Is Garuda Construction and Engineering IPO Good or Bad

Garuda Construction and Engineering Limited is setting off its initial public offering which will be open from Tuesday, October 8, 2024, to Thursday, October 10, 2024. While considering applying for this IPO, certain questions may arise in your mind, including whether Garuda Construction and Engineering Limited is good or bad, whether it is worth investing in it, and so on. 

In this article, we will cover the Garuda Construction and Engineering IPO review with its business and fundamental analysis to better assess its IPO.

Garuda Construction and Engineering  IPO - Company Overview

Garuda Construction and Engineering Ltd. is a leading civil construction and engineering company based in Mumbai, recognized for delivering comprehensive and end-to-end construction solutions. 

The company has built a reputation for handling a wide range of projects, including residential, commercial, residential cum commercial, infrastructure, and industrial developments. With a strong presence in the construction industry, Garuda is known for its ability to provide full-cycle construction services, ensuring seamless project execution from start to finish.

The company’s services encompass operations and maintenance (O&M), mechanical, electrical, and plumbing (MEP) services, and finishing works. Their operations and maintenance services ensure that the structures they build continue to function efficiently over time. The MEP services provide integrated solutions that handle essential utilities in construction projects, while their finishing works complete the interiors and exteriors, delivering projects that are ready for immediate use. By offering these diverse services, Garuda Construction and Engineering Ltd. stands as a one-stop solution for all construction needs, simplifying project management and ensuring quality results.

As of the date of filing the Draft Red Herring Prospectus, Garuda Construction and Engineering Ltd. has an Order Book totalling Rs. 1,408.27 crores, comprising estimated revenue from ongoing and upcoming projects. Additionally, the company has completed projects with a total order value of Rs. 546.87 crores.

Garuda Construction and Engineering IPO - Geographical Distributions

The company's projects are distributed across various regions, highlighting its operational reach. In terms of completed projects, a total of 9 contracts have been reported, with the Mumbai region contributing the most at 5 contracts. Other completed projects include 2 in New Delhi, and 1 each in Karnataka and Tamil Nadu. Currently, there are 12 ongoing projects, predominantly in the Mumbai region with 9 contracts, supplemented by projects in Arunachal Pradesh, Punjab, and Rajasthan, each with 1 contract. This distribution showcases the company's active engagement in diverse geographical areas.

Garuda Construction and Engineering Limited IPO - Financial Overview

(Figures in Rs. Crores except for percentage)

The financial performance of Garuda Construction and Engineering Limited in FY2024 exhibited good performance. The revenue from operations for the company reported Rs. 154.17 crores as of FY24, which is slightly lower compared to Rs. 160.68 crores in FY23. 

Similarly, the Profit After Tax (PAT) was reduced to Rs. 36.43 crores in FY24 from the previous figure of Rs. 40.80 crores recorded during the year FY23.

As of FY24, the company’s Return on Equity (ROE) and Return on Capital Employed (ROCE) were reported at 36.14% and 46.69%, respectively. From the above table, you can see that these ratios have significantly reduced from the previous years. This is because of the reduction in revenue and profits and also due to the increase in the equity base of the company. This reflects the efficient use of both debt and equity to generate returns, highlighting strong operational performance.

Garuda Construction and Engineering has a decent capital structure, and Net Debt is nil as of FY24. It has effectively managed its debt-equity balance, contributing to overall financial stability.

While the company has good financial performance, it should be noted that the majority of the company’s revenue is generated from its Top 5 clients which is 80.96% as of FY 24, this means that it is potentially prone to risk of limited exposure to customers as it doesn't have many clients that drive the company’s revenue.

Garuda Construction and Engineering IPO - Industry Overview 

The construction industry in India stands as the second-largest economic segment, trailing only agriculture, and contributed 8.4% to the national Gross Value Added (GVA) at constant prices in FY23. The growth of construction companies is closely tied to capital expenditure across the economy, with investments broadly categorized into infrastructure, real estate, and industrial construction. 

The increasing demand for infrastructure, along with government initiatives, positions India to potentially become the third-largest construction market globally. The sector experienced a compound annual growth rate (CAGR) of 10.6% between FY18 and FY23, expanding from Rs.2,375 billion to Rs.3,922 billion. By FY30, the construction industry is projected to grow to Rs. 6,494 billion, with a CAGR of 7.5%. Historically, infrastructure development across roads, highways, telecom, airports, ports, power, oil and gas, and railways has led to investment in the sector. 

The growing demand for infrastructure, combined with supportive government policies, highlights the sector's potential to contribute 15% to the Indian economy by 2030.

Garuda Construction and Engineering IPO - Peer Comparison

Garuda Construction and Engineering Limited has 5 listed industry peers such as PSP Projects Limited, Capacite Infraprojects Limited, Vascon Engineers, Ahluwalia Contracts (India) Limited, B L Kashyap & Sons Limited. The detailed comparison is as follows :

(Figures mentioned in Rs. Crores, except the ones in %)

Garuda Construction and Engineering Limited presents an intriguing financial profile. Despite having the lowest revenue among its peers, the company demonstrates remarkable operational efficiency and profitability. Garuda boasts the highest EBITDA margin (32.49%) and PAT margin (23.63%), significantly outperforming its competitors in these metrics. 

This operational excellence is further reflected in its industry-leading return ratios, with an impressive ROE of 36.14% and ROCE of 46.69%. While Garuda's lower net worth and revenue suggest it may be a smaller player in the market, its lean balance sheet with zero net debt could be viewed positively from a financial risk perspective. 

However, to form a comprehensive assessment, one should also consider factors such as growth trajectory, market position, and future growth prospects, which are not immediately apparent from this financial snapshot.

The objective of Garuda Construction and Engineering IPO 

1. Funding Working Capital Requirements: Rs. 10,000 lakh (Rs. 100 crore) is allocated to cover the company's working capital needs.

2. General Corporate Purposes: An additional amount (yet to be determined) will be allocated for general corporate expenses, which could include unidentified inorganic acquisitions. However, there are specific limits:

   • The amount used for general corporate purposes should not exceed 35% of the gross proceeds.

   • The amount for unidentified inorganic growth (e.g., acquisitions) cannot exceed 25% of the gross proceeds.

These details will be finalized based on the offer price, once updated in the company's prospectus.

Garuda Construction and Engineering IPO Details

Garuda Construction IPO Date

The IPO of Garuda Construction and Engineering  Limited is open to subscription from Tuesday, October 8, 2024, to Thursday, October 10, 2024. The shares will be allocated to investors on Friday, October 11, 2024, and the company will be listed in the NSE and BSE on Tuesday, October 15, 2024.

Garuda Construction IPO Issue Price

Garuda Construction and Engineering  Limited is offering its shares in the price band of Rs. 92 to Rs. 95 per share apiece. This means you would require an investment of Rs. 14,915 per lot (157 shares) if you bid for the IPO at the upper price band.

Garuda Construction IPO Size

The company is offering a total of 27,800,000 shares, amounting to Rs. 264.10 Crores. Out of these, 18,300,000 shares worth Rs. 173.85 Crores are offered through a fresh issue, and 9,500,000 shares worth Rs.90.25 Crores are offered through an offer for sale.

Garuda Construction IPO GMP

Many investors look at the Grey Market Premium (GMP) before applying for the Garuda Construction and Engineering. The GMP gives an idea of market sentiment and can hint at the possible listing price. However, it should be noted that it does not reflect how financially strong Garuda Construction and Engineering is. Thus, it is important to financially analyze the stock before investing in it.

Garuda Construction IPO Application Link

Open demat account with Rupeezy today and enjoy a seamless experience when applying for the IPO. With an easy-to-use platform, Rupeezy makes the IPO application process quick and hassle-free. Click on the apply link below to get started.

Apply for Garuda Construction IPO

Is Garuda Construction and Engineering IPO a Good or Bad Investment? Final Thoughts

Garuda Construction IPO Review: This IPO presents a mixed opportunity. The company shows strong financial growth and position in the market, there is a high profitability of 36.14% ROE and a solid order book of Rs. 1,408.27 crores. However, the construction sector's projected growth in India could benefit Garuda in the long run. Furthermore, investors should consider its overreliance on their top 5 clients which could lead to risk in the future growth of the company. Potential investors should evaluate these factors with their risk tolerance and investment goals before deciding to invest in this IPO.