VL Infraprojects coming with IPO to raise Rs 18.52 crore

VL Infraprojects

• VL Infraprojects is coming out with initial public offering (IPO) of 44,10,000 shares in a price band Rs 39-42 per equity share.
• The issue will open on July 23, 2024 and will close on July 25, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 3.90 times of its face value on the lower side and 4.20 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Anjali Mukeshbhai Samani.

Profile of the company

The company is a Government Approved Contractor in ‘AA’ Class with the Government of Gujarat, Civil/Electrical Contractor License from Karnataka State Public Works department, Special class registration in Government of Telangana and contractor registration in Government of Madhya Pradesh. The company provides designing, construction, and commissioning of various types of government projects especially in water infrastructure and irrigation segment.

The company is engaged in executing water supply and sewerage infrastructure projects mainly involving the procurement of pipes and their laying, joining, and commissioning with backward integration including all allied civil engineering works like construction of civil work, pumping stations and installation of electro-mechanical equipment’s (pumping machinery) for distribution of water supply from the river to household. It also provides operations & maintenance services for water distribution pipelines.

The company began its operations focusing on water pipeline projects in Gujarat. It has since expanded its services to encompass all aspects of road construction, irrigation, water infrastructure, and environmental projects. It has locational presence in the state of Madhya Pradesh, Telangana, Maharashtra, and Gujarat. It is committed to maintaining the highest standards, the same is evident by the ISO 9001:2015 certification for quality management, ISO 14001:2015 certification for environmental management, and ISO 45001:2018 certification for occupational health and safety management systems.

Proceed is being used for:

• Meeting working capital requirements
• General corporate purposes

Industry Overview

India’s high growth imperative in 2023 and beyond will significantly be driven by major strides in key sectors with infrastructure development being a critical force aiding the progress. Infrastructure is a key enabler in helping India become a $26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. The government’s focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The $1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway.

In Budget 2023-24, capital investment outlay for infrastructure is being increased by 33% to Rs 10 lakh crore ($122 billion), which would be 3.3 per cent of GDP. As per the Union Budget 2023-24, a capital outlay of Rs 2.40 lakh crore ($29 billion) has been provided for the Railways, which is the highest ever outlay and about 9 times the outlay made in 2013-14. Starting with 6,835 projects, the NIP project count now stands at 9,142 covering 34 subsectors, as per news reports. Under the initiative, 2476 projects are under the development phase with an estimated investment of $1.9 trillion. Nearly half of the under-development projects are in the transportation sector, and 3,906 are in the roads and bridges sub-sector.

In recent years, there has been a substantial increase in the pace of construction of national highways, from an average of 12 kilometres per day in 2014-15 to around 29 kilometres per day in 2021-22. In November 2022, National Investment and Infrastructure Fund (NIIF) is set up as a collaborative investment platform between the Government of India, global investors, multilateral development banks (MDB) and domestic financial institutions to facilitate investment across multiple sectors in India through an India Japan Fund. In June 2022, the Minister of Road Transport and Highways, opened 15 national highway projects worth Rs 13,585 crore ($1.7 billion) in Patna and Hajipur, Bihar. 

Pros and strengths

End-to-end execution capabilities: Its execution capabilities, comprising strong in-house operations consisting of design, engineering, procurement, construction, and quality assurance teams, are a critical factor that have contributed to the growth story of the company. Its track record in construction of projects has been instrumental in its consistent sales and performance. Its construction management team ensures efficient and rapid construction and completion of its projects.

Optimal utilization of resources: The company constantly endeavours to improve its execution process, capabilities, skill upgrading of employees, and modernization of plant and machineries to optimize the utilization of resources. It regularly analyses its material procurement policy and project execution process to identify and eliminate bottlenecks and take corrective measures for smooth and efficient working thereby putting resources to optimal use.

Experienced promoters and management team: Its promoters, Rajagopal Reddy Annam Reddy, Mydhili Rajagopal Reddy and Nageswara Rao Repuri has more than 45 years of combined experience in various fields including Accounting, Finance, Human Resources and Construction operations. Its Promoter, Rajagopal Reddy Annam Reddy, has led the company with his vision. Its management team comprises experienced professionals. The strength and entrepreneurial vision of its Promoter and management have been instrumental in driving the steady growth of the company and implementing its strategies.

Risks and concerns

Depend on limited number of clients: Significant revenue from a limited number of clients increases the potential volatility of its results and exposure to individual contract risks. It may be required to accept onerous contractual terms in its contracts for projects awarded to its by such clients. While, the company has not experienced such instances in the past, in the event the company is unable to comply with its obligations in any contract with such top 5 and top 10 clients, it would result in a substantial reduction in the number of contracts awarded by such client in future resulting in an impact on the overall business and revenue generated by the company from such client. Further, such concentration of its business on selected projects or clients may have an adverse effect on its results of operations.

Reliance on raw material suppliers: Timely and cost effective execution of its projects is dependent on adequate and timely supply of raw materials, chief amongst them being steel, cement, Concrete, Brick etc. It has not entered into any long term contracts or supply arrangements with any of the company’s suppliers and if, for any reason, the company’s primary suppliers should curtail or discontinue their delivery of such materials in the quantities needed, the company’s ability to meet its material requirements for construction contracts could be impaired, its construction schedules could be disrupted, and the company may not be able to complete construction contracts as per schedule or at such costs that were anticipated. If the company is unable to procure the requisite quantities of construction materials in time and at commercially acceptable prices, the performance of its financial results and business prospects could be adversely affected.

Dependent on few suppliers: Its top ten suppliers contribute 82.87%, 84.90%, 64.09% and 67.85% of its total purchase from operations for the financial year ended on March 31, 2024, 2023, 2022 and 2021, respectively. It cannot assure that it will be able to get the same quantum and quality of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of stock and ultimately its revenue and results of operations.

Outlook

VL Infraprojects is engaged in executing water supply and sewerage infrastructure projects mainly involving the procurement of pipes and their laying, joining, and commissioning with backward integration including all allied civil engineering works like construction of civil work, pumping stations and installation of electro-mechanical equipment’s (pumping machinery) for distribution of water supply from the river to household. It also provides operations & maintenance services for water distribution pipelines. On the concern side, it operates in a competitive environment and its industry has been frequently subject to intense price competition for the acquisition and bidding of projects. Its competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. It competes against major construction companies at the national and local levels and in multiple segments of construction business.

The company is coming out with a maiden IPO of 44,10,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 39-42 per equity share. The aggregate size of the offer is around Rs 17.20 crore to Rs 18.52 crore based on lower and upper price band respectively. On performance front, the total revenue from operations increased by Rs 6,837.47 lakh being 150.09% for the FY 2023-24 to Rs 11,393.16 lakh as compared to Rs 4,555.70 lakh during the FY 2022-23. The company’s profit after tax (PAT) stood at Rs 614.01 lakh in the FY 2023-24 as compared to Rs 222.66 lakh in the FY 2022-23. Meanwhile, it intends to continue its focus in enhancing project execution capabilities so as to derive twin benefits of client satisfaction and improvements in operating margins. It will constantly endeavour to leverage its operating skills through its equipment and project management tools to increase productivity and maximize asset utilization in its ongoing projects.