- IPO Opens 13-15th Sep at Price range: Rs. 245-250
- Small Cap: Rs. 1,700 crore cap
- Industry – Construction
- P/E 24.4 and P/B 2.37 times (Post IPO)
- Advice: Investors can BUY this IPO with a 2 year perspective
Capacite Infraprojects IPO, jainmatrix investments
- Overview: It is a Mumbai based construction contracting firm started in 2012; makes Residential & Commercial buildings in 7-9 major cities. Income and profit were Rs. 1,166 cr. and Rs. 70 cr. (FY17).
- Operations: It is into the construction of high rise buildings (> 6 floors), super high rise (> 39), villaments and gated communities. It is building the Trump tower in Mumbai. CIP owns tools, technologies and processes that help it deliver with high quality and on time. CIP stands out as an innovative, aggressive building contractor. It has an excellent client base among Property firms. Given this client base and assuming the relationships stay strong, CIP can look at revenues rising at over 30% annually for 3-4 years which will give it a good size, market share and high return ratios.
- Risks: The major risks are loss of a top 5 client, and project disruption due to labour or other issues.
- Opinion: The valuations at the IPO price are average, however we are positive due to strong growth potential. This IPO offering is rated BUY, and investors can invest with a 2 year perspective.
- This IPO opens: 13-15thSep 2017 with the Price band: Rs. 245-250 per share.
- Shares offered to public are 1.60 crore at UMP, these are 23.57% of equity. The FV is Rs. 10 and market lot is 60. The IPO will collect Rs 400 cr. by fresh issue of shares. There is no OFS by holders.
- The IPO shares are available to institutional, non-institutional and retail in ratio of 50:15:35.
- The promoter group owns 57.2% in CIP while Paragon Partners, Infina and New Quest own 30.7%. Paragon Partners is backed by Siddharth Parekh, the son of Deepak (NS:) Parekh, the chairman of HDFC. The promoter group holding will reduce to 43.7% (Post-IPO) which is low, see Fig 3.
- CIP benefits as it is a fresh issue and the proceeds will go to it. See utilization proceeds in Exhibit 1.
- The unofficial/ grey market premium for this IPO is Rs.110/share. This is a positive.
Exhibit 1 – Utilization of IPO proceeds Capacite Infraprojects IPO, jainmatrix investments
- CIP is a Mumbai based construction firm focused on Residential and Commercial buildings.
- Total income for FY17 was Rs. 1,166 cr. and net profit Rs. 70 cr.
- It has 1,711 full time employees and 10,035 contract workmen across all projects (May ‘17).
- They provide end-to-end construction services for residential buildings, multi-level car parks, corporate offices, commercial buildings and for educational, hospitality and healthcare.
- CIP is into the construction of villaments, gated communities, high rise buildings (> 6 floors) and super high rise buildings (> 39 floors). They operate in the Mumbai, NCR, Bengaluru, Pune, Patna, Chennai, Hyderabad, Kochi and Vijaywada, and projects in the West, North and South Zones constituted, 58.9%, 14.2% and 26.7% of total projects, resp. See Fig 2.
Fig 2 – CIP Project Portfolio Concentration /Fig 3 – CIP Post Shareholding Pattern Capacite Infraprojects, jainmatrix investments
- CIP works for reputed clients and are associated with marquee construction projects such as Trump Towers Mumbai. Clients include Kalpataru, Oberoi Constructions, Wadhwa Group, Saifee Burhani Upliftment Trust, Lodha Group, Rustomjee, Godrej Properties (NS:), Brigade Enterprises (NS:) and Prestige.
Fig 4 - Order book by Project Purpose, and by Project Type - Fig 5 Capacite Infraprojects, jainmatrix investments
- CIP had an order book of Rs. 4,602 cr. (May 2017). CIP majorly operates in residential projects space. The order book breakup by project purpose and by project type is in Fig 4 and Fig 5.
- CIP has received an ISO 9001:2008 certification for their quality management system. They have also received an ISO 14001:2004 for environmental management system and an OHSAS 18001:2007 in respect of their occupational health and safety management systems.
- Leadership is Deepak Mitra (Ch'man & Director), Rohit Katyal (ED & CFO) and Rahul Katyal (MD).
Overall Opinion and Recommendation
- Construction sector is massive in India and likely to witness a revival from increased demand from real estate and infrastructure projects, govt. initiatives and funding and private sector investments.
- In this massive sector with numerous players and high competition, CIP stands out as an innovative, aggressive building contractor which brings in technologies and processes that helps it deliver with high quality and on time delivery. It has an excellent client base among Property firms.
- CIP has a professional management team, a reputed PE backing and clear growth strategies which are likely to take the company to new heights in the near future.
- Given this client base and assuming relationships stay strong, CIP can look at revenues growth over 30% p.a. for 3-4 years which will give it a good size, market share and high return ratios.
- Major risks are loss of any top 5 client, and project disruptions due to labour or other issues.
- The valuations at the IPO price are average, however we are positive due to strong growth potential. This IPO offering is rated BUY, and investors can invest with a 2 year perspective.
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This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in Capacite Infraprojects Ltd. or any group company. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at firstname.lastname@example.org.