IPO Analysis: PKH Ventures Ltd

IPO Rating: Apply for long term

About the issue:

Incorporated in 2000, PKH Ventures Limited is engaged in the business of Construction & Development, Hospitality, and Management Services. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 5 per equity share. The price band of the issue has been fixed at Rs 140 to Rs 148 per equity share. The issue size is Rs 379.00 crore at a higher price band.

The IPO opening date is June 30, 2023, and it will be closing on July 04, 2023. The issue is likely to be listed on the exchange on July 12, 2023. The IPO market lot size is 100 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (   728 shares or Rs 192,400) at the upper price band.

Objects of the Issue

The company proposes to utilize the Net Proceeds towards funding the following objects:

1. Investment by way of equity in our subsidiary, Halaipani Hydro Project Private Limited for the development of a Hydro Power Project (Civil Construction and Electromechanical Works),
2. Investment in Garuda Construction project, for funding long-term working capital requirements,
3. Acquisitions and other strategic initiatives; and
4. To fund expenditures towards general corporate purposes.

Promoter holding

The pre-issue shareholding is 100 per cent, post the IPO the promoter stake will be 68.84 per cent.

About the company:

PKH Ventures Ltd (PVL) is involved in the business of Construction & Development, Hospitality and Management Services. The company executes Civil Construction works for Third Party Developer projects and have been awarded two Government Projects including Hydro Power Project and Nagpur Project and three Government Hotel Development Projects including Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project, being executed through our Subsidiaries/SPVs/ our Company. Garuda Construction, the company's subsidiary, and construction arm, handles the Civil Construction business. The hospitality segment of the business owns, manages and operates hotels, restaurants, quick service restaurants, spas, and sells food goods.

In April 2021, PVL concluded the development of the Delhi Police Headquarters, which included the construction of twin seventeen-story towers with a complete glass façade and steel bridge connecting the two towers. The company plans to construct a real estate development in Amritsar, Punjab, a real estate redevelopment project in Dadar-Matunga, Mumbai, an agro processing cluster in Jalore, Rajasthan, a cold storage park/facilities in Indore, Madhya Pradesh, and a wellness centre and resort in Chiplun, Maharashtra.

PVL has also developed two hotels in Mumbai, Golden Chariot Vasai Hotel & Spa and Golden Chariot, The Boutique Hotel near Mumbai International Airport (Mumbai Hotels) and has been owning, managing and operating the Mumbai Hotels since FY15.

The company expanded its Hospitality operations into the restaurant space in Mumbai city by opening restaurants in the year 2013 under the brand name Golden Chariot and Balaji. The Restaurant Casablanca at Sahara Star, Mumbai commenced operations in the year 2017. The QSR business under the brand name Zebra Crossing, Hardy’s Burger and Mumbai Salsa were also launched in the year 2017. In November 2021, the company extended its Hospitality offering by undertaking the management and operations of Juvana Resort and Spa, a luxury resort at Aamby Valley, Lonavala developed by Golden Chariot Retreats and Infra Private Limited, its Group Company. The company has been awarded with three Government Hotel Development Projects namely, Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project in the State of Madhya Pradesh on DBFOT (Design-Build-Finance-Operate-Transfer) basis by way of a letter of award each dated November 4, 2022, from the Madhya Pradesh Tourism Board.

PVL ventured into the business of Civil Construction through, Garuda Construction, which is now its subsidiary since April 2, 2020. Garuda Construction provides end-to-end construction services for residential and commercial buildings. Its capabilities include constructing concrete building structures as well as composite steel structures. It also provides MEP and finishing works as a part of its construction services. Incorporated in 2010, Garuda Construction constructed the Golden Chariot Vasai Hotel & Spa in the year 2014 and refurbished Golden Chariot, The Boutique Hotel in the year 2015. In the year 2017, Garuda Construction started undertaking Civil Construction works contracts for Third Party Developers and Promoter Group for the development of residential buildings in the MMR. Garuda Construction is currently engaged in the Civil Construction of six residential projects for Third Party Developers and Promoter Group in the MMR.

As of March 15, 2023, the Garuda Construction’s third-party Developer Order Book was Rs 468.27 crore. It has been awarded two Government Projects including development of a 16 MW hydropower plant at Halaipani, Anjaw district in the State of Arunachal Pradesh and the development of 42.42 acres entertainment centre at Ambazari, Nagpur. The aggregate cost for developing Hydro Power Project and Nagpur Project is estimated at Rs 213.83 crore. Furthermore, the Company has also been awarded with three Government Hotel Development Projects namely for restoration and development of heritage hotel at Rajnagar Garhi fort located in Rajnagar, District Chhatarpur, Madhya Pradesh, Development of resort/ hotel/ water park in Pahadikhurd, District Tikamgarh, Madhya Pradesh and development of resort/ adventure and fixed tenting unit in Tara, District Panna, Madhya Pradesh Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project in the State of Madhya Pradesh on DBFOT basis by way of a letter of award each dated November 4, 2022, from the Madhya Pradesh Tourism Board. The planning for development of Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project is yet to be done. Hence, cost of development of these projects is not determined.

Financial

On the financial performance front, for the last three fiscals, PVL has (on a consolidated basis) posted a revenue/net profit of Rs 169 crore /Rs 14.09 crore (FY20), Rs 264.66 crore/Rs 30.57 crore (FY21), and Rs 245.41 crore/Rs 40.52 crore (FY22).

By virtue of the aforesaid acquisitions, construction & development has become one of the primary business segments of the company and the financial result of both the subsidiaries companies were consolidated in FY21. The Restated Financial Statements for Financial Years 2020 do not include financial data on the Construction & Development segment and only presents the financial data for its Hospitality and Management Services business. Accordingly, the financial result of the company for the Financial Year ended 2020 is not comparable to Financial 2021 and 2022.

Valuation and Outlook

If we annualize 9MFY23 earnings to post-IPO fully diluted paid-up capital, then the asking price is at a P/E of around 31.88x. The issue is priced at a P/BV of 2.66x based on its NAV of Rs. 55.63 per share as of December 31, 2022., and at a P/BV of 1.94 based on its post-IPO NAV of Rs. 76.14 per share (at the upper cap). If we compared to the listed peers in the construction industry, the issue is aggressively priced.

The company has a well-diversified business consisting of construction & development, hospitality, and management services. Furthermore, the company’s construction arm has a healthy orderbook. PAT margins have improved on YoY basis because of changing business mix. It was at 11 per cent in FY21, 16.51 per cent in FY22 and 18.47 per cent in 9MFY23. Looking at all these, we recommend to subscribe the issue for long term.