IPO Snapshot:

Capacit’e Infraprojects is entering the primary market on Wednesday 13^thSeptember 2017, to raise Rs. 400 crore via fresh issue of equity shares of Rs. 10 each in the price band of Rs. 245 to Rs. 250 per share. Representing 26.8% of the post issue paid-up share capital, at the upper end, issue will close on Friday 15^thSeptember and listing is expected on 25th September.

Company Overview:

Capacit’e Infraprojects is a Mumbai based specialized EPC (engineering, procurement and construction) company engaged in construction of buildings, with focus on high rise and super high rise residential structures. Having commenced operations only in January 2013, company has an operating history spanning less than 5 years, but already boasts of clientele comprising some of the top real estate names of the country, such as Kalpataru, Lodha, Oberoi Constructions, Rustomjee, Saifee Burhani Trust, Wadhwa Group, Godrej Properties, Brigade Enterprises and Prestige Estate.In addition to this, it has an exceptionally healthy order book of Rs. 4,600 crore (31-5-17), representing 4 times FY17 sales and comprising 56 ongoing projects, many of which are repeat orders from existing clients. Of this order book, 59% of the projects are located in rich geographies of West India (mainly Mumbai and metro), 27% in South and 14% in North India. Moreover, this is quite a diversified order book, with top 5 clients accounting for only 39%.

Financials:

The company enjoys ownership of technologically advanced machinery and equipment, providing it both time and cost advantages.Since the past 4 years of existence, its financials have witnessed rapid growth, with revenue increasing at 76% CAGR (albeit on a smaller base), from Rs. 214 crore in FY14 to Rs. 1,157 crore in FY17.EBITDA of Rs.167 crore was clocked in FY17, up 37% YoY, resulting in an EBITDA margin of 14.4%. Net profit of Rs. 69 crore was earned in FY17, which is a respectable number for a 4 year old company, having risen 43% YoY from FY16’s Rs. 49 crore. Thus, very strong EPS of Rs. 14 was reported for FY17.

As of 31-3-17, company’s equity was at Rs. 43.61 crore and net worth Rs. 300 crore, leading to BVPS of Rs.69. Post conversion of preference shares into equity in June 2017,current equity expanded to Rs. 51.89 crore. Total debt, as of 31-3-17, was Rs. 122 crore and cash and bank balance stood at Rs.52 crore. Thus, net debt to equity ratio was within comfortable limits of 0.23:1, as of 31^st March and will only contract further to below 0.1:1, on account of preference share conversion and fresh issue of shares via the IPO. Thus, company’s balance sheet position is strong, with a healthy return on equity (RoE) ratio of 23% and current ratio of 1.4:1 – two aspects which generally concern construction companies.  

Shareholding and Objects of the Issue:

Post listing, current promoter holding of 57.29%will fall a tad below 50% (49.87%, to be precise), considering issue at upper end of the price band. Balance stake is owned by a clutch of marquee PE investors such as Paragon Partners (Siddharth Deepak Parekh), Infina (Kotak Mahindra Bank and Kotak family), NewQuest (HongKong based PE created as a spin-off of Bank of America Merrill Lynch’s non-real estate portfolio in Asia) to name a few. None of these investors are selling any shares in the IPO (IPO is 100% fresh issue).Of the fresh issue proceeds, company plans to use Rs. 250 crore for working capital, while Rs. 52 crore will fund purchase of new equipments, both over FY18 and FY19. Balance will go towards general corporate purposes.

Valuation:

At Rs. 250 per share, company’s market cap will be Rs.1,700 crore, while EV will be Rs. 1,770 crore. This discounts FY17 earnings by an EV/EBITDA multiple of 10.6x and PE multiple of 18x. Based on current year expected earnings i.e. FY18, the valuation multiples are very attractive at 8.8x and 15x respectively. Peers of similar size such as Ahluwalia Contracts, JMC Projects and Simplex Infrastructures are trading at PE multiples of 18-23x, which indicates that pricing of the IPO has left sufficient amount of money on the table for prospective investors.

Conclusion:

Key strengths favouring the company are niche presence in high rise residential construction, healthy historic growth rates, presence in rich geographies of Mumbai and other metros, extremely strong order book position, able and experienced promoters and marquee PE investors. Having scaled up business smartly in a very short period of time, company looks very promising, which, coupled with attractive valuations, makes the issue a subscribe, both for listing gains and for long term value investors. 

Disclosure: No Interest.