Evaluating Ceigall India Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Ceigall India Ltd and present you with the exclusive IPO details.

About the Issue  

Ceigall India Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 5. The IPO price range is set between Rs 380 and Rs 401 per equity share, resulting in a total issue size of Rs 1,252.66 crore at the upper price band. The IPO is scheduled to commence on August 01, 2024, and will conclude on August 05, 2024. The market lot size for the IPO is 37 shares, with the option to apply for multiples of this lot. 

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Purchase of equipment

2. Repayment/ prepayment, in full or in part, of certain borrowings availed by the company and its subsidiary

3. General corporate purposes

Promoter holding  

Ramneek Sehgal, Ramneek Sehgal and Sons HUF and RS Family Trust are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 99.99 per cent in the company.

Company profile  

Ceigall India Ltd is an infrastructure construction company specialising in elevated roads, flyovers, bridges, railway overbridges, tunnels, highways, expressways, and runways. With over 20 years of industry experience, the company’s core business operations are broadly divided into EPC projects and hybrid annuity model (HAM) projects, spanning across ten states in India.

The company has completed over 34 projects in the roads and highways sector, including 16 EPC, one HAM, five O&M, and 12 Item Rate Projects. Currently, the company has 18 ongoing projects, comprising 13 EPC projects and five HAM projects.

As of June 30, 2024, the company’s order book amounted to Rs 9,471 crore, with projects awarded by NHAI contributing 80.31 per cent to the order book. Other public sector clients include Indian Railway Construction International Limited (IRCON), Military Engineer Services (MES), and Bihar State Road Development Corporation Limited (BSRDCL).

Financials  

According to a CARE Report, the company is one of the fastest-growing engineering, procurement, and construction (EPC) companies based on a three-year revenue CAGR as of Fiscal 2024, among firms with a turnover exceeding Rs 1,000 crore in Fiscal 2024. The company has consistently delivered robust growth over the past few years. In FY24, both revenue and net profit witnessed substantial year-on-year growth, with a notable 47 per cent surge in revenue and an outstanding 82 per cent growth in net profit compared to FY23.

Valuation and outlook  

The issue is priced with a P/BV ratio of 6.95 times, calculated using its Net Asset Value (NAV) of Rs 57.68 as of March 31, 2024. When we calculate the PE ratio for the company by considering the FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 21. Given the significant returns the company can deliver, its relatively modest higher valuation compared to its listed peers is justified. As a result, the company outperforms its peers in terms of both returns and valuation simultaneously.

Considering the sectoral optimism driven by the government's focus on infrastructure, as evidenced by the capital expenditure allocation in the recent budget, along with the company's current projects and growth potential, we recommend investors subscribe to the issue with a long-term perspective.