Garuda Construction and Engineering IPO Review: Apply or Not?

Garuda Construction and Engineering is set to launch its IPO from October 8, 2024, to October 10, 2024. The company is involved in civil construction projects across residential, commercial, and infrastructure sectors. With a strong presence in the Mumbai Metropolitan Region (MMR), the company has completed a series of notable projects, including hospitality and residential buildings. Let’s take a closer look at the IPO details, company strengths, and whether investors should consider applying.

Garuda Construction and Engineering IPO Details:

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About Garuda Construction and Engineering

Founded in 2010, Garuda Construction and Engineering primarily focuses on civil construction projects for residential, commercial, and infrastructure sectors. The company has developed its business mainly as an in-house construction arm for group-related entities, but it is gradually expanding into third-party contracts.

Business Overview:

• Sector Focus: Residential, commercial, infrastructure, industrial, and hospitality projects.
• Key Strengths: Proven project management, a large order book, and an experienced management team.

Key Projects: The company has completed notable projects like Golden Chariot Vasai Hotel & Spa and multiple residential projects in MMR.

Financial Performance

Garuda Construction and Engineering has demonstrated solid financial growth in recent years. Here’s an overview of its financials:

While the company has shown steady revenue and profit growth, it has faced challenges with negative cash flows in the past, which is a concern for potential investors.

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Strengths:

1. Large Order Book: As of September 28, 2024, Garuda has an order book worth ₹1,408.27 crore, providing strong visibility for future revenue growth.
2. Proven Track Record: The company has successfully completed projects worth over ₹546 crore, showcasing its experience and project management skills.
3. Focused Business Approach: With a specialization in civil construction, the company has built a reputation for delivering high-quality projects.
4. Experienced Management Team: Led by Pravin Kumar Brijendra Kumar Agrawal, the company’s management has years of experience in construction and infrastructure sectors.

Risks:

1. Reliance on Group Entities: A significant portion of the company’s revenue comes from contracts with its promoter group and related entities. In FY2024, over 44.82% of the revenue was linked to these group companies, which could limit long-term growth if it fails to expand its third-party client base.
2. Legal Proceedings: The company and its promoter face multiple legal challenges, including a pending criminal case against Pravin Kumar Brijendra Kumar Agrawal. Any adverse judgment could affect the company’s reputation and operations.
3. Cyclical Industry: The construction sector is highly sensitive to economic cycles. Any downturn in real estate or infrastructure could negatively impact the company’s business.
4. High Trade Receivables: The company’s trade receivables are higher than its reported revenue, raising concerns about its ability to collect payments and maintain liquidity.
5. Withdrawn IPO by Group Company: PKH Ventures, a related group company, attempted to launch an IPO in 2023 but had to withdraw it due to poor subscription. This raises concerns about investor sentiment toward the group’s financial prospects.

Key Performance Indicators:

• Order Book: ₹1,408.27 crore
• Revenue Dependency on Top Customers: Top 10 customers contributed 43.47% of revenue in FY2024, highlighting a concentration risk.
• Profit Margins: The company has maintained a healthy profit margin but faces challenges related to cash flow management.

Objects of the IPO:

The proceeds from the IPO will be used for:

1. Working Capital Requirements: A portion of the funds will be allocated to manage the company’s ongoing projects.
2. General Corporate Expenses and Acquisitions: The company plans to use the funds for general corporate purposes and potential future acquisitions, although no specific targets have been identified.

Garuda Construction and Engineering IPO Review: Apply or Not?

Investment Verdict: [Avoid]

According to market analysts like Dilip Davda, Garuda Construction and Engineering presents a “High Risk/Low Return” investment opportunity. While the company has a sizable order book and a solid presence in the construction industry, several risks make this IPO unattractive for risk-averse investors:

1. Aggressive Pricing: The IPO is priced aggressively, with limited immediate upside.
2. Inconsistent Financials: Although revenue and profit figures are improving, the company’s cash flow management remains a concern.
3. Legal Issues and Group Dependence: Ongoing legal proceedings and the company’s reliance on group entities for business limit its long-term growth potential.

Given the cyclical nature of the construction industry, its aggressive valuation, and potential legal and financial challenges, it may be wise for investors to skip this IPO and wait for more stable opportunities.

Garuda Construction and Engineering IPO Registrar:

• Registrar: Link Intime India Private Ltd
• Phone: +91-22-4918 6270
• Email: garudaconstructions.ipo@linkintime.co.in
• Website: Link Intime IPO Status