Krystal Integrated Services coming with IPO to raise upto Rs 309.13 crore

Krystal Integrated Services 

• Krystal Integrated Services is coming out with a 100% book building; initial public offering (IPO) of 43,23,529 shares of Rs 10 each in a price band Rs 680-715 per equity share. 
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on March 14, 2024 and will close on March 18, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 68 times of its face value on the lower side and 71.50 times on the higher side.
• Book running lead manager to the issue is Inga Ventures.
• Compliance Officer for the issue is Stuti Maru. 

Profile of the company

The company is one of India’s leading integrated facilities management services companies, with a focus on healthcare, education, public administration (state government entities, municipal bodies and other government offices), airports, railways and metro infrastructure, and retail sectors. It provides a comprehensive range of integrated facility management service offerings across multiple sectors, and consequently are among select companies in India that have a wide geographic presence and customer base, catering to almost all end-user segments, as on March 31, 2023. Its range of service offerings include soft services such as housekeeping, sanitation, landscaping and gardening, hard services such as mechanical, electrical and plumbing services, solid, liquid and biomedical waste management, pest control and façade cleaning and other services such as production support, warehouse management and airport management services (including multi-level parking and airport traffic management). It also provides staffing solutions and payroll management to its customers, as well as private security and manned guarding services and catering services.

The company’s strengths in the market include its ability to provide bespoke solutions for integrated facility management requirements, sourcing from OEMs at competitive prices due to excellent long-term relations, best-in-class products, and adoption of smart technology. It provides services to key government customers in the healthcare, education, airport, railways and metro infrastructure sectors, including to Maha Mumbai Metro Operation Corporation and Education Department, Brihanmumbai Municipal Corporation. It has also built expertise in catering to the healthcare, education, airport, railways and metro infrastructure sectors, due to its extensive experience, understanding the unique requirements and challenges in such sectors.

Proceed is being used for:

• Repayment/prepayment, in full or part, of certain borrowings availed of by the company.
• Funding working capital requirements of the company;
• Funding capital expenditure for purchase of new machinery.
• General corporate purposes.

Industry overview

Strong macroeconomic growth fundamentals are contributing to a steady growth in the Integrated Facility Management Market in India. In the past decade the market has witnessed solid growth except for the COVID-19 pandemic; increasing investments in Services and Manufacturing sector is expected to drive the growth momentum over the next five years. Higher FDI over the past decade, driven by liberal economic policies in India has created opportunities for private sector. Since then, the business prospects have bourgeoned in industries ranging from banking and aviation to pharmaceuticals and IT, and India has attracted large multinational companies with its business-friendly climate. The IT and ITeS sector have experienced a boom in business opportunities, which has prompted the sector to invest in construction activities to grow the stock of buildings. Additionally, the rise of organised retail developments in India have also contributed to the built environment, thereby driving the demand for Facility Management services. Real estate in India is one of the fastest growing industries with a record 68.0% year-on-year growth in CY2022 after the COVID-19 impacted market growth in CY2020 and CY2021. Renewed investment interest among non-resident Indian (NRIs) and millennials in Indian real estate is a driving factor for the future growth. Private equity investments in real estate sector from January to July 2022 stood at USD3.3 billion. Demand for office and commercial space in Tier 1 and Tier 2 cities are the future growth hot spots and this is expected to drive the demand for Facility Management services in Tier 2 cities in the long-term.

Outsourcing of Facility Management Services is becoming a well-accepted concept in both the Commercial and the Residential segment. Within the Residential segment, high-rise residential complexes and premium villas/ homes in urban areas are more inclined to outsourcing. Recently, the market has witnessed increase in outsourcing of Facility Management from the government segment. The government sector has grown at a CAGR of 10.4% during FY2018 – FY2023, higher than the 6.0% recorded by the private sector during the same period. With the increasing choice of outsourcing for safe, clean, secure, and sustainable built environment, the demand for Facility Management Services have been increasing. The market in FY2023 recorded a growth rate of 26.6% from FY2022. The market witnessed a degrowth of 26.4% in FY2021 due to the global pandemic and recovered in the second half of FY2022. Integrated services models, which combine many or all of the office/building's Facility Management Services under one contract and management team, are replacing single service contract models in the market. This shift is driven by improved building performance while streamlining communication and making day-to-day operations simpler to manage.

Pros and strengths

Comprehensive range of service offerings providing one-stop solution to customers: The company provides a comprehensive range of integrated facility management service offerings across multiple sectors, and consequently are among select companies in India that have a wide geographic presence and customer base, catering to almost all end-user segments, as on March 31, 2023. The company’s wide portfolio of services enables it to deliver a mix of its service offerings and design a range of customized solutions suited to the specific needs of its customers, which bolsters its customer acquisition and retention capabilities. Additionally, as its customers’ requirements grow or change, it is able to provide additional services to cater to their needs. Under its integrated facilities management offerings, it provide soft services such as housekeeping, sanitation, landscaping and gardening, hard services such as mechanical, electrical and plumbing services, solid, liquid and biomedical waste management, pest control, façade cleaning and other services such as production support, warehouse management and airport management services (including multi-level parking and airport traffic management). It also provides private security and manned guarding services to its customers, as well as staffing solutions and payroll management and catering services.

Focused business model which is well-positioned to capture favourable industry dynamics: The company has a track record of executing large contracts and are among select companies in India to qualify for and service large, multi-location government projects. Recently, the integrated facility management services market in India has witnessed increase in outsourcing of facility management from government segment. The government sector is prioritizing quality and service delivery for their clients and in order to achieve higher customer satisfaction, the sector is seeking out professional companies for Facilities Management. It has also built expertise in catering to the healthcare, education, airport, railways and metro infrastructure sectors. As on September 30, 2023, it provided its services to 135 hospitals and medical colleges, 228 schools and colleges (other than medical colleges), one airport, four railway stations and 30 metro stations, along with catering services on certain trains/ train routes. 

Longstanding relationship with customers across diverse sectors, with recurring business: The company’s ability to maintain quality standards while consistently expanding its service offerings to meet evolving industry requirements has resulted in longstanding relationships with its key customers. Four of its top 10 customers, based on revenue generated in Fiscal 2023, have been associated with it for longer than 10 years. During Fiscals 2021, 2022 and 2023 and six months ended September 30, 2023, other than government contracts which are awarded through competitive bidding process, all relevant customers whose contracts were expiring during the respective financial year, either renewed or extended their contracts with it. The company’s effort to develop a consultative, long-term partnership model of service delivery has enabled it to not only effectively capitalize on such customers’ increasing service requirements, but also increase its market share and reduce the revenue and earnings uncertainty associated with the short-term nature of most of its contracts with nongovernment customers. 

Wide geographic presence with large and efficient workforce: The company’s wide geographic presence enables it to recruit, train and deploy resources at various customer locations within a short span of time and enables it to respond to changing customer requirements, efficiently and effectively. This presence also allows it to monitor the work of its employees at various customer locations and to administer to the needs of its employees quickly and in a manner relevant to them, keeping local requirements in mind. Its personnel recruitment and training initiatives drive quality assurance, and ensure that it deliver uniform satisfactory services to its customers across locations. It has a strong track record of high employee satisfaction and improving retention rates.

Risks and concerns

Highly dependent upon limited number of customers: The company is significantly dependent on certain key customers for a significant portion of its revenue. The loss of any one of its key customers, including its top customer, for any reason (including, due to loss of contracts, unsuccessful tender bid for government contracts, or failure to negotiate acceptable terms in contract renewal negotiations, disputes with customers, adverse change in the financial condition of such customers, including due to possible bankruptcy or other financial hardship, merger or decline in their operations, reduced or delayed customer requirements, shutdowns, labour strikes or other work stoppages), could have an adverse effect on its business, results of operations and financial condition. While, the company is in the process of bidding for the tender for the subsequent period, there can be no assurance that it will be successful in its bid or be able to further extend the contract. While it strives to maintain good relations with its key customers, there is no assurance that its key customers will continue to avail its services in the future. There can be no assurance that it will not lose all or a portion of its business generated by these key customers, or that it will be able to offset any reduction of prices to these customers with reductions in its costs or by obtaining new customers.

Significant part of revenue generated from government contracts: A significant portion of the company’s business is dependent on government contracts. These contracts are typically awarded through a competitive bidding process and are typically valid for a term of three years, renewable for an additional year by mutual consent and terminable, with written consent, by either party. Its ability to bid for these contracts depends on it meeting the prescribed prequalification criteria or eligibility criteria which may vary depending on the nature of size of the contract. If the company is able to qualify for the bid on the specified parameters, it then competes with other interested bidders on, among other things, pricing, track record and experience. There can be no assurance that it would be able to successfully bid for such contracts, or at all. In addition, the bidding and selection process for any government contract is affected by a number of factors, including factors which may be beyond its control, such as market conditions or government budget allocations.

Dependent on vendors for supply of equipment and products: The company does not have any manufacturing facilities and procure its products and equipment, such as safety equipment, chemicals and consumables, from various vendors for the various services and solutions that it offers. It is therefore dependant on third parties for the manufacture of such products and equipment, and maintenance of adequate inventory to ensure that it is able to procure such products and equipment based on supply necessities. While it has not faced any instances of failures by vendors to meet their obligations in Fiscals 2021, 2022 and 2023 and the six months ended September 30, 2023, the operations of its vendors remain subject to various operating risks, including some which are beyond their control, which may include breakdowns and failure of equipment, industrial accidents, employee unrest, import duties, the outbreak of infectious diseases such as COVID-19, natural disasters, among others. It may face delays in procurement and added costs as a result of the time required to on-board new vendors to undertake manufacturing in accordance with its standard processes and quality control standards. 

Requires significant amounts of working capital: The company is required to incur certain upfront costs to be able to provide services to its customers from the beginning of the contracted period. These include costs towards manpower, materials, and machine required from the first day of commencement of such contract. The salary and employee-related statutory payments which are due on the day of completion of the deployed month, are also required to be paid. As it typically invoices its customers on a monthly basis, such cash outflows are borne upfront by it, prior to any receipt of payment from its customers. The invoices become due and payable only after accounting for the agreed credit period from the date of the invoice, as per the terms of the respective contracts, which is typically received within 100 days. Its business requires significant amount of working capital, primarily due to the time period that typically elapses between it incurring such upfront costs and receipt of payments from its customers. 

Outlook

Krystal Integrated Services is one of India’s leading integrated facilities management services companies. It offers a wide range of services such as housekeeping, sanitation, landscaping, gardening, mechanical, electrical and plumbing services, waste management, pest control, façade cleaning, and other services such as production support, warehouse management, and airport management. The wide range of its integrated facility management services segment allows it to provide a bundled solution of services to each customer, tailored to its specific needs and requirements, making it a one-stop integrated solution for customers. As on September 30, 2023, the company serviced customer locations in 16 states and two union territories in India. It has also set up 21 branch offices across India, as on September 30, 2023, to expand its geographical reach. Its wide geographic presence enables it to offer services to customers who prefer a single service provider for their operations at multiple locations. On the concern side, a significant portion of the company’s revenue from operations are derived from its services offered to customer locations in Maharashtra and Tamil Nadu. Any decrease in revenue from Tamil Nadu and Maharashtra, including due to increased competition or supply, or reduction in demand, or its inability to extend or renew subsisting contracts at commercially viable terms, may have an adverse effect on its business, cash flows, results of operation and financial condition. 

The company is coming out with an IPO of 43,23,529 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 680-715 per equity share. The aggregate size of the offer is around Rs 294.00 crore to Rs 309.13 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by Rs 1,561.08 million, or by 28.13%, from Rs 5,548.57 million in Financial Year ended March 31, 2022 to Rs 7,109.65 million in Financial Year ended March 31, 2023. Its restated profit from continued operations after taxes for the year increased by Rs 129.36 million, or by 62.09%, from Rs 208.35 million in Financial Year ended March 31, 2022 to Rs 337.71 million in Financial Year ended March 31, 2023. Meanwhile, the company intends to capitalize on the expected growth in the relevant markets owing to its track record and its ability to effectively undertake its services, by targeting not only its existing customers, but also new customers. It also aims to leverage its wide range of offerings and presence to offer bundled services to each customer across regions, thereby acting as a one-stop integrated solution for customers who consequently would not need to engage with multiple vendors or service providers, leading to increased wallet share from its customers.