SRM Contractors Limited IPO Summary

About the Company:

SRM Contractors Limited, founded in 2008, is a construction company focusing on roads, tunnels, and slope stabilization in Jammu & Kashmir and Ladakh. They work as both primary contractors and subcontractors on infrastructure projects. Their experience includes 37 projects worth Rs. 77,088 lakhs, including roads, tunnels, slope stabilization, and other civil works. The company employs 275 people.

The company has these major business verticals: 

● Road projects: planning and construction of realignment, widening, upgradation, restoration, and/or strengthening and improvement of roads, bridges, and highways and their maintenance in the Union Territories of Jammu and Kashmir and Ladakh. 

● Tunnel projects: design and construction of new tunnels, cut-and-cover tunnels for avalanche and landslide protection and caverns; also includes expansion, upgradation, restoration, and/or strengthening and improvement, including creation of niches/alterations in niches and stabilization of existing tunnels in the Union Territories of Jammu and Kashmir and Ladakh. 

● Slope stabilization works: planning and construction of reinforced embankment structures as part of slope stabilization work. 

● Other miscellaneous civil construction activities: construction of government housing and residential units, drainage work as well as irrigation and flood protection work.

Company’s revenue from operations for 9 months ending December 31, 2023, Financial Year 2023, Financial Year 2022, and Financial Year 2021 are detailed below:

Industrial Overview:

India is undergoing a massive infrastructure push to improve connectivity and boost economic growth. This includes significant investments in roads, bridges, tunnels, and other infrastructure projects.

Existing road network faces issues like congestion, poor maintenance, and safety concerns. Geographic challenges in hilly regions like J&K and Ladakh make construction expensive and complex. Harsh weather conditions in these areas can damage infrastructure and disrupt projects

Growing economic activity and trade are driving demand for better transportation infrastructure. Government initiatives like Bharatmala Pariyojana and Sagarmala aim to develop efficient logistics networks. Focus on tourism in J&K and Ladakh creates a need for improved road connectivity to attract visitors.

J&K & Ladakh has a limited road network compared to national standards. Many areas lack proper connectivity, hindering economic development. Terrain and weather pose significant challenges. Building and maintaining roads in these areas is expensive and requires specialized expertise. Recent government focus on improving border connectivity and tourism infrastructure creates opportunities for some companies.

The Indian road and infrastructure sector offers significant growth potential, particularly in J&K and Ladakh. However, companies need to navigate challenging geographical conditions and compete effectively.

IPO Objectives:

The company proposes to utilize the Net Proceeds from the Issue towards funding the following objects:

1. Funding capital expenditure requirements for the purchase of  equipment/machinery;

2. Full or part repayment and/or prepayment of certain outstanding secured borrowings availed by the company;

3. Funding the working capital requirements of the company;

4. Investment in Project Specific Joint Venture Projects; and

5. General Corporate Purpose.

Financials:

The company’s revenue appears to have increased steadily over the three years, from ₹160.06 crore in FY 2020-21 to ₹300.29 crore in FY 2022-23.

The company’s EBITDA also appears to have increased steadily over the three years, from ₹18.33 crore in FY 2020-21 to ₹38.66 crore in FY 2022-23 with an average of 15.07% annual growth.

The net profit margin appears to have fluctuated somewhat, but with an overall increase from ₹ 8.27 crore in FY 2020-21 to ₹ 18.75 crore in FY 2022-23.

The ROCE line starts at 31.17% in FY 2020-21, increases to 42.16% in FY 2021-22, and decreases to 35.04 % in FY 2022-23.

The RoNW line starts at 36.43% in FY 2020-21, increases to 49.30% in FY 2021-22, and decreases to 34.85 % in FY 2022-23.

Valuation:

The company's price-to-book ratio stands at 5.57, while the industry's PB ratio is 4.51.

Peer Comparison:

Key Risks:

1. The company's business is concentrated in the Union Territory of Jammu, Kashmir, and Ladakh. This concentration exposes it to risks stemming from economic, regulatory, and other changes within the Union Territory.

2. The company's business is concentrated in the Union Territory of Jammu, Kashmir, and Ladakh. This concentration exposes it to risks stemming from economic, regulatory, and other changes within the Union Territory.

3. The company's business model is working capital intensive, meaning it requires significant upfront investment in materials and labor before generating revenue. Additionally, projects have relatively long implementation periods, extending the time it takes to see a return on investment.

IPO Details: