Udayshivakumar Infra coming with an IPO to raise upto Rs 70 crore

Udayshivakumar Infra

• Udayshivakumar Infra is coming out with a 100% book building; initial public offering (IPO) of 2,00,00,000 shares of Rs 10 each in a price band Rs 33-35 per equity share.
  
• Not less than 10% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 30% of the issue will be available for the non-institutional bidders and the remaining 60% for the retail investors.
  
• The issue will open for subscription on March 20, 2023 and will close on March 23, 2023.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 10 and is priced 3.3 times of its face value on the lower side and 3.5 times on the higher side.
  
• Book running lead manager to the issue is Saffron Capital Advisors.
  
• Compliance Officer for the issue is Sanjeevani Shivaji Redekar.
  

Profile of the company

The company is a ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 company engaged in the business of construction of roads including National Highways, State Highways, District Roads, Smart Roads under PM’s Smart City Mission projects, Smart Roads under Municipal Corporations, Bruhat Bengaluru Mahanagara Palike (BBMP) and Local Area Roads in various Taluka Places etc., in the State of Karnataka, Constructions of Bridges across Major and Minor Rivers, Railway Over Bridges (ROB), construction of Major and Minor Irrigation and canal projects, Industrial Areas, based in the State of Karnataka.

The company bid for Roads, Bridges, Irrigation & Canals, Industrial Area construction in the State of Karnataka including Government Departments such as Karnataka Public Works Ports & Inland Water Transport Department (KPWP & IWTD), National Highways (MORTH), Belgaum Smart City and Davangere Smart City, Bruhat Bengaluru Mahanagara Palike (BBMP), Various Municipal City Corporations, State Highway Development Corporations, (SHDP), Karnataka Road Development Corporation, (KRDCL), Karnataka Industrial Area Development Board (KIADB), Davanagere Harihara Urban Development Authority (DHUDA), Krishna Bhagya Jala Nigam (KBJNL), Visvesvaraya Jala Nigam (VJNL), Carvery Niravari Nigam (CNNL), Karnataka Niravari (KNNL), Youth Empowerment & Sports Department, in the State of Karnataka.

The company has over the years developed an established road under BOQ and EPC business and has gradually added facilities to support and supplement its road and irrigation construction business. As part of its in-house integrated model, it has developed in house resources with key competencies to deliver a project from conceptualization to completion that includes its design and engineering team.

Proceed is being used for:

• Funding incremental working capital requirements of the Company.
  
• General corporate purposes.
  

Industry overview

Developing and modernising the infrastructure sector has been a priority area for the Government of India and has witnessed increasing public investments and budgetary support. Further, the government has also undertaken several reforms and initiatives in the infrastructure sector which has resulted in robust secular growth in most of the segments within the sector. The growth in capex for fiscal 2023 is in continuing momentum from FY2022 where despite challenges due to coronavirus variant, the sector showed an estimated rise of 35-40% on a low base in FY21. In FY22 the sector returned to normalcy and challenges faced during the lockdown. Growth in FY23 is attributable to rise in state and central government expenditures in various sectors such as roads, railways, urban infra, water supply and sanitation etc

India has the second-largest road network in the world, spanning 6.372 million km as of fiscal 2022. Road transportation, the most frequently used mode of transportation in India, accounts for about 86% of passenger traffic and close to 64% of freight traffic as of fiscal 2022. Although Indian national highways span nearly 140,995 km, constituting just 2% of road length, they accounted for about 40% of total road traffic in fiscal 2022. The secondary system of roads comprises of state roads and major district roads, which accounted for the remaining 60% of traffic and 98% of road length. Funding constraints and financial stress have thwarted the pace of development in the roads sector. The PPP model for road construction and development acted as a catalyst and provided an impetus to the sector’s growth. In fiscal 2008-12, of the total 10,600 km of national highways completed under the National Highways Development Programme, 50% was funded through the BOT (build-operate-transfer)-toll model and 10% through the BOT annuity model. The rise of PPP in the road sector has also had some adverse effects. Period of 2007 to 2011 was considered to be the golden age for PPP in the road sector, wherein the road developers bid aggressively to bag more BOT-toll projects.

Pros and strengths

Focused on Roads, Flyovers and Bridge construction: As on December 31, 2022, the company along with the erstwhile partnership firm, Udayshivakumar, have executed various projects in the State of Karnataka. Since Fiscal 2015, the company along with the erstwhile partnership firm, Udayshivakumar, have completed 30 projects having an aggregate contract value of Rs 68,468 lakh, which includes sixteen (16) roads, five (5) bridges, six (6) irrigation and three (3) civil construction works. Most of its projects have been executed in the State of Karnataka. Its focused approach over the years on the construction of roads, bridges, irrigation projects has enabled the company to bid for various projects involving construction of road, bridges, irrigation projects. In addition to the construction of roads, bridges and irrigation projects the Company has also established in-house design and engineering team. The design and engineering team of the Company enables it to undertake turnkey contracts which include design, engineering, procurement and construction.

Strong Order Book of roads, bridges, flyovers and irrigation projects from Karnataka state government: The company’s primary focus on roads, bridges, flyovers and irrigation projects has helped it in gaining technical expertise for undertaking such projects of different sizes involving varying degree of complexities establishing modern fleet of construction machinery, equipment and skilled manpower. As on December 31, 2022, the Company is executing thirty (30) ongoing projects which include ten (10) roads, seven (7) smart roads, one (1) bridge, eight (8) irrigation projects, three (3) civil construction works and one (1) toll plaza with an aggregate order book value of Rs 85,387.75 lakh. Further, as on December 31, 2022, it also has new work orders allotted (but work not yet started) comprising of fourteen (14) roads, one (1) toll plaza and one (1) irrigation works with an aggregate order book value of Rs 43,650.98 lakh. As on December 31, 2022 on an aggregate basis, it has 46 works orders in hand having aggregate order book value of Rs 1,29,038.73 lakh.

Strong execution capabilities with industry experience: The company’s focus is to leverage its strong project management and execution capabilities to complete projects in a timely manner while maintaining high quality of engineering and construction. The company has the three important ingredients required by any infrastructure company i.e., an in-house design and engineering team, a fleet of modern construction machinery and equipment to ensure high quality construction and skilled manpower to execute projects in a timely manner. Its in-house engineering and design team of 27 engineers have the necessary skills and expertise in preparing detailed architectural and /or structural designs based on the conceptual requirements of its clients. Its in-house engineering and design team reduces its dependence on outsourcing engineering and design work to third party consultant and are supported by the third party consultants in EPC contracts.

Experienced management team: The company’s management team is well qualified and experienced in the Roads, Bridge and Irrigation projects construction and has been responsible for the growth of its business and operations. Its Promoter has more than 25 years of experience, individually in the infrastructure development sector and has been instrumental in driving its growth since inception of its business. Its motivated team of management and key managerial personnel along with its internal systems and processes complement each other to enable it deliver high levels of client satisfaction.

Risks and concerns

Concentration of business in Karnataka exposes to various risks: The concentration of the company’s business in the state of Karnataka exposes it to various risks, including but not limited to, regional slowdown in construction activities or reduction in infrastructure projects; vulnerability to change in laws, policies and regulations of the political and economic environment; perception by its potential customers that it is a regional construction company which hampers it from competing for large and complex projects at the national level; and limitation on its ability to implement the strategy to cluster projects in the states where it intends to conduct business. Furthermore, existing and potential competitors to its businesses in these states may increase their focus on these states, which could reduce its market share. The concentration of its operations heightens its exposure to adverse developments related to competition, as well as economic, political, demographic and other changes, which may adversely affect its business prospects, financial conditions and results of operations.

Derive significant portion of revenues from limited number of clients: Larger contracts from few customers may represent a larger part of the company’s portfolio, increasing the potential volatility of its results and exposure to individual contract risks. It may be vulnerable to accepting onerous contractual terms with regard to change in scope of work or inclusion of additional work within the scope of an existing contract. While such instances have not occurred in the past, however such concentration of its business on a few projects or clients may have an adverse effect on its results of operations and result in a significant reduction in the award of contracts which could also adversely affect its business if it does not achieve its expected margins or suffer losses on one or more of these large contracts, from such clients. It cannot assure that it can maintain the historical levels of project orders from these clients or that it will be able to find new clients in case it lose any of them.

Required to furnish bank guarantees as part of business: As part of the company’s business and as is customary, it is required to provide financial and performance bank guarantees in favour of its project clients under the respective contracts for its projects. For its projects, it typically issue bank guarantees to the relevant authority with whom the contractual arrangement has been entered into. These guarantees are typically required to be furnished within a few days of the signing of a contract and remain valid up to around sixty days after the defect liability period prescribed in that contract. It may not be able to continue obtaining new financial and performance bank guarantees in sufficient quantities to match its business requirements. If it is unable to provide sufficient collateral to secure the financial bank guarantees, performance bank guarantees or letters of credit, its ability to enter into new contracts or obtain adequate supplies could be limited and could have a material adverse effect on its business, results of operations and financial condition.

Operate in a competitive industry: The infrastructure sector, including for BOQ and EPC contracts, is competitive and highly fragmented. The company competes against various domestic engineering, construction and infrastructure companies for infrastructure projects. Some of its competitors may have larger financial resources or access to lower cost funds, or may have stronger engineering or technical capabilities in executing complex projects, or projects with certain specifications or in certain geographies. They may also benefit from greater economies of scale and operating efficiencies. Further, the premium placed on having experience may cause some of the new entrants to accept lower margins in order to be awarded a contract. The nature of the bidding process may cause it and its competitors to accept lower margins in order to be awarded the contract. In certain instances, certain competitors may choose to under-bid, which may adversely impact its market share, margins, revenues and financial condition.

Outlook

Udayshivakumar Infra is an ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 company. The company 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 the State of Karnataka. They bid for Roads, Bridges, Irrigation & Canals Industrial Area construction in Karnataka, this includes National Highways (MORTH), State Highway Development Corporations Ltd., (SHDP), Government Departments such as Karnataka Public Works Ports & Inland Water Transport Department (KPWP & IWTD), Davanagere Harihara Urban Development Authority (DHUDA), and many more. On the concern side, the company requires certain statutory and regulatory permits, approvals, licenses, registrations and permissions for its business and operations. Besides, its business requires a significant amount of working capital which is based on certain assumptions, and accordingly, any change of such assumptions would result in changes to its working capital requirements.

The company is coming out with an IPO of 2,00,00,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 33-35 per equity share. The aggregate size of the offer is around Rs 66 crore to Rs 70 crore based on lower and upper price band respectively. On performance front, the company’s total revenue decreased by Rs 2,472.01 lakh or 11.71% to Rs 18,638.81 lakh in March 31, 2022 from Rs 21,110.82 lakh in March 31, 2021. The company’s profit for the year increased by Rs 282.89 lakh or 30.36%, from Rs 931.92 lakh (comprising 4.41% of total income) in March 31, 2021 to Rs 1,214.81 lakh (comprising 6.52% of its total income) in March 31, 2022. Meanwhile, the company intends to capitalize on its experience and continue to selectively pursue larger roads, bridges and irrigation projects, both independently and in partnership with other players. It intends to continue its focus on efficient project execution by adopting industry best practices and advanced technologies to deliver quality projects to the satisfaction of its clients.