Krystal Integrated IPO review (Apply)

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Review By Dilip Davda on March 13, 2024

•    KISL is one of the leading integrated facilities management services provider.
•    It derives around 73% average revenues from Government contracts alone. 
•    The company posted growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Investors may subscribe in this IPO for the medium to long term rewards. 

PREFACE:
Off late we are witnessing pruning of uploading offer documents on concern websites just few days before even though they are cleared earlier than that. For this IPO the RHP had a filing date of March 04, 2024, but was made available on March 11, 2024 with the Roadshow. Thus pruning of uploads gives little time for analysis to the investors/analysts. Such last hour rush makes it difficult for the timely analysis. 

ABOUT COMPANY:
Krystal Integrated Services Ltd. (KISL) is one of India's leading integrated facilities management services companies, with a focus on healthcare, education, public administration (state government entities, municipal bodies and other government offices), airports, railways and metro infrastructure, and retail sectors (Source: F&S Report). It provides a comprehensive range of integrated facility management service offerings across multiple sectors, and consequently are among select companies in India that have a wide geographic presence and customer base, catering to almost all end-user segments, as on March 31, 2023. (Source: F&S Report). 

KISL's range of service offerings include soft services such as housekeeping, sanitation, landscaping and gardening, hard services such as mechanical, electrical and plumbing services, solid, liquid and biomedical waste management, pest control and façade cleaning and other services such as production support, warehouse management and airport management services (including multi-level parking and airport traffic management). The company also provides staffing solutions and payroll management to customers, as well as private security and manned guarding services and catering services.

KISL's strengths in the market include its ability to provide bespoke solutions for integrated facility management requirements, sourcing from OEMs at competitive prices due to excellent long-term relations, best-in-class products, and adoption of smart technology. (Source: F&S Report). It is a key solutions provider to the government sector and have a track record of executing large contracts and are among select companies in India to qualify for and service large, multi-location government projects. (Source: F&S Report).

For Fiscals 2021, 2022 and 2023 and six months ended September 30, 2023, its revenue from government contracts were aggregating to 69.41%, 73.30%, 73.66% and 76.27% of revenue from operations. It provides services to key government customers in the healthcare, education, airport, railways and metro infrastructure sectors, including to Maha Mumbai Metro Operation Corporation Limited and Education Department, Brihanmumbai Municipal Corporation. The company also built expertise in catering to the healthcare, education, airport, railways and metro infrastructure sectors, due to its extensive experience, understanding the unique requirements and challenges in such sectors. As of September 30, 2023, KISL provided services to 135 hospitals and medical colleges, 228 schools and colleges (other than medical colleges), one airport, four railway stations and 30 metro stations, along with catering services on certain trains/ train routes.

The company operates on a B2B model. Its wide portfolio of services enables it to design and deliver a range of customized solutions suited to the specific needs of customers, which bolsters company's customer acquisition and retention capabilities. In Fiscals 2021, 2022 and 2023 and six months ended September 30, 2023, it served 262, 277, 326 and 309 customers, respectively. In the same period, the number of customer locations serviced by KISL has grown from 1962 as on March 31, 2021, to 2240 as on March 31, 2022 to 2427 as on March 31, 2023 and 2160 as on September 30, 2023. 

During Fiscals 2021, 2022 and 2023 and six months ended September 30, 2023, KISL on boarded 76, 70, 89 and 57 new customers, respectively. Its ability to maintain quality standards while expanding its service offerings to meet evolving industry requirements has resulted in longstanding relationships with key customers. Four of its top 10 customers, based on revenue generated in Fiscal 2023, have been associated with the company for longer than 10 years. For the six months ended September 30, 2023, three customers (who have been associated with it for longer than 10 years) contributed to 17.06% of revenue from operations.

As on September 30, 2023, KISL serviced customer locations in 16 states and two union territories in India. It has also set up 21 branch offices across India, as on September 30, 2023, to expand geographical reach. Its wide geographic presence enables it to offer services to customers who prefer a single service provider for their operations at multiple locations. The company further anticipates to benefit from growth in the key sectors like Healthcare, Education Railways and Metro Rails, Airports, Industrial/Manufacturing, etc.  As of January 31, 2024, it had 40100 employees across its operations. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its combo mainboard book building route IPO of fresh equity issue worth Rs. 175.00 cr. (2447560 shares at the upper cap), and an Offer for Sale (OFS) of 1750000 equity shares (worth Rs. 125.13 cr. at the upper cap). Thus the overall size of the IPO will be for 4197560 shares worth Rs. 300.13 cr. at the upper price band. The issue opens for subscription on March 14, 2024, and will close on March 18, 2024. The company has announced a price band of Rs. 680.00 - Rs. 715.00 per share of Rs. 10 each. The minimum application to be made is for 20 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 30.04% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 100 cr. for repayment/prepayment of certain borrowings, Rs. 10 cr. capex for purchase of new machinery, and the rest for general corporate purposes.

The sole Book Running Lead Manager (BRLM) for this issue is Inga Ventures Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar of the issue.

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 50 per share in October 2009. It has also issued bonus shares in the ratio of 20 for 1 in September 2008, 1 for 1 in September 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 5 and Rs. 30 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.52 cr. will stand enhanced to Rs. 13.97 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 999.00 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 (from the continuing operations) of Rs. 474.31 cr. / Rs. 9.68 cr. (FY21), Rs. 554.86 cr. / Rs. 20.84 cr. (FY22), Rs. 710.97 cr. / Rs. 33.77 cr. (FY23), and for H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 20.56 cr. on a total income of Rs. 455.67 cr. 

The restated net profit (including discontinued operations) for the reported periods was Rs. 16.65 cr., Rs. 26.15 cr., Rs.38.41 cr. and Rs. 20.56 cr. respectively. 

For the last three fiscals, the company has reported an average EPS of Rs. 14.45 and an average RoNW of 19.17%. The issue is priced at a P/BV of 4.49 based on its NAV of Rs. 159.39 as of September 30, 2023, and at a P/BV of 2.95 based on its post-IPO NAV of Rs. 242.21 per share (at the upper cap).

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity base, then the asking price is at a P/E of 24.30. Thus on prima facie, the issue appears fully priced.

For the reported periods, it has posted PAT margins of 3.57% (FY21), 4.75% (FY22), 5.43% (FY23), 4.56% (H1-FY24), and RoCE margins of 19.01%, 25.03%, 28.82%, 16.97% respectively, for the referred periods. 

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 Quess Corp., Updater Services and SIS Ltd., as their listed peers. They are trading at a P/E of 31.4, 41.6 and 22.6 (as of March 12, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The BRLM associated with the issue has handled only 1 IPO in the last three fiscals, and it hasn't closed below the issue price on listing date.

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