Karda Constructions IPO – Should you Subscribe?
There are 4 IPO’s that would hit this week for a total of Rs 9,700 Crores which includes Bharat Dynamics IPO, Bandhan Bank, HAL and Karda Constructions. Karda Constructions IPO would open for subscription on 16th March, 2018. Karda Group is a well established Nashik based group having its presence in the construction industry for more than two decades. Karda Constructions revenues grew at 26% CAGR in the last 5 years. It earns consistent margins of 6% to 7% in the last 5 years. What are the positive factors in Karda Constructions Limited IPO? What are some of the hidden factors in Karda Constructions IPO? Should you invest in Karda Constructions IPO when 3 large IPOs are hitting the market at same time? Let me provide some insights about this IPO and to the review.
About Karda Constructions Ltd
The Karda Group is a well established Nashik based group having its presence in the construction industry for more than two decades. 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. Karda Constriction Limited was incorporated in 2007 with a view to corporatize the group’s activities in the real estate sector. Company is focused on quality and affordable developments. They believe they have an established brand and reputation, and a track record of developing innovative projects through its emphasis on contemporary architecture, strong project execution and quality construction in the real estate industry, for which its Company had received “Mega Builder of the Year” award of Divya Marathi in June 2013. Further Company Promoter, Mr. Naresh Karda had also been awarded as “Business Icon of Nashik” by Lokmat in December 2014.
Karda Constructions IPO Issue details
IPO opening date: 16-March-2018
IPO closure date: 21-March-2018
Face Value: Rs 10 per share
Issue price band: Rs 175 to Rs 180 per share.
Issue size: Approx. Rs 77 Crores on higher price band
IPO Lot size: 80 shares and 80 shares there-off
Minimum investment: Rs 14,400 on higher price band
Leading Managers: Aryaman Financial Services
Listing: BSE / NSE
Objects of the Karda Constructions Limited IPO issue
The Issue has Fresh Issue by the Company and an Offer for Sale by the Selling Shareholders.
1) Offer for Sale: Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder.
2) The Fresh Issue: The Objects of the Fresh Issue is to raise funds for:
(a) Part repayment of overdraft facilities
(b) Part repayment of term loans
(c) General corporate purpose
(d) Issue related expenses
Who are the Company Promoters?
Company promoter is Mr Naresh Karda.
Company Financials (reinstated)
1) The company generated revenue of Rs 432.8 Crores for the year ended Mar-13 and Rs 1,100 Crores for the year ended Mar-17. Revenues for 6 months ended Sep-2017 was Rs 456.9 Crores.
2) The company posted a profit of Rs 27 Crores for the year ended Mar-13 and profit of Rs 80 Crores for the year ended Mar-17. Profits for 6 months ended Sep-17 was Rs 55 Crores.
3) Its FY17 EPS is Rs 8 and the last 3 years average EPS is Rs 6.65.
What are the key strengths of Karda Constructions Limited?
Here are the key strengths of the company.
1) Strong presence in Nashik.
2) Established brand and reputation.
3) Proven execution capabilities.
4) Strong project pipeline providing cash flow visibility.
5) Vast land reserves and an ability to identify new projects.
What are the Strategies of Karda Constructions Ltd?
Here are the key strategies of the company.
1) Diversify the portfolio of projects they undertake and business activities.
2) Continue to strengthen relationships with key service providers and take benefit of scalability by outsourcing model.
3) Cultivate long-term relationships with major financial institutions and others.
4) Continue its focus on developing projects in and around Nashik.
Reasons to invest in Karda Constructions IPO
1) Its revenues grew at 26% CAGR in the last 5 years which indicates strong revenue performance by the company.
2) It generates consistent profits of 6% to 7% in the last 5 years. Investors would be able to predict its future margins when companies are posting consistent results.
Risk Factors / Reasons not to invest in a Karda Constructions IPO
1) Company, Company Promoter and its Directors are parties to certain legal proceedings. Any adverse decision in such proceedings may have a material adverse effect on its business, results of operations and financial condition.
2) They require certain approvals and licenses in the ordinary citsse of business and are required to comply with certain rules and regulations to operate its business, and the failure to obtain, retain and renew such approvals and licences or comply with such rules and regulations, and the failure to obtain or retain them in a timely manner or at all may adversely affect its operations.
3) They generate its entire sales from its operations in certain geographical regions of Nashik, Maharashtra and any adverse development affecting its operations in these regions could have an adverse impact on its revenue and results of operations.
4) They have recently diversified its portfolio of business activities to include Construction Contracts its business is heavily dependent on the performance of, and the prevailing conditions affecting, the real estate market in Nashik and in India generally.
5) Its operations could be adversely affected by changes to the FSI/TDR regime in Nashik.
6) They had negative net cash flows in the past and may do so in the future.
7) Its Group Companies are engaged in the line of business similar to Company. There are no non – compete agreements between Company and such Group Companies. They cannot assure that Company Promoter will not favits the interests of such Companies over its interest or that the said entities will not expand which may increase its competition, which may adversely affect business operations and financial condition of its Company.
8) They have certain contingent liabilities and its cash flows, financial condition and profitability may be adversely affected if any of these contingent liabilities materialis.
9) They have issued Equity Shares in the last 12 months at a price which may be lower than the Issue Price.
10) Certain of its Group Companies have incurred losses in the three fiscal years ended March, 2017.
11) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
Recommendation / Investment Strategy – Karda Constructions IPO
On the upper price band of Rs 180 and on restated FY17 EPS of Rs 8, P/E ratio works out to 22.4x. Even based on last 3 years restated EPS of Rs 6.65, P/E ratio works out to 27x. Means, company is asking higher price band of Rs 180 in the P/E ratio of 22x to 27x. Its listed peers like Kolte Patil Developers are trading at P/E of 43x (Highest) and Prerna Infrabuild is trading at 26.6x (Lowest) and hence Karda Construction IPO Issue price of Rs 180 is fully priced.
Company has posted strong revenue growth of 26% CAGR in the last 5 years. It is generating consistent margins. Its issue price is also fully priced. However, since the issue size is just Rs 77 Crores, its shares would be listed in T-Segment (Trade to Trade) which is the major negative point. Also there are 3 other large IPOs that are coming at the same time for subscription, hence investors may divert their interest towards those IPOs. High risk investors can invest in Karda IPO with 2-3 years time frame. Alternatively investors can wait and invest during market corrections if it is available below the issue price at a later point of time.
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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Karda Constructions IPO – Should you Subscribe