PRIMARY OFFER. Capacit’e Infraprojects: On a high-rise path

Investors with a higher risk appetite can consider subscribing to the ₹400-crore IPO of Capacit’e Infraprojects.

At a price band of ₹245-250, it is asking for a price-to-earnings multiple of 24 times on FY17 earnings calculated on its post-issue share capital. While this earning multiple is on par with its competitor Ahluwalia Contracts and higher than Simplex Infrastructures, there are two strong reasons to look at this growth story. One, its strong order book, which is four times the sales of FY17, gives comfort on revenue visibility. This is important since residential property sales have been slackening post-demonetisation in the major metros. Moreover, its excellent track record in execution as well as its consistently growing sales and profits lend comfort.

This five-year-old company promoted by first-generation entrepreneurs provides end-to-end construction services for residential buildings, multi-level car parks, corporate offices and more.

Its major competitors are L&T Construction, Shapoorji Pallonji Construction, Simplex Infrastructures, JMC Projects and Ahluwalia Contracts. As of May 31, 2017, it had an order book of ₹4,602 crore — which was about four times the sales of 2016-17. About 90 per cent of the order value was for residential construction, while the rest was mostly for commercial construction.

Its order book comprises 56 projects; about 63 per cent of it were for constructing residential high-rise buildings. The company uses modern form-work technologies to reduce the construction time by replicating floors in a high-rise construction. It owns most of its equipment such as form-work, tower cranes, concrete pumps instead of leasing them. Its order book has been growing at rapid clip with regular order flow.

It bagged nine orders in FY15 and increased it to 15 in FY16 and 19 in FY17, respectively.

Capacit’e Infraprojects’ clients include well-known developers such as Godrej Properties, Oberoi Constructions, Prestige Estate Projects, Lodha group, Rustomjee and Brigade Enterprises. Its top 10 clients constituted 60 per cent of the order book. Thanks to its timely execution of projects, it has been able to secure repeat order from many clients.

The company predominantly operates in the Mumbai, Bengaluru and the National Capital Region (NCR) while having plans to expand in the South as well as Ahmedabad.

Zone-wise, about 70 per cent of its order book is from the western region and another 22 per cent from the south zone. While the company is not into mass housing projects, it intends to capitalise on such construction projects in the future, including redevelopment.

The company clocked sales of ₹1,157 crore during 2016-17; up 40 per cent over the previous year. In the last three years, its revenue has grown at a compounded annual growth of 75 per cent. Its net profit was ₹167 crore in 2016-17, up by 45 per cent as compared to the previous year. Its net profit — albeit on a smaller base — has grown at a rapid clip of 157 per cent annually in the last three years.

Its operating margins and net profit margins were decent at about 14 per cent and 6 per cent, respectively. From a high debt-to-equity ratio of four in March 2014, it has fallen consistently to 0.5 by the end of FY17. Post the equity issue, debt-to-equity is expected to fall further.