Udayshivakumar Infra IPO review (May apply)

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Review By Dilip Davda on March 17, 2023

•    UIL is in the business of the construction of roads/bridges etc. 
•    It has posted inconsistency in its top and bottom lines. 
•    As of December 31, 2022, it has an order book of Rs. 1290 cr.
•    Rising recovery of GST from Government bodies raises concern. 
•    Well-informed/cash surplus investors may consider parking funds for the long term.

ABOUT COMPANY:
Udayshivkumar Infra Ltd. (UIL) is an ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 company engaged in the business of construction of roads including National Highways, State Highways, District Roads, Smart Roads under PM's Smart City Mission projects, Smart Roads under Municipal Corporations, Bruhat Bengaluru Mahanagara Palike (BBMP) and Local Area Roads in various Taluka Places etc., in the State of Karnataka, Constructions of Bridges across Major and Minor Rivers, Railway Over Bridges (ROB), construction of Major and Minor Irrigation and canal projects, Industrial Areas, based in the State of Karnataka. 

The company bids for Roads, Bridges, Irrigation & Canals, and Industrial Area construction in the State of Karnataka including Government Departments such as Karnataka Public Works Ports & Inland Water Transport Department (KPWP & IWTD), National Highways (MORTH), Belgaum Smart City Ltd. and Davangere Smart City Ltd., Bruhat Bengaluru Mahanagara Palike (BBMP), Various Municipal City Corporations, State Highway Development Corporations Ltd., (SHDP), Karnataka Road Development Corporation Ltd., (KRDCL), Karnataka Industrial Area Development Board (KIADB), Davanagere Harihara Urban Development Authority (DHUDA), Krishna Bhagya Jala Nigam Limited (KBJNL), Visvesvaraya Jala Nigam Limited (VJNL), Carvery Niravari Nigam Limited (CNNL), Karnataka Niravari Limited (KNNL), Youth Empowerment & Sports Department, in the State of Karnataka.

The Company along with the erstwhile partnership firm, M/s. Udayshivakumar, have completed 30 projects having an aggregate contract value of Rs. 684.68 cr., which includes sixteen (16) roads, five (5) bridges, six (6) irrigation and three (3) civil construction works. As of December 31, 2022, UIL is executing thirty (30) ongoing projects which include ten (10) roads, seven (7) smart roads, one (1) bridge, eight (8) irrigation projects, three (3) civil construction works and one (1) toll plaza with an aggregate order book value of Rs. 853.88cr. Further, as of December 31, 2022, it also had new work orders allotted (but work not yet started) comprising fourteen (14) roads, one (1) toll plaza and one (1) irrigation work with an aggregate order book value of Rs. 436.51 cr. As of December 31, 2022, on an aggregate basis, it had 46 works orders in hand having an aggregate order book value of Rs. 1290.39 cr. In addition to independently undertaking projects like the ones it has executed in the past, UIL intends to enter into joint ventures with other infrastructure companies in the industry to jointly bid and execute larger projects. As of December 31, 2022, it had 52 full-time employees and 120 on-site workers such as drivers, JCB Operators, helpers etc.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital of Rs. 45.00 cr. and general corporate purposes along with issue expenses, the company is coming out with a maiden book building route IPO for Rs. 66.00 cr. It has announced a price band of Rs. 33.00 - Rs. 35.00 per share of Rs. 10 each. At the upper cap, UIL mulls issuing around 18857252 equity shares. The issue opens for subscription on March 20, 2023, and will close on March 23, 2023. The minimum application to be made is for 428 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 34.06% of the post-issue paid-up capital of the company. The company has allocated not more than 10% for QIBs, not less than 30% to HNIs and not less than 60% to Retail investors. 

Saffron Capital Advisors Pvt. Ltd. is the sole lead manager and Mas Services Ltd. is the registrar of the issue. 

The company has issued its entire equity capital as par so far. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post IPO, UIL's current paid-up equity capital of Rs. 36.50 cr. will stand enhanced to Rs. 55.36 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs.193.75 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, UIL has posted a turnover/net profit of Rs. 194.41 cr. / Rs. 10.49 cr. (FY20), Rs. 211.11 cr. / Rs. 9.32 cr. (FY21), and Rs. 186.39 cr. / Rs. 12.14 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 10.02 cr. on a turnover of Rs. 107.14 cr. It has posted inconsistencies in its top and bottom lines for the reported periods. 

For the last three fiscals, UIL has reported an average EPS of Rs. 2.99 and an average RoNW of 18.15%. The issue is priced at a P/BV of xx based on its NAV of Rs. 21.46 as of September 30, 2022, and at a P/BV of xx based on its post-IPO NAV of Rs. 24.26 per share.

If we attribute its FY23 annualized earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 9.67. Thus the issue appears fully priced. 

MAJOR CONCERNS:
The company has rising pending GST recovery from the Government projects which were Rs. 34.31 cr. as of March 31, 2020, Rs. 42.63 cr. as of March 31, 2021, Rs. 45.95 cr. as of March 31, 2022, and Rs. 4261 cr. as of September 30, 2022. In percentage terms of its top line, it has risen from 17.72% for FY20 to 39.95% for H1 of FY23. Top 10 customers are contributing over 83% of the total revenues. 

DIVIDEND POLICY:
The company has not declared any dividend in 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, UIL has sown KNR Constructions, PNC Infra, HG Infra and IRB Infra as their listed peers. They are currently trading at a P/E of 18.52, 12.89, 14.10, and 2.65 (as of March 17, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Saffron Capital in the last three fiscals (including the ongoing one). The only listing that took place opened at a premium of 38.29% on the day of listing.

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