SRM Contractors
IPO Size: Rs. 130 cr, Entirely Fresh Issue
- for Working capital Rs. 46 cr
- Capex Rs. 32 cr
- Debt repayment Rs. 10 cr (of Rs.15 cr net debt)
- Investment in Joint Venture Rs. 12 cr
Price band: Rs. 200-210 per share
M cap: Rs. 482 cr, implying 27% dilution
IPO Date: Tue 26th Mar to Thu 28th Mar 2024, Listing Wed 3rd Apr 2024
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Road Contractor in J&K and Ladakh
SRM Contractors is a 13 year old engineering, procurement and construction (EPC) company, having completed 38 projects in road, tunnel construction and slope stabilisation, in Jammu and Kashmir and Ladakh, aggregating to Rs. 1,412 cr. Current order book comprises 21 projects, with a contract value of Rs. 1,200 cr, of which, Rs. 720 cr is pending execution (as of 31.1.24) representing 2.4x annual revenue. Company is undertaking Rs. 32 cr for purchase of machinery and equipment, while existing net fixed assets are at Rs. 73 cr.
Margin Jump Before IPO
FY23 revenue stood at Rs. 300 cr, on which EBITDA margin was at 13%, with net margin at 6.3% and 30% RoE. 9MFY24 revenue stood at Rs. 234 cr, with EBITDA margin jumping to 15% (from an average of 12% during FY21-23). 9MFY24 net profit rose to Rs. 21 cr from FY23’s Rs. 19 cr. Thus, FY23 EPS of Rs. 11 has risen to Rs. 12.6 in 9MFY24.
Fully Priced Valuation
On 9MFY24 annualised EPS of Rs. 17, shares are being offered at a PE multiple of 12.4x, on current year estimates, which makes it fully priced for company’s size and geographic presence. Larger road constructor peer J Kumar Infra is trading at a PE multiple of 15x, despite having 10x the topline and geographically wide-spread presence.
Micro-Cap Stock
Last 5 IPOs, which have listed in past 10 days, have either listed flat or at discount, irrespective of business fundamentals. Moreover, SRM Contractors’ post-listing m cap of Rs. 482 cr makes it a micro-cap stock, which are not in flavor of stock markets at present. Additionally, stock will be subject to stock exchange surveillance (under ASM/GSM guidelines) post listing.
