Garuda Construction IPO opens today: Should you subscribe to it?

Garuda Construction and Engineering is set to launch its initial public offering (IPO) on October 8, Tuesday. The construction player shall be offering its shares in the range of Rs 92-95 apiece, where investors can apply for a minimum of 157 equity shares and its multiples thereafter. The issue can be subscribed until Thursday, October 10.

Garuda Construction and Engineering, founded in 2010, provides comprehensive construction services for residential, commercial, residential/commercial, infrastructure, and industrial projects, as well as additional services for infrastructure and hospitality projects.

The Rs 264.10 crore IPO of Garuda Construction includes a fresh share sale of 1.83 crore shares worth Rs 173.85 crore and an offer-for-sale (OFS) of up to 95 lakh shares by its promoter PKH Ventures worth Rs 90.25 crore. The net proceeds from the issue shall be utilized towards funding working capital needs, unidentified inorganic acquisitions and general corporate expenses.

Ahead of its IPO, Garuda Construction raised Rs 75 crore from seven anchor investors as it allocated 78,95,138 shares for Rs 95 per share. The anchor book included names like AG Dynamic Funds Trust Mutual Fund, Maybank Securities, North Star Opportunities Fund, Resonance Opportunities Fund, Bridge India Fund and Cognizant Capital Dynamic Opportunities Fund.

Garuda Construction and Engineering also provides services such as operation and maintenance (O&M) and mechanical, electrical and plumbing (MEP) services as well as finishing works as part of construction services. The order company had an order book of 1,408.27 crore as of September 28, 2024.

The company reported a net profit of Rs 3.5 crore with a revenue of Rs 11.88 crore for the month of April 30, 2024. The company reported a net profit of Rs net profit of Rs 36.44 crore with a revenue of Rs 154.47 crore for the financial year ended on March 31, 2024.

Garuda Construction and Engineering has reserved 50 per cent of the net offer for qualified institutional bidders (QIBs), while non-institutional investors (NIIs) have 15 per cent of the allocation. Retail investors will get the remaining 35 per cent of the net offer.

Corpwis Advisors is the sole book running lead manager of the Garuda Construction and Engineering IPO, while Link Intime India is the registrar for the issue. Shares of the company shall be listed on both BSE and NSE with October 15, Tuesday as the tentative date of listing. Here's what a host of brokerage firms say about the IPO of Garuda Construction and Engineering:

Anand Rathi Research
Rating: Subscribe for long-term
Garuda Construction primary focus is civil construction of residential and commercial buildings with track record of successfully executing a diverse mix of construction projects, that is, with visible growth through increasing order book and strong project management and execution capabilities to finish projects on schedule with high construction quality, said Anand Rathi Research.

"At the upper price band, the company is valuing at P/E of 24.28 times, with a market cap of Rs 884 crore post issue of equity shares and return on net worth of 36.14 times. We believe that the IPO is fully priced and recommend a 'subscribe for long term' rating to the IPO," it added.

Canara Bank Securities
Rating: Avoid
The promoter group's previous attempt to launch an IPO for PKH Ventures in 2023 has to be withdrawn as the minimum subscription of 90 per cent was not met, raising questions about the group's broader financial strategy. Its financial health remains a key focus area due to elevated receivables and reliance on internal contracts, said Canara Bank Securities.

"While the company has a solid order book and ambitions to expand, investors should weigh the potential growth against the risks stemming from cash flow constraints and past group-level challenges. Hence, caution is advised for this offering," it added with an 'avoid' rating for the issue.

Swastika Investmart
Rating: Subscribe with caution
The company has a strong order book and project diversification are key strengths of the business. The PE ratio is in line with industry peers, but the return on net worth is superior. FY23 saw strong growth in revenue and profit, while FY24 was sluggish due to the election year, said Swastika Investmart suggesting  high risk investors can consider applying to the IPO for the long-term.

Arihant Capital Markets
Rating: Subscribe
Garuda construction order book stood at Rs 1,400 crore shows business visibility. It is focused on operating the remaining asset light model, high margin projects and increasing the market presence. The company has also constructed some marquee projects like the Delhi Police HQ and Golden chariot hotel in Mumbai which showcases their execution capabilities, said Arihant Capital.

"At the upper price band, the issue is priced at a P/E of 24.24 times post issue based on the FY24 post issue EPS of Rs 3.92. We have a 'subscribe for listing gains' rating for the issue," it added.

StoxBox
Rating: Subscribe
Garuda Construction's revenue doubled to Rs 154.2 crore in FY24, showing an impressive annual growth rate of 26 per cent. Its profit after tax also grew to Rs 36.4 crores in FY24, with an annual growth rate of 24.7 per cent. The average debt-to-equity ratio of other companies in the industry ranged between 0.23 times and 0.66 times during FY19-FY23, said StoxBox.

"The company has reduced its debt & is debt-free. With an order book worth Rs 1,408 crores, which is 9.2 times its sales, and an IPO priced at a reasonable Price-to-Earnings (P/E) ratio of 19.5 times based on FY24 earnings, we recommend a 'subscribe' rating for this IPO from a long-term perspective," it said.

SMIFS
Rating: Subscribe
Garuda Construction is well-positioned in the rapidly growing Indian construction sector. Garuda’s asset-light business model, relies on third-party subcontractors for equipment and labour, combined with its focus on geographic expansion beyond the MMR region into states like New Delhi, Karnataka, and Rajasthan, enhances its ability to scale operations efficiently, said SMIFS.

"Garuda’s superior financial performance, including an industry-leading ROE and ROCE of 36.14 per cent and 46.69 per cent in FY24, as well as its almost debt free status, makes it stand out among its peers, ensuring that it is well-positioned to capture new opportunities in the Indian construction market," it added with 'subscribe' citing a strong order book and growth in the future.