Garuda Constructions Limited         

10 October 2024

By Majid Ahamed

About the Company

Garuda Constructions Ltd, which was started in the year 2010 “Garuda Construction and Engineering Private Limited” is a Mumbai-based company that is currently operating in the civil infrastructure space. They provide end-to-end civil construction for residential, commercial, residential cum commercial, infrastructure and industrial projects and additional services for infrastructure and also hospitality projects. Further, the company also provides services such as operations and maintenance services (“O&M”) and Mechanical, Electrical, and Plumbing (“MEP”) services and finishing works as a part of our construction services. Hence, all in all, the company offers complete construction services under its banner. 

Most of the projects that the company does are in the (EPC) Model, where the private partner is solely responsible for the construction of the project, and the tolling and operations of the project are undertaken by the public partner.

Currently, the company has an order book of around 1,400 crores, and of the total ongoing projects, nearly 7 have an order value of 100 crores each. These are as follows:

• Construction contract of a residential project named ‘Trinity Oasis’ in Thane, Maharashtra.
• Construction contract and complete finishing work along with miscellaneous construction and beautification work of the residential project ‘Garuda Zenith’ later ‘Garuda Shatrunjay’ in Mumbai, Maharashtra.
• Construction contract for slum rehabilitation project in Mumbai, Maharashtra.
• Construction,  development, and completion of the commercial project named  ‘Options World’  in Mumbai, Maharashtra.
• Construction of residential building in Amritsar, Punjab.
• Construction work of Hydro Power Project in Arunachal Pradesh.
• Construction and development of residential project at Thane, Maharashtra

                                  Industry based bifurcation of the Ongoing Projects

Industry-based Bifurcation of Completed Projects

Key Projects the company has completed

Delhi Police Headquarters

Chariot Hotels & Spa, Vasai

The Offer & Proceeds of the Issue

The company is looking to raise capital of around ₹264.10 Crores in total in the IPO, of which  173.85 Cr is the fresh issue where this amount would go inside the company’s reserve and the remaining funds worth 90.25 Crores is Offer For Sale, where the promoter or other shareholders are looking to sell their stake. 

Garuda Construction and Engineering IPO offers 2,78,00,000 shares. 60,04,862 (21.6%) to QIB (Qualified Institutional Buyer), 41,70,000 (15%) to NII (Non-Institutional Investor), 97,30,000 (35%) to RII (Retail Investor), and 78,95,138 (28.4%) to Anchor investors.

The fresh issue money will be allocated as follows:

• The company plans to spend ₹100 crore on the working capital requirements. The company is working capital-intensive since the Company is in the business of construction business where the requirement of trade receivable is a major portion of the working capital that needs to be funded.
• The remaining funds around ₹ 73.85 crore will be used for general corporate purposes, unidentified inorganic acquisitions including but not limited to operating expenses, initial development costs for projects other than the identified ones, strengthening business development and marketing capabilities, and addressing contingencies.

Valuation

The company is targeting a market capitalization of ₹883.9 crore with a P/E ratio of 24.3. In comparison, peers like PSP Projects, Ahluwalia Contracts, and Vascon Engineers trade at TTM P/E ratios of 21.7, 34, and 21, respectively. The company’s revenue from operations has declined by 4% year-on-year, while profits have decreased by over 10% YoY.

However, competition in this market is intense, with minimal entry barriers. A key risk for the company is its heavy reliance on its top five customers, which account for 81% of total revenue. Losing any of these customers could severely impact the company’s financials. Additionally, the company is a price-taker in the industry, with limited competitive advantages.

On the positive side, the company leverages its in-house capabilities and asset-light model, alongside a strategic focus on expanding into other states. These factors have contributed to its high EBITDA margins, exceeding 30%, while peers in the industry have margins in the range of 10% to 20%. With a focus on expanding its offerings, the company aims to capitalize on the anticipated infrastructure growth in India, projected at a CAGR of nearly 10% over the next five years, driven by both government and private capital expenditure in the sector. With strong project execution, the company appears well-positioned for growth in the near future.