Garuda Construction IPO - Issue Details, Financials, Peer Comparison, Strategies, Risks And More: DRChoksey

DRChoksey Research Report

Garuda Construction and Engineering Ltd. will launch its initial public offering tomorrow and the offer closes for subscription on Oct. 10 and the listing is expected to take place on Oct.15.

The Mumbai-based infrastructure development company that specialises in civil construction, infrastructure development and engineering services has fixed the price band in the range of Rs 92-95 Apiece.

The Rs 264.1 crore IPO comprises of a fresh issue of Rs 173.85 crore and offer for sale of Rs 90.25 crore.

Object of the offer

1. Working capital requirements.

2. General Corporate Purposes including unidentified inorganic

Strategies:

• Thrust into the Construction and Development segment

• Increase its focus on and execute greater number of projects on a lock-and-key basis.

• Continue focusing on timely completion.

• Continue to maintain an asset light model for its business operations.

• Expand the geographical footprint.

Outlook and Valuation:

Garuda Construction and Engineering, a leading Mumbai-based infrastructure company, is well-positioned to benefit from India's growing demand for residential, commercial and industrial projects. The company operates with an asset-light model, outsourcing equipment and labor to improve cost efficiency while focusing on highquality construction.

Garuda has built a strong reputation through the timely completion of complex projects. From FY22 to FY24, the company's revenue grew at a 41% CAGR, rising from Rs 770 million to Rs 1542 million, with Ebitda growing at a 35% CAGR. PAT increased from Rs 188 million to Rs 364 million, maintaining stable margins of 24%-25%.

Garuda's impressive ROE of 36% and ROCE of 47% outperform industry peers, reflecting its operational efficiency and effective capital management. The company’s strengths include its asset-light model, presence across multiple regions in India and a robust Rs 14,083 million (as per RHP) spread across various sectors.

This diverse portfolio ensures steady revenue and positions Garuda for further growth in India's infrastructure sector.

Currently, Garuda trades at a PE ratio of 24.3 times and an enterprise value/Ebitda of 17.7x, slightly above peers like PSP Projects and Capacite Infraprojects.

Given its solid financials, growing project portfolio, and proven track record, we recommend a "Subscribe" rating for the IPO.

Risks:

• The company generates most of its revenue from its top 10 clients, mainly promoter-related entities and group companies. Losing any significant client could negatively affect its business and financial outlook.

• Limited experience with unrelated third-party entities challenges the company's growth. Failing to establish itself as a developer or contractor outside its promoter group may constrain long-term growth and profits.

• The construction industry is cyclical and sensitive to changes in the economy and this could have a significant impact on its operations and financial results.

• Mr. Pravin Kumar Brijendra Kumar Agarwal, a promoter, is involved in a pending criminal proceeding with the Airport Police Station in Mumbai. Such proceedings may negatively affect his reputation and, subsequently, that of the business.

• The previous IPO filed by the promoter group, PKH Venture Ltd., was not subscribed and was subsequently withdrawn.

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