About the Company

PKH Ventures is in the business of construction & development & hospitality and management services. The civil construction business is executed by its subsidiary Garuda Construction. Garuda Construction provides end-to-end construction services for residential and commercial buildings. Its capabilities include constructing concrete building structures as well as composite steel structures. It also provides MEP and finishing works as a part of its construction services.

The hospitality vertical is in the business of owning, managing and operating hotels, restaurants, QSRs, Spa’s etc.

The company has concluded the development of the Delhi Police Headquarters in April 2021, which involved the construction of twin towers of seventeen storeys each. The company is proposing to develop forthcoming development projects, which include real estate development at Amritsar, real estate redevelopment project at Dadar-Matunga, Mumbai; Agro processing cluster at Jalore; cold storage facilities at Indore and a wellness centre & resort at Chiplun, Maharashtra.

Industry Overview

The company primarily operates in the following industries:

1. Construction Sector: The construction sector is the country’s second-largest economic segment after Agriculture. The sector contributed 8% to the national GVA (at constant price) in FY22. The Government has expanded the National Infrastructure Policy (NIP) during the Budget to 7,400 projects from 6,835 projects. Over the long term, the outlook for construction sector is favourable supported by continued government spending on infrastructure. The sector is expected to contribute 15% to the Indian economy by 2030.

2. Residential Real Estate: In India, the real estate industry is the second largest employment generator after agriculture. Around three houses are built per 1,000 people per year as against the required construction rate of five houses per 1,000 individuals per year, as per industry estimates. This indicates that there is significant untapped potential for growth in the sector. India is in the top 10 price appreciating housing markets internationally. Therefore, it is also expected that this sector will incur more Non-Resident Indian (NRI) investment, both in the short term and the long term.

3. Commercial Real Estate: The Commercial Real Estate is further bifurcated into Industrial and Office Space, Hospitality, Retail, and Warehousing. In India commercial property gives the average rental yield of 6%-10%. The volumes of the leasing activities have improved by 11% to 14% in the last quarter of 2021-22 and are expected to continue to grow given the “Back to office” trend and hybrid working model. There has been a y-o-y growth of 23% to 26% in the transacted space on account of both, improved demand and a low base effect.

4. Domestic Hotels & Tourism: The hospitality industry is expected to see robust demand in FY24. The growth outlook for hotels will be driven primarily by the ramp up in tourist sentiments, increased traction in leisure travel, increased business travel and uptick in FTAs. In addition, the demand for MICE (meetings, incentives, conferences and exhibitions) is going to contribute to the growth. As India is hosting various events which include the upcoming G20 summit which will bring great opportunity for hospitality and tourism industry.

5. Restaurants and QSR Industry: The Indian restaurant industry has witnessed a rapid growth over the last decade. This industry not just generates huge employment opportunities but also is a huge contributor to the economy. The total contribution of the restaurant industry alone is more than 2.1% to the GDP of India. Over 2015-2020 period, the sector registered a CAGR of 8.31%. The industry is projected to grow at a CAGR of ~10% and is anticipated to reach at Rs. 6.2 lakh crores by FY25.

Objectives

1. Equity Investment in the company’s subsidiary, Halaipani Hydro Project Private Limited for the development of Hydro Power Project;
2. Investment in Garuda Construction project, for funding long-term working capital requirements,
3. Pursuing inorganic growth through acquisitions and other strategic initiatives &
4. General corporate purposes.

Financials

The revenue of the company increased from Rs. 165.89 crores in FY 19-20 to Rs. 241.51 crores in FY 2020-21, but declined to Rs.199.35 crores in FY 2021-22. However, the profits of the company have increased over the same period, with EBITDA also growing. The ROCE and ROE have fluctuated over the period.

Valuation

When considering the upper price band, the PE ratio stands at 28.24 times, while the PB ratio is 2.67 times. The company is involved in various business activities, and there is no directly comparable listed peer. Consequently, it would be inappropriate to make any remarks regarding the undervaluation or overvaluation of the issue price.

Key Risks

1. The company has no experience of developing and operating a hydro power plant yet they are entering this venture.
2. The company has entered into revenue sharing agreements with the promoter and group companies (which are also promoter group members). As per these arrangements certain portion of the gross revenues are required to be shared with them.
3. The company is planning to use the proceeds for inorganic growth through acquisitions. However, the company has not identified the acquisitions target yet, which is the risk.
4. The debt of the company has increased tremendously.

IPO Details

1. The IPO subscription period is scheduled from 30 June 2023 to 4 July 2023.
2. The price band for each share is set between Rs. 140 to Rs. 148.
3. The total issue is valued at Rs. 379 crores, consisting of a fresh issue worth Rs. 270.22 crores and an offer for sale worth Rs. 109.13 crores.
4. Retail individual investors can apply for a minimum of 1 lot, which will require an investment of Rs. 14,800 and a maximum of 13 lots, with a total value of Rs. 1,92,400.
5. As of the time of writing this blog, the Grey Market Premium (GMP) stands at 3.38%.