PKH Ventures IPO review (May apply)

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Review By Dilip Davda on June 27, 2023

•    PVL is engaged in the business of construction/development, hospitality and management services etc. 
•    It posted inconsistency in its top lines but improved its bottom line with a mix of business models.
•    It has orders on hand worth Rs. 468 cr. for construction/development. 
•    Based on its FY23 earnings, the issue appears aggressively priced. 
•    Well-informed/cash surplus investors may consider investment for a long-term reward.

PREFACE:
PVL filed its DRHP in the month of March 2022 and the mandate at that time was with IDBI Capital Markets & Securities Ltd. jointly with BOB Capital Markets Ltd. The size of the issue was for 18258427 fresh issue and 9831461 OFS. Now when we have RHP, it shows only IDBI Capital as the sole lead manager and the IPO size is reduced to 18258400 fresh equity issue and OFS for 7373600 shares. 

ABOUT COMPANY:
PKH Ventures Ltd. (PVL) is in the business of Construction & Development, Hospitality and Management Services. It executes Civil Construction works for Third Party Developer projects and has been awarded two (2) Government Projects viz., Hydro Power Project, Nagpur Project and three (3) Government Hotel Development Projects viz., Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project being executed through its Subsidiaries/SPVs/ our Company. 

The Civil Construction business is executed by its Subsidiary and construction arm, Garuda Construction. Its Hospitality vertical is in the business of owning, managing and operating hotels, restaurants, QSRs, spas and the sale of food products. It concluded the development of the Delhi Police Headquarters in April 2021, which involved the construction of twin towers of seventeen (17) storeys each, with a complete glass façade and steel bridge connecting the two towers. PVL is proposing to develop Forthcoming Development Projects, which include real estate development at Amritsar, Punjab; real estate redevelopment project at Dadar-Matunga, Mumbai; agro-processing cluster at Jalore, Rajasthan; cold storage park/facilities at Indore, Madhya Pradesh; and a wellness centre & resort at Chiplun, Maharashtra.

The Company, post incorporation in the year 2000, was managing and operating restaurants, lounges, retail outlets, food stalls, bars, staff canteens and food supply at various airports across the country. The knowledge and experience of providing these services laid the foundation of the Hospitality vertical. The Company developed two (2) hotels in Mumbai viz., Golden Chariot Vasai Hotel & Spa and Golden Chariot, The Boutique Hotel near Mumbai International Airport ("Mumbai Hotels") and has been owning, managing and operating the Mumbai Hotels since FY 2015. 

It expanded Hospitality operations into the restaurant space in Mumbai city by opening restaurants in the year 2013 under the brand name Golden Chariot and Balaji. Its Restaurant Casablanca at Sahara Star, Mumbai commenced operations in the year 2017. The QSR business under the brand name Zebra Crossing, Hardy's Burger and Mumbai Salsa were also launched in the year 2017. In November 2021, the Company extended its Hospitality offering by undertaking the management and operations of Juvana Resort and Spa, a luxury resort at Aamby Valley, Lonavala developed by Golden Chariot Retreats and Infra Private Limited, the Group Company. 

Garuda Construction is currently engaged in the Civil Construction of six (6) residential projects for Third Party Developers and Promoter Groups in the MMR. As of March 15, 2023, Garuda Construction's Third Party Developer Order Book was Rs. 468.28 cr. As of March 31, 2023, it had 156 employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a combo book building route IPO of 25632000 equity shares of Rs. 5 each to mobilize Rs. 379.35 cr. at the upper cap. It has announced a price band of Rs. 140 - Rs. 148. The issue consists of 18258400 fresh equity shares (approx. Rs. 270.22 cr. at the upper cap) and an Offer for Sale of 7373600 shares (Rs. 109.13 cr. at the upper cap). The issue opens for subscription on June 30, 2023, and will close on July 04, 2023. The minimum application to be made is for 100 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 31.16% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh issue, it will utilize Rs. 124.12 cr. for investment in subsidiary Halaipani Hydro Projects, Rs. 80.00 cr. for investment in subsidiary Garuda Construction, Rs. 40.00 cr. for organic growth plans and the rest for general corporate purposes. 

The company has allocated 12816000 shares for QIBs, 3844800 shares for NIIs, and 8971200 shares for Retail investors. 

IDBI Capital Markets & Securities Ltd. is the sole Book Running Lead Manager 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 in the price range of Rs. 25 to Rs. 1000 per share between December 2003 and February 2021. It has also issued bonus shares in the ratio of 3 for 1 in July 2021. The average cost of acquisition of shares by the promoter/selling stakeholder is Rs. 2.41 per share. 

Post-IPO, PVL's current paid-up equity capital of Rs. 32 cr. will stand enhanced to Rs. 41.13 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1217.31 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PVL has posted a turnover/net profit of Rs.169.00 cr. / Rs. 14.10 cr. (FY20), Rs. 264.66 cr. / Rs. 51.63 cr. (FY21), and Rs. 245.41 cr. / Rs. 66.42 cr. (FY22).  For 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 39.00 cr. on a turnover of Rs. 155.03 cr. 

The company has shown provisions for a share of profit transferred to non-controlling interest and post this adjustment its net profit for the reported periods is Rs. 14.10 cr., Rs. 30.57 cr., Rs. 40.52 cr., and Rs. 28.65 cr. respectively. These are termed consolidated performance with inputs of subsidiaries.  

For the last three fiscals, PVL has posted an average EPS of Rs. 5.24 and an average RoNW of 13.28%. The issue is priced at a P/BV of 2.66 based on its NAV of Rs. 55.63 per share as of December 31, 2022., and at a P/BV of 1.94 based on its post-IPO NAV of Rs. 76.14 per share (at the upper cap).

PVL's PAT margins improved year-over-year - 8.34% (FY20), 11% (FY21), 16.51% (FY22) and 18.47% (9M-FY23). Its debt-equity ratio remained at a comfort level of sub 0.37 on average.

If we annualize FY23 earnings and attribute it to PVL's post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 23.42. Based on the net profit shown post adjustments (on a consolidation basis), the P/E stands at 31.90. Thus the issue is aggressively priced. Amidst such a shift, its construction and development business has grown in the last three fiscals and its management services business has dropped drastically. 

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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from IDBI Capital in the last three fiscals (including the ongoing one). Out of the last 2 listings, 1 opened at a discount and 1 with a premium of 38.89% on the day of listing. 

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