Garuda Construction And Engineering IPO Opens; Oversubscribed On Day 2

The initial public offering (IPO) of Garuda Construction and Engineering opened on 8 October 2024, and will close on 10 October 2024. The company has set a price band of Rs 92-95 per share, offering investors the opportunity to apply for a minimum of 157 shares and in multiples thereafter. The IPO is expected to raise Rs 264.10 crore, which includes a fresh issue worth Rs 173.85 crore and an offer-for-sale of up to Rs 95 lakh shares by promoter PKH Ventures.

The company has allocated 50 per cent of the issue for qualified institutional buyers (QIBs), 35 per cent for retail investors, and the remaining 15 per cent for non-institutional investors (NIIs). Retail investors can bid for a minimum of 157 equity shares and in multiples of 157 thereafter.

It provides construction services for residential, commercial, infrastructure, and industrial projects. The company also provides operation and maintenance (O&M) and mechanical, electrical, and plumbing (MEP) services

The IPO has gained significant interest, being subscribed 3.43 times by the second day of subscription, as per BSE data. The issue received bids for 6,83,50,578 shares against the 1,99,04,862 shares on offer. The retail portion was oversubscribed by 6.10 times, while the non-institutional investors' quota saw 2.12 times subscription. The QIB portion is booked at 2 per cent. On the first day, the IPO saw 1.91 times subscription overall, with the retail portion oversubscribed by 3.43 times and NIIs by 1.10 times.

Financial Performance: Garuda Construction posted a net profit of Rs 3.5 crore with revenue of Rs 11.88 crore as of April 30, 2024. For the financial year ending March 31, 2024, it reported a net profit of Rs 36.44 crore and revenue of Rs 154.47 crore. Between FY22 and FY24, the company saw its revenue and net profit grow at an annual rate of nearly 42 per cent and 39 per cent, respectively. Its average return on equity (ROE) and return on capital employed (ROCE) were around 53 per cent for the same period. Post-IPO, Garuda's stock will be valued at a price-to-earnings (P/E) ratio of 24 and a price-to-book (P/B) ratio of 3.

Sector Outlook And Risks: Garuda Construction is poised to benefit from the government's increased spending on infrastructure and the expanding domestic construction sector. However, the cyclical nature of construction and its intermittent periods of underperformance pose risks to the company's growth. It's important to note that Garuda’s parent company, PKH Ventures, previously floated an unsuccessful IPO in June 2023, which was withdrawn due to under-subscription and concerns over valuation.

Order Book Strength: The company’s order book, valued at Rs 1,400 crore, is nine times its FY24 revenue, giving it strong visibility for future growth. The majority of its revenue, 90 per cent, is derived from engineering, procurement, and construction (EPC) contracts.