Garuda Construction and Engineering IPO analysis

Garuda Construction and Engineering IPO will open for subscription on October 8, 2024 and close on October 10, 2024. We break down the construction company's strengths, weaknesses, and growth prospects to help investors make an informed decision. Garuda Construction and Engineering IPO in a nutshell Quality : Between FY22 and FY24, it recorded an average ROE and ROCE of around 53 per cent each. Growth : Its revenue and net profit grew nearly 42 and 39 per cent per annum, respectively, during FY22-24. Valuation : Post the IPO, the stock will be valued at a P/E and P/B ratio of 24 and 3 times, respectively. Overview: The company is expected to benefit from the government's focused spending on infrastructure projects and the growing domestic construction sector. However, the cyclical nature of the construction sector and its long intermittent periods of underperformance risk affecting the company's growth. Note that Garuda Construction parent PKH Ventures had floated its unsuccessful IPO last year in June 2023, which was cancelled due to under subscription on valuation concerns. It was subscribed only 65 per cent. PKH Ventures is now selling a 30 per cent stake via Garuda's IPO. About Garuda Construction and Engineering Garuda Construction provides construction services for residential, commercial, infrastructure, and industrial projects. The company also provides operation and maintenance (O&M) and mechanical, electrical, and plumbing (MEP) services. As of FY24, it derived 90 per cent of its revenue from engineering, procurement, and construction (EPC) contracts. Garuda Construction and Engineering's strengths Strong order book: The company's order book with contracts worth Rs 1,400 crore is nine times its FY24 revenue, providing solid topline visibility. Garuda Construction and Engineering's weaknesses Client concentration: The company earned 80 and 96 per cent of its revenue in FY24 and FY23, respectively, from its top five clients. High receivables and debtor days: The company's debtor days have shot up from 143 in FY22 to 417 in FY24, which means it takes more than a year for the company to receive payments from its debtors. As a result, its net profit is not translating into operating cash flows, given most of the cash is stuck in accounts receivables. Garuda Construction and Engineering IPO details Total IPO size (Rs cr) 264 Offer for sale (Rs cr) 90 Fresh issue (Rs cr) 174 Price band (Rs) 92-95 Subscription dates October 8-10, 2024 Purpose of issue To fund working capital requirements and inorganic expansion Post-IPO M-cap (Rs cr) 884 Net worth (Rs cr) 296 Promoter holding (%) 67.56 Price/earnings ratio (P/E) 24.26 Price/book ratio (P/B) 3.01 Financial history Key financials (Rs cr) 2Y growth pa (%) FY24 FY23