IPO listed on 15 Oct'24
Garuda Construction & Engineering Ltd
Minimum Investment
₹ 14,915 / 157 shares
Grey market premium
₹ 5 (5% premium)
Issue price
₹ 95
Listing price
₹ 105
Listing gains
10 (11%)
Listing on
Oct 15, 2024
Our Verdict:
Avoid
- Garuda Construction & Engineering Ltd (GCEL) has shown fluctuating performance in its financial indicators. While FY23 experienced robust growth in revenue and profits, FY24 witnessed a slowdown.
- Despite boasting industry-leading ROE and ROCE, and being nearly debt-free, the company has significant risk factors. A major concern is its reliance on its top 10 clients, primarily group companies, for total revenue, alongside trade receivables exceeding total revenue.
- In terms of valuations, the IPO seems reasonably priced with a price-to-earnings (P/E) ratio of 19.5x based on FY24 earnings, aligning with the industry average.
- Investors must note that a previous IPO attempt by PKH Ventures Ltd, part of the promoter group, failed to attract subscriptions from QIBs and was subsequently withdrawn. Additionally, CRISIL has marked PKH Ventures as non-cooperative concerning past debt instrument ratings, which poses an extra risk.
- Considering these aspects, long-term investors should consider monitoring the firm’s performance for the next two quarters before investing, as the inherent risks currently outweigh the potential benefits.
About the company
Founded in
21 Sep'10
Managing director
Pravin Agrawal
- GCEL specializes in comprehensive civil construction services for various project types, including residential, commercial, mixed-use, infrastructure, and industrial buildings. These services encompass the construction of diverse structures such as residential spaces, hospitality venues, industrial facilities, infrastructure projects, and commercial properties, along with concrete and composite steel structures essential for civil construction.
- Additionally, the firm offers supplementary services, including operations and maintenance (O&M), as well as Mechanical, Electrical, and Plumbing (MEP) services, and finishing works, enhancing their construction offerings.
STRENGTHS
- Impressive Track Record: GCEL has shown robust growth, with its operational revenue and net profit posting compounded annual growth rates (CAGR) of 41% and 39%, respectively, from FY22 to FY24. However, it’s worth noting that both these financial metrics saw a decline in FY24 compared to FY23.
- Robust Return Metrics: GCEL demonstrates solid financial efficiency, evidenced by a Return on Equity (RoE) of 36.14% and a Return on Capital Employed (RoCE) of 46.69% in FY24.
- Solid Order Book: With an order book valued at Rs 1,408.27 crore across 12 ongoing projects, GCEL enjoys strong revenue visibility.
RISK FACTORS
- Client Concentration: In FY24, GCEL generated approximately 97% of its revenue from its top 10 clients, with around 43% stemming from related party transactions involving promoters, promoter group entities, and affiliated companies. The loss of a key client or multiple clients could significantly impact its financial performance.
- Limited Third-Party Experience: GCEL's limited experience with external third parties constrains its expansion. A substantial portion of its revenue—100%, 44.82%, 94.62%, and 86.65% for the stub period ending April 30, 2024, and the fiscal years FY24, FY23, and FY22—stems from projects linked to its own group companies and promoters.
- High Trade Receivables: Trade receivables stood at Rs 176.24 crore as of March 31, 2024, and Rs 182.56 crore as of April 30, 2024, both exceeding the reported revenue for those periods. This raises serious concerns.
- Cash Flow Challenges: GCEL has experienced negative cash flows from operations in the past. If this trend continues, it could undermine the firm’s operational efficiency and financial health.
- Legal Risks: GCEL is involved in ongoing legal disputes related to its promoters, directors, and group companies. Unfavourable outcomes in these cases could harm the company's reputation and financial stability.
Issue details
Issue type
Mainstream
Issue size
₹ 264.10 crore
Fresh Issue
₹ 173.85 crore
OFS
₹ 90.25 crore
Price range
₹ 92 - 95
Lot size
157 shares
Issue Objective
GCEL intends to use the net proceeds from the issue for the following purposes:
- Funding its working capital requirements; and
- Funding General Corporate Expenses and unidentified inorganic acquisitions.
Dates
Bidding open
8 Oct'24
Bidding close
10 Oct'24
Allotment date
11 Oct'24
Refund date
14 Oct'24
Listing
15 Oct'24
IPO Reservations
Qualified institutional buyers
<50%
Non-institutional investors
>15%
Retail individual investors
>35%
Read the Offer Document
© 2025 by Liquide Solutions Private Limited, SEBI Registered Research Analyst (Registration number - INH000009816)
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