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Udayshivakumar Infra IPO: 5 Things to Know

Mar 17, 2023

Udayshivakumar Infra IPO: 5 Things to Know

During the annual budget speech for the financial year 2023-24, Finance Minister Nirmala Sitharaman announced that the government will increase infrastructure spending by 33% to Rs 10 trillion (tn) in the next financial year.

Ever since this announcement, Indian infrastructure stocks have remained in focus. One of the key aspects of economic growth is infrastructure development.

And when we talk about infrastructure development, it would be impossible not to mention road construction. Along with creating better travel and transport systems, road construction creates jobs, and income and gets a lot of money rolling in the economy.

Today, let's take a look at a road construction company which is coming out with its initial public offering (IPO) next week.

The IPO of Udayshivakumar Infra will go live on 20 March 2023.

Here are some key details about the road construction company's IPO.

Issue period: 20 March 2023 to 23 March 2023

Issue size: Rs 660 million

Type: Fresh issue

Price band: Rs 33 to Rs 35 per equity share

Bid lot: 428 shares and multiples thereof

Application limit: Minimum one lot maximum thirteen lot for retail investors

Face value: Rs 10 per equity share

The company has reserved not more than 10% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 30% for non-institutional buyers (HNI). Hence not less than 60% of shares are available for retail individual investors.

Tentative IPO allotment date: 28 March 2022

Tentative listing date: 03 April 2022

Here are five key details of the IPO.

#1 About the company

Udayshivakumar Infra constructs roads including state highways, district roads, smart roads under municipal corporations, smart roads under PM's smart city mission projects, national highways, Bruhat Bengaluru Mahanagara Palike (BBMP), and Local Area Roads in various Taluka Places, etc.

The company primarily operates in Karnataka. They bid for roads, bridges, irrigation canals, and industrial areas, construction in Karnataka.

As of 31 August 2022, the company had executed over 30 various projects in and around Karnataka along with the erstwhile partnership firm, M/s. Udayshivakumar. The entity is working on twenty-five ongoing projects.

#2 Financial position

The pace of construction of a national highway in India touched a record high of 37 kilometers (km) per day in 2020-21.

However, the pace came down to 28.6 km a day in 2021-22 due to Covid-19 pandemic-related disruptions and a longer-than-usual monsoon in some parts of the country. A clear impact of the same can be seen in the company's revenues. For the financial year 2021-22, its revenues decreased by 11.7%.

In the said financial year, its expenses were reduced, and profit margin increased despite slowing revenues.

Being involved in a capital-intensive industry, the company has a high expense ratio. For the financial year ended 2021-22, expenses formed 91.4% of the total income.

Financial snapshot (2020-2022)

Particulars 31-Mar-22 31-Mar-21 31-Mar-20
Revenues (Rs m) 1,863.8 2,111.1 1,944.1
Revenue Growth (%) -11.7% 8.6%  
Expenditure Before Tax 1,703.7 1,975.3 1,802.2
% of Total Income 91.4 93.6 92.7
Net Profit 121.5 93.2 104.9
Net Profit Margin (%) 6.5 4.4 5.4
Net Worth 683.2 561.8 468.7
Return on Net Worth (%) 17.8 16.6 22.4
Basic Earnings per share (Rs) 3.3 2.6 2.9
Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the company's red herring prospectus (RHP), Genesys International Corporation is its listed peer.

Peer Comparison

Company Total Income
(2022) (Rs m)
Net Profit EPS (Basic)
Return on
Net Worth (%)
Udayshivakumar Infra 1,856.3 121.5 3.3 17.8
KNR Constructions 36,058.2 3,664.0 13.6 14.3
PNC Infratech 72,080.4 5,804.0 22.6 16.0
HG Infra Engineering 37,514.3 3,800.0 58.3 26.5
IRB Infrastructure Developers 58,037.0 5,876.0 8.7 2.9
Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

  • The company has a strong order book. As of 31 December 2022, the company is executing 30 ongoing projects with an aggregate order book value of Rs 8,538.8 m.
  • It has strong execution capabilities with a decent industry experience. Since 2015, the company along with the erstwhile partnership firm, M/s. Udayshivakumar, have completed 30 projects having an aggregate contract value of Rs 6,846.8 m.

#5 Risk factors

  • The company's business is focused on Karnataka. It is primarily dependent on the projects undertaken or awarded in the state of Karnataka, by the Karnataka State Government, or other local authorities and municipal bodies..
  • The company is heavily depended on few customers for a majority of its revenues. For the financial year ended the company earned 64.4% from its top five customers.
  • Strong order book may not necessarily transform in big revenues. Order book comprises the estimated revenues from the unexecuted portions of all the ongoing projects i.e. the total contract value of such ongoing projects may vary depending upon the nature of contract.

To conclude

Infrastructure development is dependent on economic growth. According to the international monetary fund's world economic outlook update, growth in India is set to decline from 6.8% in 2022 to 6.1% in 2023 before picking up to 6.8% in 2024, with resilient domestic demand despite external headwinds.

The growth in infrastructure segment is not a short-term vision. Development is on its way, but it'll take a long time.

In these challenging times for the near term, will a relatively small company's IPO with a heavy concentration in one state, survive? Especially, considering the dull market sentiment.

First, the Adani-Hindenburg saga and now the SVB collapse have dampened investor sentiment in the market. In this scenario how will investors respond to this IPO? Only time will tell.

One thing is certain...the massive economic transformation currently underway in India will change the lives of 1.4 billion people.

Considering the fact that the Indian government wants to massively scale up road construction in the country, you could expect to see some projects being awarded to Udayshivakumar Infra.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

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