Capacit’e Infraprojects IPO – Fastest growing (3yr Revenue CAGR – 86%) private realty contractor (Subscribe to the issue)
Capacit’e Infraprojects Limted (CIL) is a fast growing construction company focussed on Residential, Commercial and Institutional buildings. It provides end-to-end construction services for residential buildings (“Residential”), multi-level car parks, corporate office buildings and buildings for commercial purposes (collectively, “Commercial”) and buildings for educational, hospitality and healthcare purposes (“Institutional”). Its capabilities include constructing concrete building structures as well as composite steel structures. It also provides mechanical, electrical and plumbing (“MEP”) and finishing works.
Incorporated in August 2012, Capacite Infraprojects Ltd (CIL) is backed by strong promoters, Rohit Katyal and Rahul Katyal, having over two decades of experience in the infrastructure industry. CIL has emerged as a preferred construction contractor of private residential, commercial and institutional buildings, which led to a robust revenue growth of 6.5x to Rs11.3bn in FY17 v/s Rs1.7bn in FY14. Geographically, it operates in fast-growing regions of MMR, NCR, Bengaluru, Kochi, Chennai, Hyderabad, Patna and has undertaken projects from developers such as Lodha, Wadhwa, Oberoi, Godrej, Prestige, Purvankara, Rustomjee, Transcon Developers among others.
Focused EPC (building & housing) player:
CIL constructs high-rise and super high-rise residential buildings, gated communities, villaments, commercial/office complexes, institutional buildings and multi-level car parks. Its construction capabilities in concrete and composite steel structures as well as in providing mechanical, electrical, plumbing and finishing works augments its presence as a building focused construction company. Promoters’ significant engineering experience and strong industry relationships have enabled the company win and execute orders among established competitors such as L&T, Shapoorji, JMC Projects despite a slowdown in private real estate segment (FY13-16). CIL’s zonewise leadership and execution team aided in addressing varied requirements of each region and also establish a second-line management.
Owned modern equipments and access to skilled manpower aid in timely execution:
CIL uses advanced concreting technologies in construction depending on the scale. Ownership of a modern system formwork and other core assets (84% of net block as of Mar 31, 2017) such as tower cranes, passenger and material hoists, concrete pump and boom placers have ensured easy availability and quick mobilisation. Application of various available modern technology options ensures control over execution, thus increasing productivity and reducing the construction time. Access to a skilled workforce of 10,035 contract workmen and 1,711 employees as of May 31, 2017 resulted in adequate resources across project sites, thus lowering cost and time overruns. Depending on the complexity of projects, OPM is the highest for super high-rises, followed by lock and key projects (involving finishing), compared to normal RCC work.
Experienced promoters, strong engineering skills led to robust order book of Rs47bn (4.1x sales):
Within five to six months of commercial operations commencement, CIL’s order book rose to Rs10bn in July 2013, led by real estate developer’s trust on CIL promoters’ expertise and experience. Company’s current order book of Rs47bn comprises of 56 projects, with 90% share of private residential from marquee developers such as Lodha, Oberoi, Rustomjee, Kalpataru, Wadhwa, Purvankara, Godrej Properties, Prestige Estate and Saife Burhani. Going forward, CIL plans to 1) increase its presence in South India, while reducing the dependence on MMR, 2) focus on top 7-10 cities in India, given huge potential in high-rise buildings segment and 3) bid for design & build government contracts from select agencies and municipal corporation, which are closer to existing geography, yield high margins and low working capital in line with existing order book. On its own it is qualified to bid for private/government contracts worth Rs5.5bn/3.5bn.
Healthy margins, low leverage drives better-than-industry RoCE, RoE:
Growing order book and strong execution capability has led to 6.5x growth in revenue to Rs11.3bn in FY17 v/s Rs1.7bn in FY14. Robust engineering skills and access to modern technology aided in average EBITDA margin of 13% and PAT margin of 6% in FY15-17, which is better than diversified segment peers and in line with single segment focused peers. We expect the trend to continue, given CIL’s focus only on building & housing segment in coming years. Of the Rs4bn IPO proceeds, Rs2.5bn will be deployed for working capital, while Rs520mn will be used for procurement of fixed assets such as formwork and remaining for general corporate purposes.
Business strategy going forward:
Continue focus on building construction: CIL’s focus on private real estate developers has aided in utilising advanced technologies, including system formworks and IT-based tools, thus increasing productivity and maximising asset utilisation in construction activities.
Expands in mass housing segment: CIL plans to bid for redevelopment and mass housing project segments in major Indian cities. The experience in the execution of Saifee Burhani upliftment project and Rustomjee Seasons will provide appropriate qualification credentials to undertake projects in this segment.
Expand presence in cities with high-growth potential: CIL plans to a) increase its presence in existing high-growth markets such as NCR, Bengaluru, Chennai, Hyderabad and Pune by bidding and executing a greater percentage of projects and b) expand presence in the high-potential market of Ahmedabad.
Execute more projects on “lock and key” basis: In lock and key projects, the company is involved in all stages of building construction, from foundation to warm shell to MEP, finishing and interiors. These projects allow to spread indirect costs and unlock greater revenue from each project, thus offering significant value potential. CIL intends to seek a greater number of such projects in the near term from existing and new clients.
Undertake projects on design-build basis: The scope of services will increase in relation to designing elements of a project over and above construction and finishing services. CIL has won an LOI for two design-build projects by the Wadhwa group, and believes that a relative limited competition in this segment may provide greater value from projects and ensure better quality control.
Bid and undertake projects in public sector: CIL plans to focus on educational and healthcare infrastructure development projects of the government. It intends to bid and undertake project construction from select public sector clients that are closer to existing geography of operation.
Capitalise on changes due to RERD Act: RERD Act’s implementation will have key benefits such as an increase in the speed and security of payments, emphasis on timely delivery of construction services and demand for quality and durable construction. Hence, CIL expects significant demand for end-to-end services for construction service providers, which is its forte.
Given the attractive business economics (RoE – 20%, RoCE – 30%) and aggressive growth (50%+) the current valuations are very attractive. At the upper price band, the current valuations (15x P/E) are very attractive. We advise investors to subscribe to the issue.
»» Issue Open: Sep 13, 2017 – Sep 15, 2017
»» Issue Type: Book Built Issue IPO
»» Issue Size: [.] Equity Shares of Rs 10 aggregating up to Rs 400.00 Cr
› Fresh Issue of [.] Equity Shares of Rs 10 aggregating up to Rs 400.00 Cr
»» Face Value: Rs 10 Per Equity Share
»» Issue Price: Rs 245 – Rs 250 Per Equity Share
»» Market Lot: 60 Shares
»» Minimum Order Quantity: 60 Shares
»» Listing At: BSE, NSE