VVIP Infra BSE SME IPO review (May apply)

Review By Dilip Davda on July 19, 2024

•    The company is engaged in infrastructure segment with specialization in STP projects.
•    It posted growth in its top and bottom lines for the reported periods.
•    The sudden boost in margins for FY24 (pre-IPO year) raises eyebrows and concern over its sustainability going forward.
•    It had order book of Rs. 477+ cr. as of January 31, 2024.
•    Based on FY24 super earnings, the issue appears fully priced.
•    Well-informed investors may park moderate funds for medium term. 

PREFACE:
Off late we are witnessing different style and set of information in the public offer documents and the IPO price band ads. While the over-smart merchant bankers try to give additional information, it perhaps suppresses the more relevant information that needs to be given priority. In this case, while RHP has financial performance data on Consolidated as well as standalone basis, but its IPO ad has only standalone basis information. What is more, for the first time we are coming across the merchant banker’s track record data which occupied more space. Instead, the ad should have contained the consolidated basis financial performance of the company. The company is showing order book worth Rs. 477+ cr. as of January 31, 2024, but when it has shown financial performance till March 31, 2024, it could have given precise order book data as of the said date. 

ABOUT COMPANY:
VVIP Infratech Ltd. (VIL) is an infrastructure company in India. It is Class “A” Civil and Electrical contractor having over two decades of experience in the field of execution and construction of infrastructure projects such as Sewer, Sewer Treatment Plants, Water Tanks, Water Treatment Plants, Sector Development work, Electrical Distribution and Sub Stations up to 33 kVA, Jal Jeewan Mission work etc.

The Company emphasis on quality work, on-time delivery, and competitive pricing. It has a team of experienced and qualified engineers and technicians who are committed to provide best possible services to its clients. With its experienced team it has constructed two 56 MLD STPs using Sequential Batch Reactor (SBR) technology in the year 2013.

VIL primarily working on projects in the state of Uttar Pradesh, Uttarakhand, NCR Delhi and other northern Part of India. The Company is a rapidly growing company with a strong focus on innovation and quality. It is well-positioned to play key role in the development of India’s infrastructure sector, particularly in the area of STPs. Currently, the Company has an order book of Rs. 477.62 Crores, including an Operation and Maintenance (O&M) order book of Rs. 126.19 Crores as on January 31, 2024.

The company has submitted bids for Rs. 182.00 Crores against tenders in Roorkee, Uttarakhand which is under process to be opened. As of the date of filing this offer document, it had 167 employees on its payroll. It also employs contract labour as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6582000 equity shares of Rs. 10 each to mobilize Rs. 61.21 cr. at the upper cap. It has announced a price band of Rs. 91 – Rs. 93 per share. The issue opens for subscription on July 23, 2024, and will close on July 25, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.36% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 40.00 cr. for working capital, Rs. 10.50 cr. for capex, and the rest for general corporate purposes.

The issue is solely lead managed by Share India Capital Services Pvt. Ltd., and Maashitla Securities Pvt. Ltd., is the registrar to the issue. Share India group’s Share India Securities Ltd. is the market maker for the company.

The company has issued entire equity shares capital at par value so far. It has also issued bonus shares in the ratio of 28 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 0.34 per share.

Post-IPO, company’s current paid-up equity capital of Rs. 18.39 cr. will stand enhanced to Rs. 24.97 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 232.22 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 185.26 cr. / Rs. 3.18 cr. (FY22), Rs. 210.56 cr. / Rs. 11.70 cr. (FY23), and Rs. 285.88 cr. / Rs. 21.04 cr.(FY24).

For the last three fiscals, it has (on a consolidated basis) reported an average EPS of Rs. 53.20, and an average RoNW of 13.70%. The issue is priced at a P/BV of 0.87 based on its NAV of Rs. 107.22 as of March 31, 2024, but its post-IPO NAV data is missing from the IPO price band ad. This ad has given data based on standalone and missing consolidated performance.

If we attribute FY24 (consolidated) super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 11.03. Based on standalone super earnings of FY24, the P/E stands at 13.06. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 2.49% (FY22), 6.50% (FY23), 7.31% (FY24), and RoCE margins of 8.08%, 15.24%, 19.00% respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown EMS Ltd., and Vishnusurya Proj. as their listed peers. They are trading at a P/E of 23.7 and 21.5 (as of July 18, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 12th mandate from Share India Capital in the last two fiscals (including the ongoing one), out of the last 10 listings, 2 opened at par and the rest listed with premiums ranging from 5.33% to 118.52% on the date of listing.