estimated Carpet Area, 1 Ongoing residential-cum Office Space project with approximately 4,28,414 square feet of estimated Carpet Area.

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Diversify the portfolio of projects company undertake.
• Continue to strengthen relationships with key service providers and take benefit of scalability by outsourcing model.
• Cultivate long-term relationships with major financial institutions and others.
• Continue focus on developing projects in and around Nashik.

STRENGTHS

• Strong presence in Nasik.
• Established brand and reputation.
• Proven execution capabilities.
• Strong project pipeline providing cash flow visibility.
• Vast land reserves and an ability to identify new projects

FINANCIAL PERFORMANCE

Total Revenues stood Rs 45.69cr, Rs 110.02cr, Rs 105.93cr and 46.53cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PBT was Rs 8.13cr, Rs 12.47cr, Rs 9.33cr and Rs 4.22cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PAT was Rs 5.51cr, Rs 8.03cr, Rs 6.37cr and Rs 3.07cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

INDUSTRY OVERVIEW

Real Estate as a sector is the second largest employer, after agriculture and constitutes almost 6% of GDP. In India, urbanization is the biggest growth driver for real estate, which is fuelled by growth in business environment in the country and it is estimated that around 10-12 million people getting urbanized annually.

Further, the government is backing the sector with several initiatives like a push to develop 100 cities into smart cities, initiatives like “Housing for all by 2022 for a growing population in both urban as well a rural India backed by both financial and regulatory support for the buyers and developers.

RISK FOR THE BUSINESS

• Company generate its entire sales from operations in certain geographical regions of Nashik, Maharashtra and any adverse development affecting operations in these regions could have an adverse impact on revenue.
• Company has recently diversified portfolio of business activities to include Construction Contracts.
• Company has entered into joint development agreements with third parties to acquire construction and/or land development rights. Such agreements contain conditions and requirements, the non-fulfilment of which could result in delays or inability to implement and complete projects as contemplated.
• Company may experience difficulties in expanding business into additional geographical markets in India.
• Business is substantially affected by prevailing economic conditions in India.
• Requires certain approvals and licenses in the ordinary course of business.