IPO Size: Rs.1,253 cr

• Fresh Issue of Rs. 684 cr for (i) Rs. 413 cr debt repayment (on Rs. 693 cr net debt) (ii) Rs. 100 cr equipment purchase
• Offer For Sale (OFS) of Rs. 568 cr by the promoter (99.99% stake to drop to 82.06%)

Price band: Rs. 380-401 per share

M cap: Rs. 6,985 cr, implying 18% dilution

IPO Date: Thu 1^st Aug to Mon 5^th Aug 2024, Listing Thu 8^th Aug 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Road EPC Company

Ceigall is a 20 year old Ludhiana-based engineering, procurement and construction (EPC) company, having completed 1,700+ km road projects in Punjab, Haryana, J&K, Himachal, Uttar Pradesh, Delhi, Rajasthan. As of 30.6.24, it has an order book of Rs. 9,471 cr, representing a book-to-bill ratio of 3.1x, based on FY24 revenue of Rs. 3,029 cr, providing healthy growth visibility. While 95% of revenue comes from roads, the company recently entered into metro construction, by bagging 2 projects.

High Fixed Asset Turn0ver

Company clocks above-average gross fixed asset turnover ratio of 7x, as it rents ~17% of required equipment and has buy-back arrangement for some fixed assets to avoid blocking capital. New equipment of Rs. 100 cr is planned to be purchased from fresh issue proceeds in FY25. This implies 24% capacity addition, as gross fixed assets were Rs. 425 cr as of 31.3.24, and should aid topline growth in future.

Fast Growing Financials

Revenue has grown at 51% CAGR in the past 3 years, from Rs. 873 cr in FY21 to Rs. 3,029 cr in FY24, with EBITDA rising at 48% CAGR to Rs. 554 cr, leading to 18% EBITDA margin. In past 3 fiscals, net profit for equity shareholders rose at 40% CAGR, to Rs. 306 cr. For FY24, topline and bottomline grew by 46% YoY and 80% YoY respectively, translating into 10% net margin and an EPS of Rs. 19 (up from Rs. 11 EPS in FY23).

Ceigall’s RoE stood at 33% in FY24, which is the industry-highest - peers clock between 14% to 22%. Going forward too, RoE is likely to sustain near 30% levels due to high asset turnover ratio.

Valued Lower than Peers

Based on FY25E EPS of about Rs. 25, shares are being offered at current year PE multiple of 16x. This is seen attractive for high growth, double digit net margin, 30%+ RoE and net debt equity ratio to drop to 0.14:1 from 0.78:1 post IPO.

Peers J Kumar and H G Infra are ruling at PE multiples of 15x, despite much lower RoE and slower growth.

• J Kumar Infra’s book-to-bill of 4.3x is impressive, but Rs. 4,900 cr topline grew 16% YoY in FY24, with net margin of 7% and RoE just 14%.
• Likewise, H G Infra’s FY24 topline of Rs. 5,400 cr also grew 16% YoY, against 46% YoY growth for Ceigall, with the former’s book-to-bill of 2.3x also lower than Ceigall’s 3.1x.

Thus, Ceigall’s high growth and industry-leading RoE make current valuation attractive. Sector tailwinds in the form of rising infrastructure spends by the government keeps long term outlook positive.

PS: Promoter drew Rs. 38 cr remuneration in FY24 when company was closely held. Post listing, this payout remains to be seen.