IPO Size: Rs. 300 cr 

• Rs. 175 cr fresh issue, for (i) working capital Rs. 100 cr (ii) debt repayment Rs. 10 cr of Rs. 26 cr net debt (iii) capex Rs. 10 cr
• Rs. 125 cr offer for sale (OFS) by the Promoter (100% to reduce to 70%)

Price band: Rs. 680-715 per share

M cap: Rs.999 cr, implying 30% dilution

IPO Date: Thu 14^th Mar to Mon 18^th Mar 2024, Listing Thu 21^st Mar 2024

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

Facilities Management Services (FMS) Company

Krystal Integrated, promoted by BJP leader and Member of Maharashtra Legislative Council Mr. Prasad Minesh Lad, provides facilities management services, payroll management and security guarding services, with Rs. 708 cr revenue of FY23, split as 60:25:11 among the 3 business segments. HDFC Bank, Phoenix Mills, Hinduja Hospital, education department of BMC are some of its clients.

Government Contracts

Company derives ~70% revenue from government contracts, where margin is higher than private sector contracts, leading to EBITDA margin of 7.7% during H1FY24, against 5-6% for peers Updater and SIS.

As mix of government orders is high, company’s receivables outstanding are at nearly 3 months. Fresh issue proceeds will thus be used for working capital needs. However, some debtors remain under-provided. As of 30.9.23, Rs. 25 cr debtors are outstanding for over 1 year, but only Rs. 13 cr has been provided for. It remains to be seen how much has been recovered subsequently. Even contract renewal rate of 40% is low.

Growing Financials

Between FY21-23, revenue grew at 23% CAGR to Rs. 708 cr, with EBITDA rising at a faster rate of 51%, to Rs. 53 cr in FY23. PAT stood at Rs. 34 cr, leading to net margin of 4.8% which is double of Updater’s 2.3% and superior to SIS’s 3%. For H1FY24, revenue rose to Rs.452 cr, with Rs. 35 cr EBITDA and Rs. 21 cr PAT. EPS stood at Rs. 33 and Rs. 18 for FY23 and H1FY24 respectively.

Net debt to equity ratio was comfortable at 0.4:1, as of 30.9.23. In line with business growth, consolidated debt increased from Rs. 103 cr as of 30.9.23, to Rs. 187 cr as of 31.1.24.

Priced at discount to Peers

At FY24E EPS of Rs. 36, IPO is priced at a current year PE multiple of 20x, which is much lower than Updater’s PE of 42x as also, SIS’ 22x. This is despite Krystal’s RoE being higher at 23%, against 12-15% for the above peers. Thus, pricing has left money on the table.