IPO Size: Rs. 264 cr 

• Fresh Issue worth Rs. 173 cr for working capital (Rs. 100 cr), general corporate purposes and unidentified inorganic acquisitions
• Offer for sale (OFS) worth Rs. 90 cr by promoters (97% holding to drop to 68%)

Price band: Rs. 92-95 per share

M cap: Rs. 884 cr, implying 30% dilution

IPO Date: Tue 8^th Oct to Thu 10^th Oct 2024, Listing Tue 15^th Oct 2024

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

Old Wine in a New Bottle?

Promoter PKH Ventures (who is selling via OFS) attempted an IPO worth Rs. 379 cr (Rs. 270 cr fresh issue, Rs.109 cr OFS by promoter) last Jul (in 2023) which was withdrawn due to poor subscription - the sole IPO to be withdrawn post-launch in that year. Read our IPO analysis of PKH Ventures here. The current IPO looks re-packaged to just list, by any means:  

• 2^nd attempt to launch IPO is merely in 10 months gap, as DRHP of Garuda was filed on 24^th May 2024.
• April 2024 financials have been provided in the RHP to comply with regulations of disclosing financials not older than 6 months from IPO opening date. Atleast Q1FY25 financials should have been presented, as we are already in Oct 2024!
• On 30^th Jan 2024, promoter did secondary sale at Rs. 84 per share, worth Rs. 15 cr, to a buyer named Yash Shares and Stock Private Limited. Another Rs. 5 cr secondary was undertaken at the same price and same date to an undisclosed buyer. This look like a mere ‘price-establishing exercise’ before the IPO, and not much credence must be paid to the price.
• Object of Unidentified inorganic acquisition looks structured to facilitate the IPO, as company has no history of M&A.

Civil Construction Company

Garuda Construction is a Mumbai-based civil construction company with a current order book of Rs. 1,408 cr, comprising 6 residential, 2 commercial, 1 industrial and 1 infrastructure project, across Mumbai, Arunachal, Karnataka, Rajasthan and Punjab. 35% of the order book is related party, while some projects were delayed till last year for regulatory / other reasons. Even the current RHP is silent on percentage completed for key ongoing projects.

Poor Financials, flooded with Related Party Transactions

FY24 revenue dropped 4% YoY and net profit declined 13% YoY to Rs. 154 cr and Rs. 35 cr respectively. In FY22 and FY23, 87% and 95% of company’s revenue came from related parties. While this dropped to 43% in FY24, April 2024 was 100% related party revenue. No wonder then the company’s net margin of 23-24% is industry-leading (6-13% for listed peers)!

Fixed asset as of 31.3.24 was a mere Rs. 1.6 cr and balance sheet shows capital work-in-progress of Rs.2.2 cr, since 31.3.21, remaining uncapitalized for over 3 fiscals now!

Leading to Sky-Rocketing Debtors

On FY24 revenue of Rs. 154 cr, debtors of Rs. 176 cr were outstanding as of 31.3.24, representing 13 months. Of this, Rs. 58 cr debtors outstanding for over 6 months.

In FY24, on 4% revenue drop, debtors jumped 1.3x, from Rs. 77 cr, as of 31.3.23.

Nearly half of company’s debtors are related parties, highlighting poor fundamentals of the group too, which will ultimately have implications on company’s financial health.

Going forward, for FY25E and FY26E, company expects to reduce debtors to 4 months outstanding, which looks miraculous, to say the least.

Not Worth the Risk

There is no point analysing RoE and PE multiple as profits can be ‘managed’ given high proportion of related party transactions. Even then, just for theoretical sake, on FY25E EPS of about Rs.5.2, shares are being offered at a PE multiple of over 18x on current year basis, which is expensive for the company’s size and nature of revenue. Best it to stay away from such companies having utterly weak fundamentals.

We earnestly wonder how such companies get regulatory approval to launch IPOs.