Teerth Gopicon coming with IPO to raise Rs 44.40 crore

Teerth Gopicon

• Teerth Gopicon is coming out with an initial public offering (IPO) of 39,99,600 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 111 per equity share. 
• The issue will open for subscription on April 8, 2024 and will close on April 10, 2024.
• The shares will be listed on NSE Emerge Platform.
• The share is priced at 11.10 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Interactive Financial Services.
• Compliance Officer for the issue is Diksha Joshi.

Profile of the company

The company is an engineering construction and development company engaged primarily in the construction of roads, sewerage work and water distribution work in the Madhya Pradesh. It has also worked as sub-contractor and constructed residential tower in the city of Indore. The company as corporate have the track record of not more than 5 years. However, the promoter of the Company Maheshbhai Khumbhani has started the Proprietorship in the name of Gopi Construction in the year 2009.

The company has taken up various work as a registered Civil contractor of various Central/State Government like ISCDL, IMC, USCL, UMC, MPJNM etc. and also executed building works for private sector. The company has executed wide range of civil engineering projects like building construction work, water supply, pipeline, sewerage network, sewerage treatment plant, nalla tapping work, Re-use network, Over Head Tanks, GSR, Road work, Rejuvenation of Lake etc. As an EPC contractor, the scope of its services includes detailed engineering of the project, procurement of construction materials, plant and machinery, construction and execution of the project and its operation and maintenance in accordance with the contractual provisions. Its manpower, resources and fleet of machinery and equipment, together with its engineering capabilities, enables it to execute a large number of projects simultaneously. Its resource, quality of work and project execution skills have enabled it to enhance its relationships with existing clients and helps it to further secure projects from new clients.

Proceed is being used for:

• Funding the working capital requirements of the company.
• General Corporate Purpose.

Industry overview

Infrastructure is a key enabler in helping India become a $26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors. The government’s focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The $ 1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway. Infrastructure support to nation’s manufacturers also remains one of the top agendas as it will significantly transform goods and exports movement making freight delivery effective and economical. The ‘Smart Cities Mission’ and ‘Housing for All’ programmes have benefited from these initiatives. Saudi Arabia seeks to spend up to $ 100 billion in India in energy, petrochemicals, refinery, infrastructure, agriculture, minerals, and mining. Infrastructure sector is a key driver for the Indian economy. 

The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. In other words, the infrastructure sector acts as a catalyst for India’s economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure, and construction development projects. To meet India’s aim of reaching a $ 5 trillion economy by 2025, infrastructure development is the need of the hour. The government has launched the National Infrastructure Pipeline (NIP) combined with other initiatives such as ‘Make in India’ and the production-linked incentives (PLI) scheme to augment the growth of infrastructure sector. Historically, more than 80% of the country's infrastructure spending has gone toward funding for transportation, electricity, and water& irrigation. While these sectors still remain the key focus, the government has also started to focus on other sectors as India's environment and demographics are evolving.

Pros and strengths

Strong Presence in Madhya Pradesh: The smart cities mission was launched by the Prime Minister in 2015. The mission's main aim is to promote and develop cities that provide a sustainable environment, core infrastructure, and a good quality of life to the citizens. Work will be done on economic, physical, and social fronts to transform the city into a smart city with all amenities. Indore holds the second position in the list of smart cities in Madhya Pradesh. The company has completed 4 Project in Indore; that is 1: Improvement of Water Supply and Sewerage Systems in ABD Area of Indore Smart City. 2: Under the tapping work of the major nallas of the city, the remaining work of sewar taping in Piliyakhal nala from Sirpur to Khatipura Puliya and laying drainage line at other directed places (Piliyakhal Nala) by Indore Municipal Corporation, 3: Under the tapping work of the major nallas of the city, the remaining work of sewer tapping from Pipliahana to Niranjanpura Village and laying drainage line at other directed places. (Palasiya Nalla) by Indore Municipal Corporation and 4: Repair of existing primary sewerage networking system of CENTRAL ZONE and make it function in all respect by Indore Municipal Corporation.  

Extensive experience in managing and completing projects on time and within budget: The company’s management team has experience in the infrastructure sector. Led by the Promoter and Managing Director Maheshbhai Khumbhani (who has extensive experience in the infrastructure construction business), it considers the strength of its management team to be fundamental to its success. The stability of its management team and the industry experience brought on by its employees will enable it to continue to take advantage of future market opportunities and expand into new markets. It has qualified in-house teams who are responsible for different aspects of its projects starting from identifying prospective projects to the completion of the projects. It is able to undertake a significant number of activities related to the project in-house, thereby ensuring timely completion of its projects, reducing its reliance on third parties and decreasing its costs. Its integrated structure also allows it to control its budget and maximize returns for the project, including developer returns and operation and maintenance margins. 

Visible growth through robust order book: The order book position of the company is an indicator for the future performance since it represents the future revenue generation. It is not focused on adding the order book only but evaluate the tender looking to the complexity of the project, its strength and the profit margin before bidding. Its revenue from the incorporation indicates that it gets the order for road construction, sewerage work and water supply system. It is able to pursue a broader range of project tenders and thereby increase business volume and profit margin. 

Risks and concerns

Geographical constrain: The company’s business is primarily dependent on projects undertaken or awarded in the state of Madhya Pradesh. It relies 100% on the State government, Local Authority and it’s undertaking for its revenue. It currently derives majority of its revenue from contracts with a limited number of government authorities and other entities. Such concentration of its business on a few projects or clients may have an adverse effect on its results of operations and result in a significant reduction in the award of contracts which could also adversely affect its business if it does not achieve its expected margins. Its revenue generation activities are confined to the state of Madhya Pradesh. Every time it has to bid for the tender work and compete with the other contractors/bidders. The concentration of its business in Madhya Pradesh heightens its exposure to adverse developments which may be beyond its control such as economic, political, demographic, regulatory and other changes, which may adversely affect its business prospects, financial conditions and result of operations.

Revenues derived primarily from contracts awarded on project-by-project basis: The company’s prime business is to bid and undertake Infrastructure projects of the State government of Madhya Pradesh (M.P. Government). Its major revenue is derived from the infrastructure project of M. P. Government. In the event that it is not able to continually and consistently secure new projects of similar or higher value as the ones that it has executed in the past or are currently executing, and on terms and conditions that are favourable to it, its financial performance, its results of operations and cash flows may be adversely affected or fluctuate materially from time to time depending on the timing and nature of such contracts. Accordingly, it is difficult to predict whether and when it will be awarded a new project. If it is unable to identify or acquire new projects matching its expertise or profit expectations or obtain the requisite consents from regulatory authorities or other relevant parties when required or at all, it may be subject to uncertainties in its business.

Operate in highly competitive environment: The company operates in a highly competitive environment. Generally, in the open Bid/Tender, the process of awarding contracts / projects, its clients generally specify pre-qualification criteria based on certain factors such as project execution experience, technical strength, performance capabilities, etc. While it strives to increase its portfolio of direct government contracts, it expects to face competition from large domestic infrastructure development companies, which are well placed to fulfil the pre-qualification criteria. There have been instances in the past, wherein bids made by it for infrastructure projects were not accepted on account of a favourable position held by its competitors. There can be no assurance that it would be able to meet such criteria in the future. The company constantly compete for obtaining projects from government authorities. If it is unable to meet the eligibility criteria and industry expectations in comparison with its competitors, it may not be successful in qualifying to bid for various future projects. 

Outlook

Teerth Gopicon is engaged in the business of road construction, sewerage and water supply in Madhya Pradesh. The company has also provided services as a subcontractor and built a residential tower in the city of Indore. The company has undertaken various works as a registered contractor of various central and state governments like ISCDL, IMC, USCL, UMC, MPJNM etc. and has also undertaken construction works for the private sector. The company has undertaken a wide range of civil engineering projects such as building construction, water supply, pipelines, sewage network, sewage treatment plant, nalla taps, reuse network, overhead tanks, GSR, road construction, lake rehabilitation, etc. On the concern side, the timely and successful completion of its projects in most of the cases depends upon its relations with the sub-contractors, their efficiency and cooperation, and any failure or delay in successful completion could adversely affect the quality of its developments and adversely affect its profitability, business and reputation. It relies on third parties for the implementation of projects where it has entered into arrangements with them for the supply of labour, equipment and raw material. 

The company is coming out with an IPO of 39,99,600 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 111 per equity share to mobilize Rs 44.40 crore. On performance front, in the FY23, the company’s total revenue was Rs 3907.66 lakh, which is increased by 25.37% in compare to total Income from operations of 3116.84 lakh in FY22. The company’s Profit after Tax (PAT) is Rs 179.21 lakh for the FY23 in compared to Rs 15.27 lakh in FY22. The PAT was 4.58 % of total revenue in FY23 compared to 0.49% of total revenue in FY22. Meanwhile, at present the company has concentrated and established in the state of Madhya Pradesh, and concurrently, it is planning to expand into multiple states. Through an increasingly diversified portfolio, it hopes to hedge against risks in specific areas or projects and protect it from fluctuations resulting from business concentration in limited geographical areas. The company intends to focus on water supply projects looking to the asset base, Man power resource and financial capabilities with an eye to diversify in other states.