SRM Contractors Ltd IPO
Published by Sharekhan Education | March 27, 2024
SRM Contractors Ltd IPO has an Issue Size ₹ 130.2 Cr. The Price Band is ₹ 200-210. The issue opens on Tuesday, 26th March’2024 and closes on Thursday, 28th March’2024
SRM Contractors Company Overview
SRM is an engineering construction and development company engaged primarily in the construction of roads (including bridges), tunnels, and other miscellaneous civil construction activities in the Union Territories of Jammu & Kashmir and Ladakh. It undertakes construction works both as an EPC contractor and on an item-rate basis for infrastructure projects. The company also undertake sub-contracting assignments for infrastructure construction projects. They are an ISO 9001:2015 certified company. They are also registered as class A contractor with the Public Work (R&B) Department, Jammu & Kashmir.
Objectives of the Issue
The IPO is a fresh issue of equity shares aggregating to Rs 130.2 crores. The company will use proceeds from the fresh issue for capital expenditure requirements, working capital requirements, repayment of borrowings, and general corporate purposes. The minimum application is to be made for 70 shares and in multiples thereafter. Post allotment, the company will list shares on the BSE and NSE. Listing of the equity shares will result in the enhancement of the brand name.
Competitive Strengths
The company has a proven track record of efficient execution of roads, tunnels, and slope stabilization works in the hilly and difficult terrains. The scope of its services includes detailed engineering of the project, procurement of construction materials, plant and machinery, construction and execution of the project, and its operation and maintenance in accordance with the contractual provisions. They are pre-qualified to bid independently on projects, tendered by departments of governmental authorities and other entities funded by the GoI, of contract value up to Rs. 300 cr. and Rs. 500 cr. for EPC contracts pertaining to the construction of roads (including bridges).
Business Strategy
The company has an order book of Rs. 1199+ cr. as of December 31, 2023. Their order book consists of twenty-one infrastructure construction projects which includes eleven road projects (including bridges), five tunnel projects, four slope stabilization project and one other miscellaneous civil construction activities. Its order book includes slope stabilization projects having higher margins.
Key Concerns
The construction industry is highly competitive with low entry barriers. Time and cost over-run are inherent in the construction and EPC business. The concentration of business in UT of J&K and Ladakh exposes the company to the risks of regional militancy and terrorism, regional civil unrest, and political instability.
A limited number of clients significantly contribute to the revenue generation. The top 5 clients account for 80.7% of the revenue.
Financials
The company has delivered revenue growth of 36.9% CAGR over FY21-23. EBITDA has grown at 45.2% CAGR over the same time-period. EBITDA margins have expanded from 10.3% to 12.8%. PAT has grown at 50.5% CAGR. At the upper end of the price band (₹200-210) the issue seems reasonably valued at a P/E of 17.1x on post-issue FY24 annualized earnings.
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