Capacit'e Infraprojects

Has built strong growth momentum

Having grown consolidated revenues and net profit at a CAGR of 75% and 168% respectively, the company has order book of 4.1 times its FY17 revenues

CM RATING

47/100

Promoted by Rohit R. Katyal,. Rahul R. Katyal and Subir Malhotra, Capacit'e Infraprojects (CIL) is a construction company focused on residential, commercial and Institutional buildings. The company provides end-to-end construction services for residential buildings, commercial (multi-level car parks, corporate office buildings and buildings for commercial purposes) buildings and institutional (educational, hospitality and healthcare purposes) buildings.

The company predominantly operates in the Mumbai metropolitan region (MMR), the National Capital Region (NCR) and Bengaluru. The company undertakes all building constructions including Super High Rise buildings (40 or more floors), High Rise buildings (seven or more floors), gated communities and Villaments. The company’s capabilities include constructing concrete building structures as well as composite steel structures. Capacit'e also provides mechanical, electrical and plumbing (MEP) and finishing works.

As of May 31, 2017, the company had 1,711 employees and 10,035 contract labourers across all its projects.

The company through this initial public offering (IPO) is to raise Rs 400 crore through issue of fresh shares. Of the net proceeds, the company proposes to utilize (i) an amount of Rs 250 crore for funding working capital requirements; (ii) an amount of Rs 51.95 crore for funding purchase of capital assets (system formwork); and (iii) balance towards general corporate purposes.

The order book of the company is strong at Rs 4602.48 crore as end of May 31, 2017 and that translates into 4.1 times of its FY17 revenue providing strong revenue visibility. The completion period of order on hand ranges between 18 months to 48 months. The current order book consists of 56 orders/projects for construction of 12 Super High Rise Buildings, 23 High Rise Buildings, six Other Buildings, 14 Gated Communities and one Villament. Projects in the West Zone, North Zone and South Zone constituted approximately 70.8%, 6.3% and 22.8%, respectively, of the order book as on May 31, 2017. Of the order book Residential is 90.1%, Commercial is 9.6% and Institution is 0.4%. The contracts in the order book are all fixed price with pass through for major raw materials like steel and ready-mix concrete.

The company works for a number of reputed clients and is associated with some marquee construction projects in India. Some of its clients include Kalpataru, Oberoi Constructions, The Wadhwa Group, Saifee Burhani Upliftment Trust, Lodha Group, Rustomjee, Godrej Properties, Brigade Enterprises and Prestige Estates Projects.

RERA coming into effect from April 1, 2017, is good for organised construction companies as RERA ensures time-bound completion of residential realty projects and no unnecessary delays in private sector real estate projects. Moreover, the company works only with large builders in the organised segment.

Consolidated sales and PAT of the company registered a CAGR growth of 75% and 168% over the last three years.

Ownership of state-of-the-art construction equipment including framework, tower cranes, hoists, concrete pumps and boom placers as well as adoption or implementation of variety of technology options available in buildings construction allows the company to cut down construction time and control construction cost.

Weaknesses

Of the current order book about 62.50% of orders are accounted by Mumbai Metropolitan Region. Chennai, National Capital Region and Bengaluru account for 10.77%, 6.32% and 4.75% of the order book. As the order book is dominated by one region, i.e. MMR, any change in regulatory environment or slowdown in that market may increase the execution risk and hurt the future earnings potential of the company.

The order book is dominated by private sector orders and currently it doesn’t have any government orders.

Capacit'e Ventures, a private limited company in the Group, is engaged in the business of inter alia construction of buildings, a line of business that is similar to the business of the company. This can lead to conflict of interest.

Certain members of the Promoter Group and Group Companies including one of its former Group Companies have been granted the right to use the trade name of the company and it may not be able to adequately defend against or prevent misuse of trade name, the incorrect usage of which may lead to diminution of its goodwill and loss of customers.

Valuation

Sales of the company for the fiscal ended march 2017 grew by 36% to Rs 1157.04 crore and the operating profit was up by 38% to Rs 157.97 crore as the operating profit margin expanded by 30 bps to 13.7%. Eventually the net profit (after minority interest) was higher by 43% to Rs 69.38 crore. EPS on fully diluted equity works out to Rs 10.2.

At an asking price band of Rs 245-250 for a share of Rs 10 face value, the PE ratio on upper price band works out to 24.5 times its FY 2017 EPS on diluted equity. On comparison, the PE ratio of Ahluwalia Contracts is 21.6 times of its FY 2017 EPS. PE ratio of JMC Projects is 22.1 times of its FY 2017 standalone EPS.

The EV/Order book was about 0.4 times for the company compared to 0.5 times for Ahluwalia Contracts and 0.3 times for JMC Projects. And the EV/Sales for the company were 1.6 times compared to 1.3 times for Ahluwalia Contracts and 0.8 times for JMC Projects.

Capacit'e Infraprojects : Issue Highlights

Capacit'e Infraprojects: Consolidated Financials