Sathlokhar Synergys E&C Global coming with IPO to raise Rs 92.93 crore

Sathlokhar Synergys E&C Global 

• Sathlokhar Synergys E&C Global is coming out with initial public offering (IPO) of 66,38,000 shares in a price band Rs 133-140 per equity share.
• The issue will open on July 30, 2024 and will close on August 1, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 13.30 times of its face value on the lower side and 14.00 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Anil Prasad Sahoo.

Profile of the company

The company is an integrated engineering, procurement and construction (EPC) (design and build) & infra turnkey contracting company providing specialized services for construction of buildings and infrastructure facilities for industrial, warehousing, commercial, institutional, pharmaceutical projects, solar projects, hospitals, hotels, resorts & villas etc. It is having experience in design and construction of various projects across states in India i.e. Tamil Nadu, Karnataka, Uttar Pradesh, West Bengal and Pondicherry. It also undertakes EPC projects for government entities through tender offering process. It provides its services across the value chain ranging from detailed designing, planning, procurement of all the materials except specialized work material, engineering of the project and project execution - the site work with overall project management and completion of all works upto commissioning and delivering or taking over for their intended purpose. 

It also provides the installation of Mechanical, Electrical and Plumbing Networks in construction projects. It has its in-house professionals; MEP Designers and Engineers who meticulously build and execute the MEP Projects. It is also an authorised channel partner for TATA Power Solar Systems, for providing installation, sales, commissioning and maintenance services of its products as per mutually agreed terms in relation with its Solar Power Projects.

It is an ISO 9001:2015 (Quality Management System), ISO 14001: 2015 (Environment Management System) and ISO 45001:2018 (Occupational Health & Safety Management System) certified company. Further, it bid independently on projects, tendered by departments of government authorities and other entities funded by the Government of India. It has integrated in-house capabilities to deliver a project from conceptualization to completion with faster turnaround time and focus on de-risking wherever possible. Its core competence lies in professionally managing the value chain and attracting and retaining talent to maximize value creation.

Proceed is being used for:

• Working capital 
• 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. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors. The government’s focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. 

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 sub-sectors, 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.

The government has also suggested an investment of $750 billion to strengthen railway infrastructure and envisioned the Maritime India Vision 2030 which estimates massive investments in world-class infrastructure development at Indian ports. Global investment and partnerships in infrastructure, such as the India-Japan forum for development in the Northeast are also indicative of more investments. These initiatives come at a momentous juncture as the country aims for self-reliance in future-ready and sustainable critical infrastructure.

Pros and strengths

Focused Fast track EPC Turnkey construction player: It has over 11 plus years of experience in executing EPC Turnkey projects which have been in the construction of Civil Buildings, PEB Steel Buildings, MEP works, Water treatment systems, HT LT electrical works, Plumbing, Firefighting, Mechanical works, HVAC (Chillers and cooling systems) and piping and racking works, roads, solar projects and interior works and finishes. Since 2013, it has successfully executed 64 projects. It has historically had a focus on the executing EPC turnkey projects and accordingly has established its credentials as an EPC player capable of executing a range of these EPC Turnkey projects while working with renowned MNC clients.

In house integrated model: the company embarks on its business in an included manner as it has developed competencies and resources in house to deliver a project from conceptualization until completion. Its model includes a design and engineering teams for Civil, PEB, MEP works, Interior works and solar projects.

Strong order book: In its industry, Order Book is considered as an indicator of future performance since it represents a portion of anticipated future revenue. It has been able to achieve and maintain such an Order Book positions due to continued focus on its core areas and ability to successfully bid and win new projects across multiple segments. As of April 2024, its order book comprised of projects across the states of Tamil Nadu, Karnataka and Uttar Pradesh, now in Jammu aggregating to around Rs 66,978.53 lakh.

Risks and concerns

Revenues from a limited number of clients: Its top ten customers contribute 89.92%, 80.11% and 77.55% of its total sales for the Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. Its business heavily relies on its customer base, and the potential loss of any of its customers could have a negative impact on its sales and, consequently, its overall business and financial performance. If it was to lose one or more of its significant or key customers or experience a reduction in the volume of business they provide, it could result in adverse consequences for its business, financial health, and cash flow. It cannot guarantee that it will be able to maintain the same levels of business as it have historically or secure long-term contracts with its major customers on mutually beneficial terms.

Business is majorly concentrated in the state of Tamil Nadu and Karnataka: Its business is primarily dependent on projects undertaken or awarded in the states of Tamil Nadu and Karnataka. As on March 31, 2024, the company derives about 64% of its total revenue from operations in the state of Karnataka and about 23% of its total revenue from the state of Tamil Nadu. In the FY 2022-2023, the company derived majority of its total revenue from the state of Tamil Nadu. There can also be no assurance that the Government of India will continue to place emphasis on the infrastructure or related sectors in the state of Tamil Nadu. In the event of any adverse change in budgetary allocations for infrastructure development or a downturn in available work in the infrastructure sector or resulting from any change in government policies or priorities, its business prospects and its financial performance, may be adversely affected.

Working capital requirements: Its business requires significant amount of working capital and majority of the working capital funds of the company are blocked due to providing margin money for Bank Guarantee, Earnest Money Deposit, Performance Deposit and Security deposit (for its Projects) on which the banks are not providing finance. Its growing scale and expansion, if any, may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations.

Outlook

Sathlokhar Synergys E&C Global is an integrated engineering, procurement and construction (EPC) (design and build) & infra turnkey contracting company providing specialized services for construction of buildings and infrastructure facilities for industrial, warehousing, commercial, institutional, pharmaceutical projects, solar projects, hospitals, hotels, resorts & villas etc. On the concern side, the infrastructure sector is competitive and highly fragmented. It competes against various engineering, construction and infrastructure companies. Thus, it operates in a very competitive environment. If it is unable to bid for and win projects, whether large or small, or compete with larger competitors, it may be unable to sustain or increase, its volume of order intake and its results of operations may be materially adversely affected.

The company is coming out with a maiden IPO of 66,38,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 133-140 per equity share. The aggregate size of the offer is around Rs 88.29 crore to Rs 92.93 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2024 was Rs 24697.37 lakh against Rs 8710.91 lakh revenue from operations for Fiscal year 2023. An increase of 183.52% in revenue from operations. Profit after tax increased from Rs 545.55 lakh in Fiscal 2023 to Rs 2621.43 lakh in Fiscal 2024, an increase of 380.51%. Meanwhile, its focus on larger projects will provide it an opportunity to rationalise fixed costs associated with large projects, such as employee expenses, system automation expenses and administration expenses, which typically represent a lower proportion of the total costs of the project than those incurred in smaller EPC projects. Going forward, while it intends to remain focused on the construction and development of its existing EPC projects, it intends to actively pursue the opportunities to expand its portfolio of projects by bidding for Solar, MEP and Interior projects with strategic joint venture partners.