Garuda Construction IPO: A New Player in the Primary Market
Today marks a significant milestone for Garuda Construction and Engineering Ltd as it makes its debut in the primary market. The company, known for its comprehensive civil construction services, successfully raised ₹75 crore from anchor investors on October 7, just ahead of its initial public offering (IPO). This article delves into the details of the IPO, its market implications, and what potential investors should consider.
IPO Details and Subscription Period
The price band for the Garuda Construction and Engineering IPO is set between ₹92 and ₹95 per share, with a total offer value of ₹264.10 crore. Investors can subscribe to the initial share sale starting today, October 8, until October 10. The allocation of shares is strategically divided: 50% is reserved for qualified institutional buyers (QIBs), 35% for retail investors, and the remaining 15% for non-institutional investors (NIIs). Interested investors can bid for a minimum of 157 equity shares, with additional bids in multiples of 157 shares.
Company Overview and Services
Garuda Construction and Engineering specializes in full-service civil construction, catering to a diverse range of projects including residential, commercial, and infrastructural developments. The company’s portfolio includes building concrete and composite steel structures, as well as erecting buildings for various sectors such as commerce, industry, housing, and hospitality. This broad service offering positions Garuda as a versatile player in the construction industry.
Financial Performance and Growth Metrics
According to the red herring prospectus (RHP), Garuda has shown impressive growth in its financial performance. The company’s revenue from operations surged from ₹77.02 crore in fiscal 2022 to ₹154.18 crore in fiscal 2024, reflecting a Compound Annual Growth Rate (CAGR) of 26%. Similarly, profit after tax increased from ₹18.78 crore in fiscal 2022 to ₹36.43 crore in fiscal 2024, with a CAGR of 25%. This growth trajectory highlights the company’s potential for sustained profitability.
Subscription Status on Day One
As of today, the Garuda Construction and Engineering IPO has been subscribed 1.91 times on its first day, according to BSE data. The initial share sale received bids for 3,80,95,736 shares against the 1,99,04,862 shares on offer. Notably, the retail investor segment saw a robust subscription rate of 3.43 times, while the non-institutional investors’ quota was subscribed 1.10 times, and the QIB portion was booked at 2%.
Analyst Insights and Recommendations
Arihant Capital Markets Ltd
Arihant Capital Markets has provided a positive outlook on the IPO, citing Garuda’s order book worth ₹14 billion, which is approximately nine times its revenue for FY24. This strong order book indicates significant business visibility. The company is focused on maintaining an asset-light model and expanding its market presence through high-margin projects. The brokerage has assigned a "Subscribe for listing gains" rating for the issue, particularly at the upper price band of ₹95, which values the company at a P/E ratio of 24.24x based on FY24 post-issue EPS of ₹3.92.
Swastika Investmart Ltd
Swastika Investmart highlights Garuda’s strong order book and diverse project portfolio as key strengths. While the company’s P/E ratio aligns with industry standards, its return on net worth exceeds that of its peers. However, the firm notes that FY24 may experience a slowdown due to the election year, and investors should be aware of the cyclical nature of the construction industry. For those comfortable with higher risks, this IPO presents a potential opportunity for long-term growth.
Tarun Singh, Founder and MD, Highbrow Securities
Tarun Singh offers a more cautious perspective, urging potential investors to scrutinize the IPO due to Garuda’s uneven financial track record and significant fluctuations in past performance. He points out that the company faces cash flow risks from substantial unpaid customer invoices and raises concerns about the legitimacy of this IPO, especially following the failed IPO attempt of its group company, PKH Ventures, in July 2023. Singh suggests that the current valuation may be overstretched, warranting careful consideration from investors.
Garuda Construction IPO Financials
The IPO consists of 1.83 crore new equity shares and an offer for sale (OFS) of 95 lakh equity shares by promoter PKH Ventures Ltd. The proceeds from the fresh issue will be utilized for working capital requirements and general corporate purposes, including potential inorganic acquisitions. Corpwis Advisors Private Ltd serves as the sole book-running lead manager for the issue, while Link Intime India Private Ltd is the registrar.
Grey Market Premium (GMP)
As of today, the Garuda Construction and Engineering IPO is trading at a grey market premium (GMP) of +5, indicating that shares are expected to list at ₹100 apiece, which is 5.26% higher than the upper end of the IPO price band. However, recent trends show a downward trajectory in GMP, with fluctuations ranging from ₹0 to ₹22 over the past eight sessions.
Conclusion
The Garuda Construction and Engineering IPO presents a compelling opportunity for investors, but it comes with its share of risks and uncertainties. With a strong order book and growth potential, the company could be a valuable addition to an investor’s portfolio. However, potential investors should weigh the insights from various analysts and consider their risk tolerance before making investment decisions. As always, consulting with certified financial experts is advisable to navigate the complexities of the stock market.