Falcon Technoprojects India coming with IPO to raise Rs 13.69 crore

Falcon Technoprojects India

• Falcon Technoprojects India is coming out with an initial public offering (IPO) of 14,88,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 92 per equity share. 
• The issue will open for subscription on June 19, 2024 and will close on June 21, 2024.
• The shares will be listed on NSE Emerge Platform.
• The share is priced at 9.20 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Kunvarji Finstock.
• Compliance Officer for the issue is Dipti Sharma.

Profile of the company

The company is engaged in the business of providing Mechanical, Electrical and Plumbing (MEP) services to its PAN India customers which are operating in various sectors including Petroleum Refineries, Residential Townships, Atomic Energy, Civil Construction, etc. MEP services refer to installation services that provide comfortable spaces for building occupants. These services specifically deal with the design, selection, and installation of the integrated Mechanical, Electrical, and Plumbing systems. It includes installing air-conditioning systems, power and lighting systems, water supply and drainage, fire prevention and fighting systems, and telephones. By integrating these separate systems into one, the operation can be made more energy effective. The design of MEPs is important for planning, decision-making, accurate documentation, performance and cost estimation, construction, and ultimately the facility’s operation and maintenance. MEP services specifically cover the in-depth design and selection of these systems, rather than simply installing the equipment.

Mechanical systems are those systems associated majorly with Firefighting and HVAC services. Under firefighting services, the Company provides a wide range of solutions like fire hydrant and wet riser system, Sprinkler System, water spray system, gas-based suppression system like CO2 system, etc. in the area of life & property safety in accordance with standards/regulations viz. NBC, TAC & NFPA. The company undertakes turn-key electrical projects and is principally engaged in executing and providing electrical engineering service for power, process, industrial and commercial projects both High Tension (HT) as well as Low Tension (LT) for the public and private sector undertakings. The company provides services of sanitary fixtures & fittings, internal drainage (above ground) system, external drainage (underground) system, rain water disposal system, water supply system, rainwater harvesting, plant & utilities etc. Its plumbing team provides solutions in saving water and energy conforming to Leadership in Energy and Environmental Design (LEED) and Indian Green Building Council (IGBC) norms.

Proceed is being used for:

• Working capital requirements 
• General corporate purposes

Industry overview

Indian market for MEP services is undergoing a transition. The major factors behind this is the emergence of complex construction projects across all segments of real estate, as well as changes in building codes resulting in mandatory installation of certain products and systems. The changing regulation in electrical voltage systems for different consumer classes (residential, commercial, and industrial) is a major feature that is reshaping the MEP industry. Moreover, the focus on Green Buildings is getting stronger and more and more projects (primarily in commercial real estate space) are vying to get the coveted green certification. This entails compliance with an entirely different set of codes and regulations, which in turn is opening up new opportunities for construction services including MEP services as well as HVAC services.

MEP services is a specialized type of service as it involves the integration of different system at different levels. An inefficient MEP system can prove to be a high-risk factor for the entire building’s system. As MEP providers have the required skill sets and knowledge to handle such operations, developers prefer to outsource these services to MEP specialists who are more capable of handling these activities. Further, with increasing adoption of MEP systems, the relationship between the MEP providers and buyers is shifting from a contractual / transactional basis to a long-term relationship basis which is more collaborative in nature.

The rapid growth of commercial infrastructure such as office buildings, retail spaces, hotels, healthcare facilities on the back of economic revival and increasing per capita income are driving the growth of the MEP segment. It is also supported by the increasing demand for energy-efficient and sustainable MEP services to meet environmental regulations and reduce operating costs. Moreover, the rising adoption of advanced technologies, such as BIM, building automation and smart systems etc., in commercial buildings is further boosting the demand for MEP services.

Pros and strengths

Project management and execution capability:  It has a proven track record of providing quality services that meet the diverse needs of its clients. It has completed contracts worth more than Rs 4,000 lakh in the last 3 Fiscals. It is constantly exploring and adopting latest ways to improve its processes and streamline its operations, in order to deliver greater value to its customers. Its execution team is highly skilled and operates in a professional manner, adhering to its internal quality policy to ensure that the projects are completed efficiently and within the specified timeframe. Its ongoing projects are managed by a team of engineers, technicians and other necessary professionals, along with additional support from third party contractors. It has developed and maintained a network of contractors in various states that helps it in executing work in respective areas to reduce on costs and time.

Managing diverse business operations amidst growing demand: The company’s focus and expertise in the MEP industry, is a strong blend that gives it an edge in the industry and provides it with a distinct advantage over its competitors who have MEP as one of their businesses. With a varied range of services, it is not dependent on a single revenue stream, thereby providing it with greater flexibility and adaptability during economic slowdowns for a particular industry. This advantage enables it to enjoy synergy benefits, a broader customer base, and helps it to mitigate risks in the event of industry setbacks.

Technology at the forefront of current and future business: The company has adopted and developed appropriate technology and the required upgradations that not only help it stay updated but also drive customer satisfaction and market competitiveness. It has a group Chief Operations Officer and an in-house operating team driving many initiatives such as building cloud-based ERP & digital maps and drawings in order to help optimize productivity and improve cost efficiencies as well as digital transformation.

Risks and concerns

Depend on few number of customers: The substantial portion of its revenues has been dependent upon few customers. For instance, its top five customers for F.Y. ended March 31, 2023, March 31, 2022 & March 31, 2021 accounted for 64.15%, 46.82% and 52.29% of its revenue from operations for the respective year. Its reliance on a selected group of customers for its business exposes it to risks, that may include, but are not limited to, reductions, delays or cancellation of orders from its significant customers, failure to negotiate favorable terms or the loss of these customers, all of which would have a material and adverse effect on the business, financial position and future prospects of its Company.

Significant amounts of working capital requirement: Its business requires significant amount of working capital primarily due to the fact that a significant amount of time passes between when it make payments to its vendors and personnel, and when it receives payments from its customers. Consequently, there could be situations where the total funds available to it may not be sufficient to fulfil its commitments, and hence it may need to incur additional indebtedness in the future, or utilize internal accruals to satisfy its working capital needs. If its cash resources are insufficient to satisfy its cash requirements, it may seek to issue additional equity or debt securities or obtain new or expanded credit facilities. As it pursues its growth plan, it expects that it will has to raise additional funds by incurring further indebtedness or issuing additional equity to meet its capital expenditures in the future. Its future success depends on its ability to continue to secure and successfully manage sufficient amounts of working capital.

Unable to collect dues and receivables from customers: Its business depends on its ability to successfully obtain payment from its customers of the amounts they owe it for work performed in accordance with the terms and conditions of the contract and the agreed payment schedule. Payments from customers may often be delayed for various reasons beyond its reasonable control and these irregular payment cycles may affect its working capital requirements and projections, and in turn may adversely affect its business, results of operations and financial condition. 

Outlook

Falcon Technoprojects India is engaged in the business of providing Mechanical, Electrical and Plumbing (MEP) services to PAN India customers. MEP services refer to installation services that provide comfortable spaces for building occupants. These services specifically deal with the design, selection, and installation of the integrated Mechanical, Electrical, and Plumbing systems. It includes installing air-conditioning systems, power and lighting systems, water supply and drainage, fire prevention and fighting systems, and telephones. On the concern side, 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 services. Failure to compete successfully against current or future competitors could have a material adverse effect on its business, results of operations and financial condition

The company is coming out with an IPO of 14,88,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 92 per equity share to mobilize Rs 13.69 crore. On performance front, its total income decreased by 27.66% from Rs 2,290.07 lakh in financial year ended March 31, 2022 to Rs 1,656.59 lakh in financial year ended March 31, 2023 primarily due to reduction in revenue from operations. Profit for the period increased to Rs 103.92 lakh for the financial year 2022-23 from Rs 102.76 lakh for the financial year 2021-22. Meanwhile, it seeks to grow its business through the acquisition of new customers across industries such as real estate, industrial construction, petroleum refineries, warehousing and public infrastructure such as airports, etc. its customer acquisitions are usually undertaken through two mechanisms being past track and technical business development. Past track is where its prospective customers check its past performance with existing customers. For example, the Department of Atomic Energy checks its past records and credibility with BPCL, L&T or HPCL.