Garuda Construction IPO: Will Rs 264 Crore Fundraising Boost Growth? Investors Eye Financial Stability First

IPO Details:

• Dates: October 8-10, 2024
• Price: Rs 92-95 per share
• Size: Up to Rs 264 crore
• Market Cap: Up to Rs 884 crore
• Face Value: Rs 5 per share
• Lot Size: 157 shares
• Retail Portion: 35%

Overview:

Garuda Construction and Engineering, a company involved in civil construction for residential, commercial, and infrastructure projects, is set to raise Rs 174 crore through a fresh equity issue. An additional Rs 90 crore will be raised through an offer for sale. After the IPO, the promoters’ stake will reduce from 97% to 68%. The company operates on an asset-light model and has almost no long-term debt. However, its business size is small, and its revenue and profits have fluctuated in recent years. Also, the company has a longer-than-usual collection time for payments, which could concern investors. Given these uncertainties, investors may want to wait for clearer financial growth before investing.

Business:

Founded in Mumbai in 2010, Garuda Construction specializes in building concrete and steel structures. It also provides services like operations, maintenance, and mechanical, electrical, and plumbing (MEP) services. As of now, Garuda has an order book worth Rs 1,408.3 crore, covering 12 ongoing projects. Of these, 46% are residential and 18% are commercial projects. The company uses an asset-light approach, outsourcing equipment, materials, machinery, and labor to third-party contractors.

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Financials:

Garuda’s revenue and profit have been inconsistent over the last three years. In FY24, the company earned Rs 154.2 crore in revenue, down from Rs 160.7 crore in FY23, but much higher than Rs 77 crore in FY22. The net profit followed a similar pattern: Rs 36.4 crore in FY24, Rs 40.8 crore in FY23, and Rs 18.8 crore in FY22. The company’s operating margin has gradually declined, from 35.3% in FY22 to 32.5% in FY24. Return on net worth also fell to 30.6% in FY24 from 49.4% in FY23.

One notable issue is the company’s high trade receivable days, which reflect how long it takes to collect payments. In FY24, it took 143 days on average, which is down from 175 days in FY23 and 417 days in FY22, but still quite long. The company expects this to improve to 120 days in FY25 and FY26.

Valuation:

Garuda is asking for a price-to-earnings (P/E) multiple of up to 24.3 based on FY24 net profit and a price-to-book (P/B) multiple of three. For comparison, other listed construction companies like PSP Projects and Capacit’e Infraprojects have P/Es of 20.5 and 25.4, and P/B multiples of 2.8 and 2, respectively.

Garuda Construction shows potential, but its fluctuating revenue, profit margins, and long payment collection times raise concerns. Investors may want to wait for more consistent financial growth before jumping in.