Capacite Infraprojects IPO – Should you Invest in this IPO?
Capacite Infraprojects IPO / Capacit’e IPO would open for subscription on 13th September, 2017. Capacite Infraprojects Ltd is one of the fast growing construction company in India. Its standalone revenues grew at 86% CAGR in last 4 years. It earns around 6% margins in the last 3 years (out of last 4 years). This IPO comes with attractive valuation in terms of pricing. What are the positive factors in Capacite Infraprojects IPO? Are there any hidden factors in Capacite Infraprojects IPO? Is Capacite Infraprojects IPO price is reasonably priced? In this article, I would provide some interesting insights and do Capacite Infraprojects Limited IPO Review.
About Capacit’e Infraprojects Ltd
They are a fast growing construction company focussed on Residential, Commercial and Institutional buildings and an Order Book of Rs 46,024 million as at May comprising ongoing projects.
They provide end-to-end construction services for residential buildings, multi level car parks, corporate office buildings and buildings for commercial purposes and buildings for educational, hospitality and healthcare purposes. Its capabilities include constructing concrete building structures as well as composite steel structures. They also provide mechanical, electrical and plumbing and finishing works.
Capacite Infraprojects Issue details
- IPO open date: 13-September-2017
- IPO close date: 15-September-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 245 to Rs 250 per share
- Issue size: Rs 400 Crores
- Capacite Infraprojects Lot size: 60 shares and in multiples of 60 shares there-of
- Minimum investment: Rs 15,000 on higher price band
- Leading Managers: Axis Capital, IIFL Holdings and Vivro Financial Services
- Listing: BSE / NSE
- Download Capacite Infraprojects RHP Prospectus at this link.
Objects of the Capacite Infraprojects Ltd IPO issue
1) Funding working capital requirements
2) Funding purchase of capital assets (system formwork)
3) General corporate purposes
Company Financials (Standalone reinstated)
1) The company generated revenue of Rs 174.8 Crores for the year ended Mar-14 and Rs 1,139.9 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 5 Crores for the year ended Mar-14 and profit of Rs 69.3 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 17.2 and last 3 years average EPS is Rs 14.37.
Reasons to invest in Capacite Infraprojects
1) It posted strong revenue growth of 86% in the last 4 years.
2) Its posting consistent margins of around 6% in the last 3 years. However in FY14 it posted 2.9% margins.
Risk Factors / Reasons not to invest in a Capacite Infraprojects Ltd IPO
1) Company business is manpower intensive and they are dependent on the supply and availability of a sufficient pool of contract labourers from sub-contractors at company project locations. Unavailability or shortage of such a pool of contract labour or any strikes, work stoppages, increased wage demands by workmen or changes in regulations governing contractual labour may have an adverse impact on company cash flows and results of operations.
2) They may be subject to liability claims or claims for damages or termination of contracts with company clients for failure to meet project milestones or defective work, which may adversely impact company profitability, cash flows, results of operations and reputation.
3) They face certain risks relating to company reliance on sub-contractors and third parties for supply of raw materials, non-Core Assets and for providing certain services in the construction of company projects that may adversely affect company reputation, business and financial condition. Failure by company subcontractors and third parties to adhere to regulatory requirements may subject us to penalties.
4) Company Company may incur penalties in respect of allotment of equity shares which are not in compliance with the provisions of the Companies Act.
5) They are dependent on the availability of and prices of steel and ready-mix concrete. Any lack of availability of or upward fluctuations in the price of steel and ready-mix concrete or company ability to pass on any increased costs of raw materials to company clients may have a material adverse effect on company business, cash flows, results of operations and financial condition.
6) Projects awarded from certain clients contribute significant portion of company Order Book and the loss of such clients could adversely affect company business, cash flows, results of operations and financeial condition.
7) They may not be able to realise the amounts reflected in company Order Book which may materially and adversely affect company business, prospects, reputation, profitability, financial condition and results of operation.
8) Company projects and revenues are geographically concentrated in the Mumbai Metropolitan Region, Chennai, National Capital Region and Bengaluru. Consequently, they are exposed to risks emanating from economic, regulatory and other changes in these locations which they may not be able to successfully manage and which in turn may have an adverse effect on company revenues, cash flows, profits and financial condition.
9) Company clients operate in a highly regulated environment, and existing and new laws, regulations and government policies affecting the sector in which they operate could adversely affect company business, financial condition and results of operations. Any failure to obtain licenses and approvals by company clients, could adversely affect company business, financial condition and results of operations.
10) They are required to obtain approvals for company operations and any failure to obtain licenses and approvals by them could adversely affect company business, financial condition and results of operations.
11) There is outstanding litigation involving Company, company Directors and company Promoters, which if determined adversely, could affect company business and results of operations.
12) They have limited operating and financial history and investors may not be able to evaluate company business prospects accurately.
13) Other risk factors (Internal and external) can be viewed in the DRH prospectus.
Recommendation / Investment strategy – Capacite Infraprojects
1) Company is asking for an issue price band of Rs 245 to Rs 250 for a face value of Rs 10 per share. On higher price band of Rs 250 compared to its FY17 EPS of Rs 17.2 the P/E ratio works out to 14.5x. Similarly on higher price band of Rs 250 compared to its last 3 years average EPS of Rs 14.37 the P/E ratio works out to be 17.4x. Means the company is asking issue price of Rs 250 in the P/E ratio of 14.3x to 17.4x. Its listed peers like Ahluwalia Contracts (India) Ltd is trading at P/E ratio of 22.5 (Highest) and Simplex Infra at P/E ratio of 20.1 (Lowest), hence issue price of Rs 250 of this IPO is reasonably priced.
2) Company revenues grew at 86% CAGR in last 4 years. It has posted consistent margins of around 6% in the last 3 years (out of 4 years). Its IPO price is also reasonably priced. Considering all these positive factors, investors can invest in this IPO. However considering upward and downtrends in recent IPO issue listing, one may or may not get listing gains. Investors can invest in this IPO with 2-3 years time frame to get good returns.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Capacite Infraprojects IPO – Should you Invest in this IPO