PKH Ventures
- PKH Ventures is coming out with a 100% book building; initial public offering (IPO) of 2,56,32,000 shares of Rs 5 each in a price band Rs 140-148 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on June 30, 2023 and will close on July 4, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 28.00 times of its face value on the lower side and 29.60 times on the higher side.
- Book running lead managers to the issue is IDBI Capital Markets & Securities.
- Compliance Officer for the issue is Vruti Choksi.
Profile of the company
The company is in the business of Construction & Development, Hospitality and Management Services. It executes Civil Construction works for Third Party Developer projects and have been awarded with two (2) Government Projects viz., Hydro Power Project, Nagpur Project and three (3) Government Hotel Development Projects viz., Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project, being executed through its Subsidiaries/SPVs/ the Company. The Civil Construction business is executed by its Subsidiary and construction arm, Garuda Construction. Its Hospitality vertical is in the business of owning, managing and operating hotels, restaurants, QSRs, spas and sale of food products. It has concluded the development of the Delhi Police Headquarters in April 2021, which involved the construction of twin towers of seventeen (17) storeys each, with a complete glass façade and steel bridge connecting the two towers. It is proposing to develop Forthcoming Development Projects, which include real estate development at Amritsar, Punjab; real estate redevelopment project at Dadar-Matunga, Mumbai; agro processing cluster at Jalore, Rajasthan; cold storage park/facilities at Indore, Madhya Pradesh; and a wellness centre & resort at Chiplun, Maharashtra.
The company, post incorporation in the year 2000, was managing and operating restaurants, lounges, retail outlets, food stalls, bars, staff canteens and food supply at various airports across the country. The knowledge and experience of providing these services laid the foundation of its Hospitality vertical. The company developed two (2) hotels in Mumbai viz., Golden Chariot Vasai Hotel & Spa and Golden Chariot, The Boutique Hotel near Mumbai International Airport (“Mumbai Hotels”) and has been owning, managing and operating the Mumbai Hotels since FY 2015. The company has expanded its Hospitality operations into the restaurant space in Mumbai city by opening restaurants in the year 2013 under the brand name Golden Chariot and Balaji. Its Restaurant Casablanca at Sahara Star, Mumbai commenced operations in the year 2017. The QSR business under the brand name Zebra Crossing, Hardy’s Burger and Mumbai Salsa were also launched in the year 2017. In November 2021, the company extended its Hospitality offering by undertaking the management and operations of Juvana Resort and Spa, a luxury resort at Aamby Valley, Lonavala developed by Golden Chariot Retreats and Infra Private Limited, its Group Company. The Company has been awarded with three (3) Government Hotel Development Projects namely, Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project in the State of Madhya Pradesh on DBFOT basis by way of a letter of award each dated November 4, 2022 from the Madhya Pradesh Tourism Board.
Proceed is being used for:
- Investment by way of equity in the company’s Subsidiary, Halaipani Hydro Project for development of Hydro Power Project (Civil Construction and Electromechanical Works).
- Investment by way of equity in its Subsidiary, Garuda Construction, for funding long-term working capital requirements.
- Pursuing inorganic growth through acquisitions and other strategic initiatives.
- Funding expenditures towards general corporate purposes.
Industry overview
The construction sector is the country’s second-largest economic segment after Agriculture. The sector contributed 8% to the national GVA (at constant price) in FY22. The order book of construction companies is dependent upon the capital expenditure in the economy. Broadly, the investments can be classified into infrastructure, real estate and industrial construction. Historically, infrastructure creation, spread across sectors such as roads and highways, telecom, airports, ports, power, oil and gas and railways has dominated the investments. Increase in Infrastructure demand & government initiative shows the potential for catapulting India to the third largest construction market globally. The sector is expected to contribute 15% to the Indian economy by 2030. The government has taken constant steps for encouraging strong private participation in infrastructure sector, particularly from the perspective of the NIP. Hence the focus has been on building a robust enabling environment with a well-thought policy framework and a well-developed public authority for encouraging PPPs.
The real estate industry is one of the most crucial and recognized sectors across the globe. The industry can be further segmented into four sub-sections – housing, commercial, retail and hospitality. Of these, the residential segment contributes to close to 80% to the overall sector. The growth of the overall real estate industry also depends upon the growth in the corporate environment and the demand for office space, urban and semi-urban accommodations. The construction industry is therefore one of the major sectors in terms of its direct, indirect and induced impacts on all the sectors of the economy. In India, the real estate industry is the second largest employment generator after agriculture. Around three houses are built per 1,000 people per year as against the required construction rate of five houses per 1,000 individuals per year, as per industry estimates. This indicates that there is significant untapped potential for growth in the sector. While the current shortage in housing in urban areas is pegged at around 100 lakh units, the shortage in the affordable housing space is expected to be much higher considering the population belonging to that strata. Along with this, increased economic growth and the uptick in India’s service sector has created additional demand for office space, which in turn is likely to result in greater demand for housing units in nearby vicinity.
Pros and strengths
Established Track Record: The company, for over 15 years, had been managing and operating restaurants, quick service restaurants, lounges, F&B counters, vending machines and other catering services at various airports in the country. The knowledge and experience gained from this business enabled the company to venture into owning, managing and operating hotels, restaurants, banquets and QSRs. It currently own and manage two (2) hotels and manage and operate one (1) resort, four (4) restaurants, four (4) banquets and two (2) Spas. Additionally, two (2) Restaurants and a Spa at Golden Chariot Vasai Hotel & Spa, have been non-operational since the beginning of the Covid-19 pandemic and one (1) Restaurant namely, Oriental Bistro have recently been non-operational due to proposed change in its location. The company, through its subsidiary, Garuda Construction provide end-to-end construction services for residential, hospitality and commercial building projects. Its capabilities include constructing concrete building structures as well as composite steel structures. It also provides MEP and finishing works as a part of its construction services. Incorporated in 2010, Garuda Construction constructed the Golden Chariot Vasai Hotel & Spa in the year 2014 and refurbished Golden Chariot, the boutique Hotel in the year 2015.
Visible growth through increasing Third Party Developer Order Book: In the construction industry, an order book is considered as one of the key indicators of future performance as it represents a portion of anticipated future revenue. The company’s strategy is not focused solely on order book addition but, rather, on adding quality projects with potentially higher margins and/or prestigious projects that help enhance its growing reputation, market penetration and perception. It has established relationships and reputation which enabled it to build its order book.
Diverse Business Model: The company is in the business of Construction & Development, Hospitality and Management Services. Its businesses generate income from diverse activities completely independent of each other. Civil Construction works for Third Party Developers generates revenue from works contract charges and its Hospitality vertical generates income from hotels, restaurants, and sale of foods. Further, under the Hydro Power Project awarded by the State of Arunachal Pradesh, it will receive income from the sale of power once the Hydro Power Project is commissioned by June 2024. The company’s diversified business model effectively de-risks it against any recessionary environment in a particular industry where it has its business, for example, while the Covid-19 pandemic severely affected the hospitality sector on a long-term basis, its Construction & Development business, with limited disruptions during the pandemic, enabled it to resume operations of its existing work orders.
Asset light model of Civil Construction business: In the asset light model approach for its Civil Construction business and rely mostly on third party suppliers for equipment and labour. Further, since the location of the Government Projects, Government Hotel Development Projects and Forthcoming Development Projects are in different geographies like Punjab, Arunachal Pradesh, Maharashtra, Madhya Pradesh and Rajasthan, it is difficult and unviable to mobilise heavy equipment and machinery from one place to another for execution of projects at such diverse locations. In addition to the difficulty in mobilisation of equipment and machinery, a large amount of capital is required to acquire construction equipment and machinery, which can otherwise be effectively and more profitably deployed in other areas of its business. Deployment of equipment and labour through third party contractors at these locations help it reduce fixed costs, make execution of construction projects cost efficient and increase margins. Following this asset light model, the company has prudently invested its financial resources in equipment and machinery for day-to-day use for its Civil Construction business.
Risks and concerns
Business operation requires significant working capital: The company’s business operation requires significant working capital specifically for construction of Third Party Developer Order Book, Government Projects and Government Hotel Development Projects specifically under construction and development segment for construction of Third Party Developer Order Book, Government Projects and Government Hotel Development Projects. The working capital requirement under Construction & Development business is based on certain assumptions, and accordingly, any change of such assumptions would result in changes to its working capital requirements. Further, the working capital requirements may increase if it undertakes larger or additional projects or if payment terms do not include advance payments or such contracts have payment schedules that shift payments toward the end of a project or otherwise increase its working capital burden. As a result, it may need debt in the future to satisfy its working capital requirements.
Rely on consultants to prepare Detailed Project Reports for some of Government Projects: The Detailed Project Reports (DPRs) for some of its Government Projects, Government Hotel Development Projects and Forthcoming Development Projects are prepared by consultants appointed by it. These consultants prepare development plans based on its proposed business plans for the particular project. The development plans are then submitted to government authorities for approvals subject to amendments or modification due to various reasons such as government incentives to the industry, regulatory requirements and changes in the proposed plan. The company employs engineers, project managers and other professionals to review the work of consultants preparing DPRs and other documents for its projects. The DPRs prepared by these consultants may be disallowed or rejected by government authorities, which may require redrawing of project plans leading to delay in project execution. There have been no instances of disallowance or rejection by government authorities of any DPRs prepared by the consultants during the last three (3) Financial Years.
Rely on various third parties in the Civil Construction activities: The Civil Construction of the company’s Third Party Developer projects, the development of Government Projects, Government Hotel Development Projects and Forthcoming Development Projects will require the services of various third parties including architects, engineers, consultants and suppliers of labour and materials for such projects. The timing and quality of construction of these projects that it develops depends on the availability and skill of these parties, as well as contingencies affecting them, including labour and construction material shortages and industrial action such as strikes and lockouts. To oversee the work of third parties at its civil construction sites, it deploys full time site engineers and supervisors and also reviews the progress of the construction work on a continuous basis by conducting regular inspections by architects, consultants, including project management consultants. It may not be able to identify appropriately experienced third parties and cannot assure that skilled third parties will continue to be available at reasonable rates and in the areas in which it undertake its projects, or at all.
Rely on joint venture partners for selective government projects: The company enters into joint ventures as part of its business and operations. The success of these joint ventures depends significantly on the satisfactory performance by its joint venture partner and fulfilment of its obligations. If its joint venture partners fail to perform these obligations satisfactorily, the joint venture may be unable to perform adequately or deliver its contracted services. In such cases it may be required to make additional investments and/ or provide additional services to ensure the adequate performance and delivery of the contracted services as it is subject to joint and several liabilities as a member of the joint venture, in its Government Projects. Such additional obligations could result in reduced profits or, in some cases, significant losses for it. The inability of a joint venture partner to continue with a project due to financial or legal difficulties could mean that it would bear increased and possibly sole responsibility for the completion of the project and bear a correspondingly greater share of the financial risk of the project.
Outlook
PKH Ventures is engaged in the business of Construction & Development, Hospitality, and Management Services. The company executes Civil Construction works for Third Party Developer projects. The Civil Construction business is executed by its Subsidiary and construction arm, Garuda Construction. The company concluded the development of the Delhi Police Headquarters in April 2021, which involved the construction of twin towers of seventeen storeys each, with a complete glass façade and steel bridge connecting the two towers. The company is proposing to develop its own Forthcoming Development Projects, which include real estate development at Amritsar, Punjab; a food park at Jalore, Rajasthan; cold storage park/facilities at Indore, Madhya Pradesh; and a wellness center & resort at Chiplun, Maharashtra. The company’s Hospitality vertical is in the business of owning, managing, and operating hotels, restaurants, QSRs, spas, and the sale of food products. The company currently provides miscellaneous mechanical, electrical, and plumbing (MEP) works services such as annual maintenance of its projects and certain third-party O&M contracts. On the concern side, the company’s Construction & Development operations are also subject to hazards inherent in providing erection, civil and maintenance services, such as risk of equipment failure, work accidents, fire or explosion, including hazards that may cause injury and loss of life, severe damage to and destruction of property and equipment, and environmental damage.
The company is coming out with an IPO of 2,56,32,000 equity shares of face value of Rs 5 each. The issue has been offered in a price band of Rs 140-148 per equity share. The aggregate size of the offer is around Rs 358.84 crore to Rs 379.35 crore based on lower and upper price band respectively. On the financial front, the company’s total income decreased by Rs 1,925.39 lakh to Rs 24,540.57 lakh for Financial Year 2022 from Rs 26,465.96 lakh for Financial Year 2021. The company’s profit for the period increased by Rs 994.88 lakh to Rs 4,051.55 lakh for Financial Year 2022 from Rs 3,056.67 lakh for Financial Year 2021, representing an increase of 32.55%. Meanwhile, the company intends to build on its existing relationships with its joint venture partners and also create new joint venture relationships for its future projects, particularly for large value projects in its existing business segments and also for entering into new business segments. The company also intends to expand its restaurants operations by leveraging its hospitality experience and brands in malls, entertainment zones, other high street locations and by bidding for airports service contracts, wherever it see opportunity.
