IPO Size: Rs. 379 cr 

• Fresh Issue worth Rs. 270 cr: (i) Rs. 124 cr for hydro power project in Arunachal Pradesh (ii) Rs. 80 cr working capital for construction business (iii) acquisitions (unidentified) Rs. 40 cr.
• Offer for sale (OFS) worth Rs. 109 cr by the promoters (100% holding to drop to 69%)

Price band: Rs. 140-148 per share

M cap: Rs. 1,217 cr, implying 31% dilution

IPO Date: Fri 30^th Jun to Tue 4^th Jul 2023, Listing Wed 12^th Jul 2023

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

IPO Timing Structured

SEBI guidelines require RHP to contain financials not older than 6 months from issue opening date. IPO is opening on 30.6.23 and company has presented financials till 31.12.22! When publicly listed companies have already declared earnings till 31.3.23, these financials are dated. It may not be incorrect to say that the company is under pressure to launch IPO on 30^th June 2023.

Many Businesses, and Most Unrelated to each other

PKH Ventures is divided into 4 business divisions:

1. Construction: Order book of Rs. 560 cr, of which, Rs. 468 cr is third-party contracts (excluding group projects). Projects worth Rs. 364 cr have not yet commenced construction and will take another 3.5-4 years thereafter. Even other projects like those in Amritsar, Rajasthan food park, cold storage in Madhya Pradesh, wellness resort in Chiplun, Maharashtra, 16 MW hydropower plant in Arunachal Pradesh, 42 acre entertainment centre at Nagpur and 3 government hotel projects in Madhya Pradesh are yet to commence construction, for want of regulatory approvals or other reasons. Delay in projects can be a make-or-break for construction business segment, and thus does not imbibe confidence.
2. Hospitality: 3 hotels with 116 keys, 3 restaurants, 4 banquets among others, clocking revenue of Rs. 77 cr and Rs. 38 cr in FY22 and 9MFY23 respectively. When hospitality industry is booming, decline in FY23 revenue is alarming.
3. Management Services: No airport or toll contracts since FY22. Currently, only maintains Delhi Police Headquarters, which fetched Rs. 29 cr and Rs. 9 cr revenue in FY22 and 9MFY23 respectively – again a YoY drop in 9MFY23 revenue.
4. Others: Owns 51% stake in cricket team NaMo Bandra Blasters, playing in T20 Mumbai League of Mumbai Cricket Association, but no revenue. Company is also acquiring Amar Remedies, an Ayurveda FMCG company, through IBC, for Rs. 31.6 cr, which is work-in-progress.

Decline in Revenue and Profit during 9MFY23

PKH Ventures reported FY22 revenue of Rs. 199 cr, of which, Rs. 93 cr was from construction business, Rs. 77 cr from hospitality and Rs. 29 cr from management services. During 9MFY23, overall revenue declined to Rs. 135 cr, with hospitality and management services declining sharply to Rs. 38 cr and Rs. 9 cr respectively. Even 9MFY23 construction revenue of Rs. 79 cr is much lower than FY21 (covid period) of Rs. 149 cr, as well as pre-covid (FY20) Rs. 304 cr. The above includes Rs. 35 cr annuity revenue for construction and maintenance of Delhi Police Headquarters (due each year for next 11 years).

Excluding share of minority interest, PAT for 9MFY23 of Rs. 29 cr slipped from FY22’s Rs. 40.5 cr. RoE stood at just 12%, much lower than listed construction peers.

Aggressively Valued

Annualising 9MFY23 PAT of Rs. 29 cr leads to a PE multiple of 26x, making the IPO more than fully valued. PKH earns most of its profit from construction or maintenance businesses, where PE multiple range between 10-18x. Hospitality revenue is hardly 30%, while profitability, though not disclosed separately, may be lower, as operations lack scale.