Chavda Infra coming with an IPO to raise upto Rs 43 crore

Chavda Infra 

• Chavda Infra is coming out with a 100% book building; initial public offering (IPO) of 66,56,000 shares of Rs 10 each in a price band Rs 60-65 per equity share.
• The issue will open for subscription on September 12, 2023 and will close on September 14, 2023.
• The shares will be listed on NSE Emerge.
• The face value of the share is Rs 10 and is priced 6.00 times of its face value on the lower side and 6.50 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Himani Mayur Upadhyay.

Profile of the company

The company is integrated civil construction company offering a diversified range of construction and allied services across residential, commercial and institutional projects in Gujarat, especially in Ahmedabad and Rajkot. It provides its services across the construction value chain, ranging from planning and design to construction and post-construction activities to its clients. The company is ISO 9001:2015 certified for quality management system by BCQ Assessment. The quality certification is towards construction of commercial, residential, institutional buildings. 

It has in-house capabilities to deliver a project from conceptualization to completion with fast turnaround time from acquisition to launch to completion, which focuses on de-risking and improving return on investment. Its core competence lies in professionally managing the real estate value chain and attracting and retaining talent to maximize value creation. Since incorporation, it has constructed well-known buildings in Ahmedabad namely Straft Laxuria, Shivalik Parkview and Shivalik Sharda Harmony, being residential projects. AAA Corporate House, Sadbhav House, Solitaire Sky, Sandesh Press, Suyash Solitaire and Solitaire Connect, being commercial projects. AIS Toddler’s Den, Nirma University (old Building) and Zydus School & Excellence, being institutional projects. 

Proceed is being used for:

• Meeting working capital requirements
• General corporate purposes
• Meeting public issue expenses

Industry overview

In Budget 2023-24, capital investment outlay for infrastructure is being increased by 33% to Rs 10 lakh crore ($122 billion), which would be 3.3% of GDP. Infrastructure Finance Secretariat is established to enhance opportunities for private investment in infrastructure that will assist all stakeholders for more private investment in infrastructure. The Indian government has introduced various formats in order to attract private investments, especially in roads and highways, airports, industrial parks and higher education and skill development sectors. Private Equity-Venture Capital firms invested $46 billion (across 1,261 deals) in Indian companies in 2022.

FDI in construction development (townships, housing, built-up infrastructure and construction development projects) and construction (infrastructure) activity sectors stood at $26.23 billion and $28.95 billion, respectively, between April 2000 -September 2022. As a result of digitalization and opportunities that tier II and III cities present for economic growth, the divide between metro and non-metros is blurring, moving to the new era of infrastructure growth. Commercial real estate properties have witnessed exponential growth in demand across Tier II & III cities as Information technology and Information technology enabled services and banking financial services and insurance ocused organizations are increasingly decentralizing their operations to adapt to the new normal. The residential sector has witnessed good sales, and launches have also shown signs of an uptick during 2022, total sales in the top-7 cities was projected to exceed 360,000 units in 2022. 

In November 2022, National Investment and Infrastructure Fund (NIIF) is set up as a collaborative investment platform between Government of India, global investors, multilateral development banks (MDB) and domestic financial institutions to facilitate investment across multiple sectors in India through an India Japan Fund. In June 2022, Minister of Road Transport and Highways, opened 15 national highway projects worth Rs 13,585 crore ($1.7 billion) in Patna and Hajipur, Bihar.

Pros and strengths

Optimal Utilization of Resources: The Company constantly endeavours to improve its execution process, capabilities, skill up gradation of employees, modernization of plant and machineries to optimize the utilization of resources. it regularly analyse its material procurement policy and project execution process to de?bottle neck the grey areas and take corrective measures for smooth and efficient working thereby putting resources to optimal use.

Visible growth through robust order book: In its industry, an order book is considered one of the key indicators of future performance as it represents a portion of anticipated future revenue. Its 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. By diversifying its skill set and order book across different sectors, it is able to pursue a broader range of project tenders and consequently, optimize its business volume and profit margins. 

Long-standing relationships with customers: Its reputation for completing projects in a timely manner and its focus on quality has helped it builds strong relationships with its customers. It has completed or are currently undertaking projects for a number of reputed clients. 

Risks and concerns

Face significant competition: It operates in a competitive environment and its industry has been frequently subject to intense price competition for the acquisition and bidding of projects. Its competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. It competes against major construction companies at the national and local levels and in multiple segments of construction business.

Company generates revenue only from Gujarat: It derives 100% of its revenue from State of Gujarat. Such geographical concentration of its business in this region heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in this region which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in these regions to expand its operations in other parts of India.

Dependent on few numbers of customers for sales: Its top ten customers contribute 73.96%, 81.03% and 81.28% of its total sales for the financial year ended on March 31, 2023, 2022 and 2021, respectively. The company is engaged in the business of civil construction of residential and commercial projects. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows

Outlook

Incorporated in 2012, the company is engaged in the business of civil construction offering a diversified range of construction and allied services across residential, commercial and institutional projects in Gujarat, especially in Ahmedabad and Rajkot. On the concern side, its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations.

The issue has been offered in a price band of Rs 60-65 per equity share. The aggregate size of the offer is Rs 39.94 crore to Rs 43.26 crore based on lower and upper price band respectively. On performance front, total revenue from operations for the year ended on FY 2022-23 was Rs 16,188.57 lakh as compared to Rs 10,982.24 lakh during the FY 2021-22. Revenue from operations increased by 47.41%. Profit after Tax (PAT) increased to Rs 1,204.62 lakh in FY 2022-23 from Rs 521.46 lakh in the FY 2021-22. Going forward, it intends to continue its focus in enhancing project execution capabilities so as to derive twin benefits of client satisfaction and improvements in operating margins. It will constantly endeavour to leverage its operating skills through its equipment and project management tools to increase productivity and maximize asset utilization in its ongoing projects.