Karda Construction Limited IPO - Should you subscribe?

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March 2018 is going to be IPO month of 2018. After Bharat Dynamics Ltd and Bandhan Bank Ltd, Karda Construction Ltd is going to hit the primary market.  The issue is opening on the same day of Hindustan Aeronautics Ltd. 

 Incorporated in September, 2017 and promoted by Mr Naresh Karda, Nashik based company is in the construction industry for more than two decades. In the years following its inception, the Karda Group concentrated on developing affordable housing in the residential segment and from 2001 onwards, the group diversified into commercial segment.

The company is small and so its IPO. The issue is opening on March 16,2018 and closing on March 21, 2018. The tentative date of allotment and listing are  March 28, 2018 and March 30, 2018 respectively. The allotment status will be available on this link https://www.bigshareonline.com. The price set is Rs. 175 - Rs. 180 per share and minimum application lot is for 80 shares. The issue size is Rs. 70.40 Crore approx. 

It is a mix of Fresh Issue and offer for sale. Its promoter Mr Naresh Karda has put 20,00,000 shares for sale under this arrangement. The company shall not receive any proceeds of the offer for sale by its selling shareholder.

The company shall issue 23,00,000 fresh shares. The proceeds received shall be utilized for; (1)  Part repayment of its overdraft facilities (Rs 23 Crore); (2) Part repayment of its term loans (Rs 7 Crore); (3) General corporate purposes; (4) Issue related expenses

 The EPS for Fiscal 2017 was Rs. 8.03. At upper and lower price band (Rs. 175 - Rs. 185), PE ranges between 21.79 - 22.42. The industry highest PE is 205.6 (Shristi Infra Ltd) and lowest PE is 6.8 (IL & FS Eng). 

 The company's peers viz. Kolte - Patil Developers Limited trading at 43.13 PE, Prerna Infrabuild Ltd trading at 26.69 PE and Arihant Superstructure Ltd at 28.18 PE. The price set by the company seems reasonable.
The company's RoNW as on March 31, 2017 was 26.46%. Its peers Kolte - Patil, Prerna Infrabuild and Arihant had 4.25%, 5.51% and 29.01% respectively.

The company's total income and net profit after tax as restated were 43.29 Crore and 2.70 Crore for the year ended March 31, 2013, 59.07 Crore and 3.61 Crore for the year ended March 31, 2014, 46.53 Crore and  3.08 Crore for the year ended March 31, 2015, 105.93 Crore and 6.37 Crore for the year ended March 31, 2016 and 110.02 Crore and 8.03 Crore for the year ended March 31, 2017, showing a CAGR of 19.57 % in profit after tax. Further, its total income and net profit after tax for the period ended September 30, 2017 ended were 45.70 Crore and 5.52 Crore. 

Conclusion:

The company is very small. The object of the issue is not impressive. The company has not declared any dividend so far. The company is debt-laden and has its presence only in Nashik, Maharashtra. The company has been growing slowly and gradually and may grow further. But, the timing of IPO is wrong. The current IPO market is very bearish and sentiments are not naming to turn positive. Moreover, other bigwig IPOs have lined up and are already opened. Plenty of opportunities available both in primary and secondary market, so missing such small IPO is okay.

Thank you for reading...Jai Hind

CA Prashant Seta

(Note : I write review based on my knowledge and understanding. The reader of this article should do his/her own research before applying)

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