Bondada Engineering coming with an IPO to raise Rs 42.72 crore

Bondada Engineering

• Bondada Engineering is coming out with an initial public offering (IPO) of 56,96,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 75 per equity share.
• The issue will open for subscription on August 18, 2023 and will close on August 22, 2023.
• The shares will be listed on BSE SME.
• The share is priced 7.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Vivro Financial Services.
• Compliance Officer for the issue is Sonia Bidlan. 

Profile of the company

The company is an ISO 9001:2015 certified integrated infrastructure company engaged in the business of providing engineering, procurement and construction (EPC) services and operations and maintenance (O&M) services to its pan India customers operating in telecom and solar energy industry. Its expertise lies in providing core design and engineering services and O&M services in infrastructure space with proven multiple projects execution track record with its knowledge-based approach and an experienced team of many employees. It provides passive telecom infrastructure services which include turnkey services for cell site construction, erection, operation and maintenance of telecom towers with civil, electrical and mechanical works; supply of poles and towers, laying and maintenance of optical fiber cables, supply of power equipment and other telecom infrastructure related services to major telecom companies and telecom tower operators in India. 

It also provides O&M services to telecom and tower operating companies such as cell site maintenance with preventive and corrective maintenance of passive infrastructure and equipment’s, backup power systems, manning services and supply of riggers, surveillance, and corrective maintenance of optical fiber cable routes and other maintenance related facilities. Its tower manufacturing facility located at Medchal District, Telangana, for tower fabrication has been the backbone for its Telecom Tower EPC business.

Proceed is being used for: 

• Meeting long-term working capital requirements
• General corporate purposes

Industry overview

India has the second largest (in terms of subscriber base) and one of the fastest growing telecom markets in the world. The magnitude of the subscriber base can be gleaned by the net subscriber addition monthly. Between October and November of 2022 Indian mobile industry added nearly 24 million subscribers, taking the overall subscriber base to over one billion. Besides having the second largest subscriber base, the telecom industry also plays a crucial part in driving the economic growth. In India, the sector contributes to nearly 6% of the Gross Domestic Product (GDP). It is playing a vital role in India’s digital transformation.

The rapid growth in subscriber base – which zoomed from less than 40 million to nearly 1.2 billion in two decades - has necessitated an equally strong growth in telecom towers. The total telecom tower base in India stood at nearly 754,000 while the number of Base Transceiver Station (BTS)6 was nearly 2.3 million. Ground based mast & tower dominates the Indian telecom tower sector, accounting for nearly 60% of total installed tower base. Roof top pole & tower is the second largest segment, accounting for nearly 30% of the total. Remaining 10% is made up of cell on wheels (COW), Low Power BTS (LPBTS) and wall mount towers. 

Telecom sector is the largest consumer of OFC, accounting for more than 40% of global OFC consumption. These include both communication service providers as well as network infrastructure vendors. Pan India 5G integration in the next two year, along with increasing data usage is likely to support growing demand for telecom infrastructure, ranging from telecom equipment including OFC. These two factors along with increasing penetration of FTTH and broadband have resulted in increasing deployment of OFC. Consequently, OFCs cable manufacturers scaled up their production to cater the surging demand of OFC.

Pros and strengths

Strong project management and execution capability:  It has worked on more than 11,600 telecom sites in 7 states in India. It has completed contracts worth more than Rs 51,510.32 lakh in the last 3 Fiscals in Telecom Tower EPC and Solar EPC segment. It is constantly looking for ways to improve its processes and streamline its operations, in order to deliver even greater value to its customers. Its execution teams are highly skilled and operate in a professional manner, adhering to its internal quality policy to ensure projects are completed efficiently and within the specified timeframe. Its ongoing projects are managed by a team of over 170 engineers and technicians, with additional support from third party contractors. It maintains a network of contractors in various states who assist it in executing work in their respective areas. Its focus is to leverage its strong project management and execution capabilities in order to complete its projects in a timely manner while maintaining high quality of work and profitability. As the majority of its revenues are from EPC projects, be it telecom or solar, it ensures that each project is executed in conformity with the work description provided in the contracts and adhere to the quality and standard as desired. 

Long term contracts for telecom and solar projects: Its senior management team’s extensive experience has been instrumental in developing and maintaining longstanding, cordial relationships with its clients. The management’s industry knowledge and expertise have enabled it to provide quality service that meet the specific needs of each client. By completing its projects in a timely manner and maintaining high standards of quality, it has earned the trust and confidence of its clients. Its commitment to timely and high-quality service has not only helped it deliver successful projects, but also enabled it to secure long-term contracts and repeat orders.

Managing diverse business operations amidst growing demand: The company’s unique combination of expertise in telecom and solar EPC, O&M, OFC networks services, construction services and manufacturing of telecom towers and construction products is a distinctive blend that sets it apart in the industry and provides it with a distinct advantage over its competitors. With a varied range of services and product offerings, it is not dependent on a single revenue stream, providing it with greater flexibility and adaptability during economic slowdowns for a particular industry.

Risks and concerns

Highly competitive: The industry in which it operates is highly competitive, cost conscious and is characterized by regular introductions of new and improved solutions and timely execution of projects. It expects competition to persist and intensify in the future as the industry in which it operates is constantly evolving and growing with new and existing competitors devoting considerable resources to introduce and enhance products and services. Accordingly, its ability to grow its business in accordance with its strategy will depend on its ability to respond to pricing strategies by competitors, continue to promote its brand, execute agreements with business partners and improve its execution capabilities. It face competition from various EPC and O&M contractors who operate in the telecom and solar energy sector.

Dependent on award of EPC and O&M contracts:  A substantial portion of its revenue is generated from EPC and O&M contracts, which are awarded to it from time to time. The timing of when a project will be awarded is unpredictable and outside of its control. It operates in highly competitive markets where it is difficult to predict whether and when it will receive the contracts, since these contracts and projects often involve complex and lengthy negotiations and bidding processes.

Working capital requirements: Its business requires working capital for (a) day-to-day operations; (b) submission of bank guarantees with contractee and customers; and (c) procurement of raw materials, amongst other purposes. In addition, largescale EPC and O&M projects and contracts may require it to incur substantial working capital costs before milestone payments are made to cover these costs to ensure that such projects and contracts are delivered and completed in a timely manner.

Outlook

Incorporated in 2012, Bondada Engineering is engaged in the business of providing engineering, procurement and construction (EPC) services and operations and maintenance (O&M) services to its pan India customers operating in telecom and solar energy industry. On the concern side, it operates in highly competitive markets where it is difficult to predict whether and when it will receive the contracts, since these contracts and projects often involve complex and lengthy negotiations and bidding processes. 

The company is coming out with an IPO of 56,96,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 75 per equity share to mobilize Rs 42.72 crore. On performance front, the company’s total income increased by 9.91% from Rs 33,420.96 lakh in financial year ended March 31, 2022 to Rs 37,095.77 lakh in financial year ended March 31, 2023. Profit after tax has increased from profit of Rs 1,013.53 lakh in the fiscal year ended March 31, 2022 to profit of Rs 1,825.19 lakh for period ended March 31, 2023. Going forward, it intends to deepen its relationship with its Telecom clients by providing cost effective O&M services to them, further leveraging its on-ground execution capabilities. It also intends to provide exclusive O&M services to Solar Independent Power Producers and Solar Capital Power Producers for their installed and upcoming plants, to maintain and augment the value they receive from their energy assets.