Popular Foundations coming with IPO to raise Rs 19.87 crore

Popular Foundations

• Popular Foundations is coming out with an initial public offering (IPO) of 53,70,000 equity of face value of Rs 10 each for cash at a fixed price of Rs 37 per equity share.
• The issue will open on September 13, 2024 and will close on September 18, 2024.
• The shares will be listed on SME Platform of BSE.
• The share is priced 3.70 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Srujan Alpha Capital Advisors.
• Compliance Officer for the issue is Soniya Sharma.

Profile of the company

Popular Foundations, with over 25 years of experience, specializes in Engineering and Construction Activities, providing comprehensive end-to-end solutions in the construction sector. The company is dedicated to building practices catering to various verticals such as factories, educational institutions, commercial, and residential projects. However, it strategically directs its focus towards non-residential and non-governmental projects in the realm of civil construction in and around Chennai.

Equipped with expertise in Engineering, Architecture, and interior and exterior fit-outs, the company has gained recognition among numerous educational institutions, industries, and commercial establishments in Tamilnadu. The company has successfully undertaken projects in Pondicherry, Tanjore, Bangalore, Trichy, Madurai, Vizhuppuram, Coimbatore besides Chennai. Its reputation is built on continued customer patronage, goodwill, and a commitment to delivering high-quality construction solutions.

The company employs a meticulous approach to securing projects, primarily relying on tenders as a key sourcing method. Tenders are floated through Architects/PMC, prompting interested bidders to submit their proposals. Rigorous scrutiny follows, leading to the selection of the successful bidder. The company's brand image and extensive experience play pivotal roles in its success. Notably, Popular Foundations excels in obtaining contracts within the institutional and hospitality sectors, showcasing a robust track record of quality and reliability. The company's ability to secure repeat orders from institutional clients underscores its significant strength in client retention and project acquisition.

Proceed is being used for:

• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company
• Funding the working capital requirements of the company
• General corporate purposes

Industry Overview

The real estate sector is one of the most globally recognized sectors. It comprises of four sub-sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth in the corporate environment and the demand for office space as well as urban and semi-urban accommodation. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. The country's real estate market was affected by the COVID-19 pandemic. In addition, the residential sector was the worst hit as strict lockdown measures across major cities in India impacted housing sales as home registrations were suspended and home loan disbursement was slow. However, the sector recovered due to an increase in house sales, new project launches, and increasing demand for new office and commercial spaces, etc.

By 2040, real estate market will grow to Rs 65,000 crores ($9.30 billion) from Rs. 12,000 crores ($1.72 billion) in 2019. Real estate sector in India is expected to reach $1 trillion in market size by 2030, up from $200 billion in 2021 and contribute 13% to the country’s GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs. India’s real estate sector is expected to expand to $5.8 trillion by 2047, contributing 15.5% to the GDP from an existing share of 7.3%. In the first quarter of 2023 (January-March), net office absorption in the top six cities stood at 8.3 million sq. ft. Real estate demand for data centers is expected to increase by 15-18 million sq. ft. by 2025. The size of the Indian real estate sector is estimated to jump more than 12-fold to $5.8 trillion by 2047 from $477 billion last year and will contribute over 15 per cent to the total economic output of the country. 

India's real estate market is expected to undertake a growth rate (CAGR) of 9.2% during the five years from 2023 to 2028. Looking ahead, the future of the real estate market in India appears promising, with continued growth and evolution. India's urban population is projected to grow rapidly, driving demand for residential and commercial spaces in urban areas. Cities like Chennai, Hyderabad and Bengaluru, known for their vibrant job markets and educational institutions, IT hubs will remain key targets for real estate investments. Further, future forecasts indicate that the rental market will expand significantly. Factors such as urbanization, increased job mobility, and a preference for renting over buying among millennials are expected to contribute to this trend. Going forward, property prices are likely to continue experiencing steady appreciation. However, the growth rate may vary across different cities and regions, with metropolitan areas witnessing higher price increases than smaller cities.

Pros and strengths

One Brand, One Standard, One Uniform Quality: The company prides itself on providing customers with a unified brand experience, consistently maintaining one standard and uniform quality across all its properties in the city of Chennai. This commitment to a seamless and standardized housing solution system reinforces its brand identity and instills confidence in its customers.

Timely delivery and reputation building: The company’s dedication to timely delivery serves as a cornerstone of its strategy. By ensuring projects are completed on schedule, it empowers consumers to make informed decisions. Moreover, timely project completion contributes to enhancing its reputation in the market, giving it a competitive edge. This strategic focus on punctuality not only builds brand value but also solidifies its position as a trusted and reliable entity in the industry.

Robust standard operating procedures: The company's primary source of income is derived from construction and allied activities facilitated through contractual agreements. Popular Foundations is dedicated to upholding a stringent Standard Operating Procedure (SOP), ensuring the punctual and high-quality delivery of all projects. Prioritizing engineering excellence, quality assurance, safety protocols, and timely project completion, the company maintains a steadfast commitment to ethical business standards. This unwavering approach has consistently resulted in high levels of customer satisfaction and loyalty.

Risks and concerns  

Dependent on top 5 supplier for significant supply of raw material: The company obtains around 31.56% of its materials from top 5 suppliers. It does not have any long-term contracts with its suppliers with any commitment to supply products to the company. If its suppliers are unable to supply its products in sufficient quantities and on a consistent basis, it may not be able to complete its projects in a timely manner. If it was to experience a supply disruption, it could take an extended period of time to find and qualify an alternate vendor. In the event that its major suppliers were to become unable or unwilling to continue to provide the materials in its required volumes, it would need to identify and obtain acceptable replacement sources on a timely basis. There is no guarantee that it would be able to obtain such alternative sources of supply on a timely basis, if at all. The company may experience significant business disruption if it is unable to secure necessary materials from its suppliers or suffer reduction in efficiency, the revenue from operations of the company will get severely affected.

May face risks associated with uncompleted property developments: In respect of its clients, property developments involve significant capital outlay during construction, with extended timelines before potential returns are realized. The completion and occupancy phases may be prolonged and costly due to various factors, such as shortages or price increases in construction materials, equipment, technical skills, and labor. Adverse weather conditions, third-party performance risks, environmental concerns, market fluctuations, regulatory changes, and delays in obtaining approvals further contribute to potential extensions and cost escalations. Unforeseen problems may arise, leading to delays or even preventing project completion, resulting in costs exceeding initial budgets. Insurance and contractual indemnities may not fully compensate for such overruns, posing a material adverse impact on its business, financial condition, and operational results.

Dependent on senior personnel and highly skilled professionals: The company’s success has been, and will continue to be, heavily dependent upon the collective efforts of its senior personnel, who have built business and have been instrumental in its development. Moreover, the company’s ability to successfully complete projects and to attract new clients also depends largely on its ability to attract, train, motivate and retain highly skilled professionals, particularly project managers, engineers, and skilled workers. If it cannot hire and retain highly skilled personnel, its ability to bid for and execute new projects and to continue to expand its business will be impaired and, consequently, its revenues could decline. Further, it may lose skilled workers to competing employers who pay higher wages or be forced to increase the wage rates that it pays, or both. If it is unable to attract and retain professionals and skilled workers, its business, results of operations and financial condition may be materially adversely affected.

Outlook

Popular Foundations specializes in engineering and construction services and offers comprehensive end-to-end solutions in the construction sector. The company is dedicated to construction practice in various sectors such as factories, educational institutions, and commercial and residential projects. However, the company strategically focuses on non-residential and non-government construction projects in and around Chennai. Apart from Chennai, the company has successfully executed projects in Pondicherry, Tanjore, Bangalore, Trichy, Madurai, Vizhuppuram and Coimbatore. On the concern side, the company relies significantly on some suppliers for the supply of its materials. If these suppliers are unable or unwilling to supply materials on time or otherwise fail to meet its requirements, its business will be harmed. Moreover, the company has experienced negative cash flow from operating activities in prior periods and may continue to do so in the future, which could have a material adverse effect on its business, prospects, financial condition, cash flows and results of operations.

The company is coming out with a maiden IPO of 53,70,000 equity shares of Rs 10 each at a fixed price of Rs 37 per share to mobilize Rs 19.87 crore. On performance front, the total income of the company for fiscal year 2024 was Rs 5191 lakh against Rs 4866.89 lakh total income for Fiscal year 2023. An increase of 6.67% in total income. This increase was due to increase in volume of sales due to better performance. Moreover, profit after tax for the Fiscal 2024 was at Rs 347.76 lakh against profit after tax of Rs 119.61 lakh in fiscal 2023, a 191% increase. This high increase is due to high profit making projects being undertaken, better cost of material purchased and better inventory management. The company’s business model is a comprehensive framework that emphasizes client-centricity, fair pricing, and strategic market positioning. It navigates a competitive environment with a competitive advantage derived from over 25 years of experience. Its market strategy relies on word-of-mouth referrals and a decentralized approach to project execution, ensuring accountability and cost competitiveness. The company’s projects have been currently located in the Chennai region of Tamilnadu. Going forward it plans to establish its presence in the other regions of Tamilnadu and it intends to execute projects in other major cities. The company’s emphasis is on expanding the scale of its operations as well as growing its geographical presence, which will provide attractive opportunities to grow its business and revenues.