Krystal Integrated Services IPO opens today: Should you subscribe to the issue?

Krystal Integrated Services' initial public offering (IPO) opens for bidding on Thursday, March 14 and can be subscribed till Monday, March 18. The company is offering its shares in the fixed price band of Rs 680-715. Investors can apply for a minimum of 20 equity shares and its multiples thereafter.

Krystal Integrated Services, incorporated in December 2000, provides facilities management services. They offer a wide range of services such as housekeeping, sanitation, landscaping, gardening, mechanical, electrical and plumbing services, waste management, pest control, façade cleaning, and other services.

Brokerage firms, tracking the issue are, mostly positive on it citing its sound track record, strong execution performance, robust financial growth and reasonable valuations. However, a few analysts are skeptical on the issue on the back of current market sentiments, dependence on select clients and stiff competition in the industry.

Krystal Integrated Services is well-positioned to capitalize on favorable industry trends. The company boasts a diverse customer base, a wide geographic presence, and a track record of strong financial performance. Valuation-wise, the IPO appears fully priced at a P/E of 40 times, said Swastika Investmart in its IPO note.

"Some key challenges require careful consideration like its reliance on a limited number of clients, particularly government contracts secured through bidding processes, exposes it to concentration risk. The facility management industry is highly competitive, and operational risks are inherent to the business," it added with a 'neutral' rating on IPO citing the current market sentiments.

The Rs 300 crore issue includes a fresh share sale of Rs 175 crore and an offer-for-sale (OFS) of up to 17.50 lakh shares by its promoter Krystal Family Holdings.  The net proceeds from the issue shall be utilized towards repayment of certain borrowings; funding working capital requirements; funding capital expenditure; and general corporate purposes.

Krystal Integrated Services mobilized a total of Rs 90.04 crore from anchor investors by allocating 12,59,265 shares at a price of Rs 715 apiece. BofA Securities Europe, ITI Flexi Cap Fund, Quant Business Cycle Fund, Aegis Investment, Saint Capital, Negen Undiscovered Value, Coeus Global Opportunities Fund, NAV Capital and Zeal Global Opportunities Fund participated in the anchor book.

The company also has a competitive advantage as management services require an immense level of expertise, trust, and quality in the provision of service. Filling the gap of such a growing demand, the company emerges as a one-stop solution to cater to the market in the coming year, said StoxBox.

"Considering the financial performance, the company’s revenue, Ebitda and PAT grew at a CAGR of 22.5 per cent, 57.3 per cent and 86.7 per cent during the FY2021-23 period, respectively. On the upper price band, the issue is valued at a P/E of 21.5 times based on FY2023 earnings which we feel is fairly valued. We recommend a 'subscribe' rating for the issue," it said.

The company offers staffing, payroll management, private security, manned guarding, and catering services. The company served 134 hospitals, 224 schools, 2 airports, 4 railway stations, and 10 metro stations, as of March 31, 2023. It served 2,427 customer locations across 14 states and one union territory in India and has set up 21 branches to expand its geographical reach.

Considering the FY-23 annualized EPS of Rs 27.51 on a post-issue basis, the company is going to list at a P/E of 25.99 times with a market cap of Rs 999 crore, whereas its peers namely SIS Ltd, Quess Corp, Updater Services are trading at a P/E of 22.5 times, 31.2 times and 44.1 times, respectively, said Marwadi Financial Services.

"We assign a 'subscribe' rating to this IPO as the company has focused business model which is well-positioned to capture favourable industry dynamics along with historical track record of strong financial performance. Also, it is available at a reasonable valuation as compared to its peers," he said.

Krystal Integrated reported a net profit of Rs 20.56 crore with a revenue of Rs 455.67 crore for the six months ended on March 31, 2023. The diversified services provider clocked a net profit of Rs 38.41 crore with a revenue of Rs 710.97 crore for the year ending on March 31, 2023.

Renowned for its prowess in serving government entities, KISL has a proven track record in executing large contracts and is one of the few Indian companies qualified to handle extensive, multi-location government projects, said Ventura Securities with a 'subscribe' rating on the issue.

Krystal Integrated Services has reserved 50 per cent of the offer for qualified institutional investors (QIBs), while non-institutional investors (NIIs) will have 15 per cent of shares reserved for them. Retail investors will have 35 per cent of the net issue reserved for them.

Inga Ventures is the sole book running lead manager of the Krystal Integrated Services IPO, while Link Intime India is the registrar for the issue. Shares of the company shall be listed at both BSE and NSE with March 21, Thursday as the tentative date of listing on the bourses.