PKH Ventures IPO to open today: Should you subscribe or avoid the issue?

The Rs 379.35 crore-initial public offering (IPO) of PKH Ventures kicks off for subscription on Friday, June 30. The fixed construction and development solutions provider will sell its shares in the range of Rs 140-148 apiece, with a lot size of 100 equity shares until July 4.

The issue includes issuance of 1,82,58,400 fresh equity shares amounting to 270.22 crore, while an offer-for-sale (OFS) of up to 73,73,600 equity shares amounting to Rs 109.13 crore by its promoter Pravin Kumar Agarwal, the sole selling shareholder.

The net proceeds from the fresh equity shares would be utilized towards investment by way of equity in its subsidiary, Halaipani Hydro Project; investment in Garuda Construction project; funding long-term working capital requirements; acquisitions and other strategic initiatives; and funding expenditures towards general corporate purposes.

Incorporated in 2000, PKH Ventures is engaged in the business of construction and development, hospitality, and management services. PKH Ventures executes civil construction works for third party developer projects through its Subsidiary and construction arm, Garuda Construction.

Its hospitality vertical is in the business of owning, managing, and operating hotels, restaurants, QSRs, spas, and the sale of food products. The company is also proposing to develop several projects, which include real estate development, an agro-processing cluster, cold storage park/facilities, and a wellness center and resort.

For the nine-months ended on December 31, 2022, the company reported a net profit of Rs 28.64 crore with a total revenue at Rs 155.03 crore. The company clocked a net profit at Rs 40.52 crore with a total revenue at Rs 245.41 crore for the financial year ended on March 31, 2022.

The company has reserved 50 per cent of the offer for qualified institutional buyers (QIBs), while non-institutional investors (NIIs) will get the remaining 15 per cent of the issue. Retail investors will get the remaining 35 per cent for the portion of the issue.

IDBI Capital Markets and Securities is the sole book-running lead manager to the issue, while Link Intime India has been appointed as the registrar for the issue. Shares of PKH Ventures will be listed on both BSE and NSE on July 12, 2023.

Analysts tracking the stock remain mixed on the issue. A few brokerage firms have suggested to bid for the issue citing diversified business model and operations in growing sectors. However, others have suggested to avoid the issue citing lack of clear focus and rich valuations. Here's what a host of brokerages said about the issue:

Stoxbox
Rating: Avoid
PKH Venture’s diversification into new areas for the construction and development vertical will increase their financial and technical ability, making them eligible to bid for larger future projects and to effectively leverage their experience in the execution of such projects, said Stoxbox.

"The debt has increased significantly to Rs 74.8 crore for the nine months ended 31 December 2022 compared to Rs 48.6 crore posted in FY22, whereas the revenue has shown a degrowth in the last three years. On the upper end of the price band, the issue will be valued at 24.8 times of annualized FY23 earnings which we believe is richly valued," it said with an avoid rating.

Reliance Securities
Rating: Subscribe
On FY22 financials, the IPO is valued at 30x P/E, 24.5x EV/EBITDA and 6.5x EV/Sales, at the upper price band. The company is poised for growth in the coming years led by multiple projects in the pipeline, said Reliance Securities with a 'subscribe' rating considering the healthy business prospects, decent financials, expertise in the hospitality vertical, synergies led by acquisition.

"The company has been awarded with three government hotel development projects, while subsidiary Garuda Construction is currently engaged in the civil construction of six residential projects. PKH is also undertaking several forthcoming development projects," it added.

Hensex Securities
Rating: Subscribe for long-term
The company managed restaurants, bars, food stalls, lounges, parking spaces, ticket counters, etc at the airports. In a span of 18 years the company managed more than 15 airports in India. The company has constructed more than 15 lakh square feet in various private and government projects making construction and development vertical as the main growth engine, said Hensex Securities.

"According to the company's objects of the issue, the company plans to infuse Rs. 124.12 crore into their new hydro power project, where it has no prior experience of developing and operating a hydro power project.  The company has experienced negative cash flows in the past, this may adversely affect their cash flow requirements," it said.

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