Exorbitant remuneration for a family member who has just two years experience exposes the promoter’s intensions.
If the Remuneration Committee (consisting of three independent directors and promoter’s spouse, who is a non-executive director) of the company, whose annual employee cost was about Rs 3.5 Cr and pre-tax profit of Rs 16 Cr until last fiscal, has approved a remuneration of Rs 6 Cr-plus each for the promoter-CMD and his in-experienced daughter, whose interest are the independent directors of the public company serving?
|
UDAYSHIVAKUMAR INFRA OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 66 Cr (1.89 to 2 crore equity shares) |
| Fresh Issue | Rs 66 Cr (1.89 to 2 crore equity shares) |
| Offer for Sale | NIL |
| Face Value | Rs10 |
| Price Band | Rs 33 – 35 |
| Mkt/Bid Lot | 428 Nos. |
| Implied M-Cap | Rs 194 Cr |
| Implied Equity Cap | Rs 55.36 Cr |
| Free Float | 34.07% |
| Lead Manager | Saffron Capital Advisors |
| Registrar | MASS Services |
| Listing | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening : 20-Mar-2023 | Closing : 23-Mar-2023 |
| Allotment : 28-Mar-2023 | Refunding : 29-Mar-2023 |
| DematCredit : 31-Mar-2023 | Trading : 04-Apr-2023 |
The Offer
The Davangere (Karnataka)-based Udayshivakumar Infra Ltd (USK) is coming out with an IPO with a fresh issue of Rs 66 Cr. The offer is being made through the book-building route with a price band of Rs 33-35 for Rs 10 paid-up share. The quantum of offer thus works out to 188.5 lakh to 200 lakh shares.
Applicants for the IPO should bid for a minimum lot of 428 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on Tuesday, April 4, 2023. Saffron Capital is managing the offer and MAS Services is acting as the registrar to the issue. The bidding opens on Monday, March 20 and closes on Thursday, March 23, 2023.
The objects of the IPO are to fund the incremental working capital requirements and general corporate purposes besides achieving the benefits of listing of the shares on the Stock Exchanges, enhancement of the company’s visibility and brand image, and creation of a public market for the company’s equity shares.
Lineage
Though USK’s official website claims that the company was incorporated in the year 1995, according to the Red Herring Prospectus, the company was originally formed as a sole proprietorship under the name M/s Udayshivakumar at Davangere in August 2002 and was converted into a partnership firm in March 2014. The partnership firm was converted into a private limited company under the name Udayshivakumar Infra Private Ltd in December 2019. It was converted into a public limited company only in September 2022.
A note worthy aspect of USK is that the promoter did not directly contribute to the company’s equity capital. The entire capital of Rs 36.50 Cr was transferred from the partnership firm and the partners, Udayshivakumar and his spouse Amrutha, were allotted shares worth Rs 3,613.50 lakh and Rs 36.50 lakh respectively in the proportion of the share they held in the partnership firm as per the amended partnership deed dated March 8, 2019.
USK has achieved a sizable business volume in recent years. The company was awarded a contract of Rs 149 Cr by Belgaum Smart City Ltd for construction of smart roads in 2019. It was awarded a contract of Rs 92 Cr by Davangere Smart City Ltd for construction of smart roads in 2020. Last year, it was appointed as the fee collection agent by National Highway Authority of India for the Halligudi (Hallikeri) Fee Plaza, in the state of Karnataka.
In 2022 USK constituted Udayshivakumar Kotarki Joint Venture which was awarded the contract amounting to Rs 171 Cr by the National Highway Authority of India for widening of a two-lane highway in the State of Karnataka. During the year, USK was also awarded the tender by Ministry of Road Transport & Highways, for widening a two-lane with paved shoulders from Siddapur to Vijayapura in Karnataka.
Last year, the company also received a letter of intent from the Department of Mines & Geology, Government of Karnataka for granting a mining lease in Venkatagiri Village, Bellary District, over an extent of 24 hectares. During the current fiscal, the company has been awarded the tender and was appointed as the fee collection agent by National Highway Authority of India for the Bankapur Fee Plaza, in the state of Karnataka.
USK’s business is primarily dependent on projects undertaken or awarded in the state of Karnataka, by the Karnataka State Government, the local authorities/municipal bodies and other entities funded by the Government of India or the Karnataka State Government. As on December 31, 2022, the company’s order book was Rs 1,290 Cr. The company’s growth and the projects in hand amply demonstrate that USK had the required clout with the Government of Karnataka.
Key Management
Main promoter Udayshivakumar (53) is the Chairman and Managing Director of the company. He reportedly holds a doctorate in social works empowerment and contractor development from International Global Peace University. He claims to have over 20 years of experience in the civil construction sector.
Promoter’s daughter Manjushree (24) has been appointed as an Executive Director with effect from August 30, 2022. She holds a bachelor’s degree in engineering from Visvesvaraya Technological University. She has reportedly been associated with the company since 2020 in the capacity of a manager in the bidding and tender procurement department and the accounts and finance department.
Promoter’s spouse Amrutha (42) has been designated as a Non-Executive Director. She has been associated with the company since incorporation and has over six years of experience in human resource management and the civil construction sector.
Stakeholders
Almost the entire pre-IPO equity of Rs 36.50 Cr is held by the promoter family. Udayshivakumar holds 3,61,27,000 equity shares, representing 98.97% of the pre-issue paid-up capital at a cost of Rs 10 per share. Udayshivakumar’s spouse holds 3,65,000 (1%) at nil cost and his daughters Manjushree, Poojashree and Aishwaryashree hold 2000 shares (0.1%) each. Of the post-IPO equity capital of Rs 55.36 Cr, the promoter family will hold 65.93% and the public will have 35.07%.
Business
USK is in the business of construction of roads including National Highways, State Highways, District Roads, Smart Roads under PM’s Smart City Mission projects, Smart Roads under Municipal Corporations, Bruhat Bengaluru Mahanagara Palike (BBMP) and Local Area Roads in various Taluka places etc., in the State of Karnataka, Constructions of Bridges across Major and Minor Rivers, Railway Over Bridges (ROB), construction of Major and Minor Irrigation and canal projects, Industrial Areas, based in the State of Karnataka.
In order to facilitate its business of civil construction, USK has set up seven manufacturing units for producing ready-mix concrete, which is used in its projects and is also sold to third parties. USK has recently been awarded a project by the Government of Karnataka for mining and extraction of iron ore from the land taken on lease by Government of Karnataka.
In the year 2022 and 2023, USK has also entered into an arrangement with National Highways Authority of India and is engaged as a fee collection agent for the Halligudi (Hallikeri, Karnataka) toll fee plaza and Bankapur (Karnataka) fee plaza, respectively.
Financial Track
USK has shown somewhat steady performance during last three years. Its top line is hovering around Rs 200 Cr. Its EBIDTA margin marginally declined from 12.9% to 11.2% in fiscal 2021 but recouped to 13.4% in fiscal 2022. In the current year, the profit margin has surged to 16.2% and company’s bottom line has reached Rs 10 Cr in six month-period. Post public issue the company’s capital base will increase to Rs 55 Cr against which annualized profit works out to Rs 20 Cr.
However, a couple of negative factors are worth noting. The company has not paid any dividends in the past. There are demands aggregating to over Rs 20 Cr from the tax authorities (IT/GST/Excise) at the end of September 2022.
|
Udayshivakumar Financials (in Cr) |
||||
| Period Ended |
Sep-22 |
Mar-22 | Mar-21 |
Mar-20 |
| Months |
6 |
12 | 12 |
12 |
| Revenue |
106.61 |
185.63 | 210.40 |
193.61 |
| Operating Profit |
16.78 |
24.13 | 22.92 |
24.27 |
| OPM% |
15.7 |
13.0 | 10.9 |
12.5 |
| Other Income |
0.53 |
0.76 | 0.71 |
0.8 |
| EBIDTA |
17.31 |
24.89 | 23.63 |
25.07 |
| EBIDTA % |
16.2 |
13.4 | 11.2 |
12.9 |
| Interest |
1.55 |
3.48 | 5.18 |
5.18 |
| Depreciation |
2.54 |
5.40 | 4.88 |
5.70 |
| Except Item |
0 |
0 | -1.26 |
0 |
| Tax |
3.25 |
4.03 | 3.71 |
3.50 |
| Net Profit |
10.02 |
12.15 | 9.32 |
10.49 |
| Equity (Implied) |
55.36 |
36.50 | 36.50 |
36.50 |
| Reserves (Implied) |
88.98 |
31.82 | 19.68 |
10.37 |
| Borrowing |
39.46 |
26.48 | 30.6 |
33.95 |
| Fixed Assets |
21.50 |
25.60 | 25.60 |
31.20 |
Valuation
USK has proposed a price band of Rs 33-35 for Rs 10 paid-up share. The cap price discounts the company’s EPS by more than 16 times, EBIDTA by about 8 times and book value by 1.3 times. USK’s valuation may look favourable as compared to large infra players like IRB Infra and KNR Construction. Nevertheless, the current discounting of comparable peers like PNC Infra and RPP Infra makes USK’s valuation unattractive.
|
HOW UDAYSHIVAKUMAR INFRA COMPARES WITH SELECT PEERS |
||||||
|
Financials |
||||||
| (Amount in Cr) |
Udayshiva Kumar |
IRB Infra | KNR Constn | PNC Infra | MBL Infra |
RPP Infra |
| Market Cap |
194 |
16456 | 7298 | 7284 | 176 |
152 |
| Borrowing |
27 |
16685 | 1457 | 4779 | 1210 |
94 |
| Fixed Assets |
26 |
27326 | 820 | 1482 | 789 |
64 |
| Revenue |
186 |
5804 | 3606 | 7208 | 164 |
802 |
| Other Income |
1 |
552 | 45 | 89 | 96 |
14 |
| EBIDTA |
25 |
3349 | 844 | 1623 | 48 |
33 |
| Interest |
3 |
1891 | 148 | 425 | 36 |
14 |
| Net Profit |
12 |
588 | 345 | 578 | 0 |
5 |
| Equity Cap |
55 |
604 | 56 | 51 | 105 |
38 |
| Reserves |
89 |
11962 | 2263 | 3577 | 732 |
300 |
|
Stock Features |
||||||
| Current Price (Rs) |
35 |
27 | 260 | 284 | 17 |
40 |
| Face Value (Rs) |
10 |
1 | 2 | 2 | 10 |
10 |
| Book Value |
26 |
21 | 82 | 141 | 80 |
89 |
| Promoter Stake % |
65.9 |
34.2 | 51.5 | 56.1 | 68.5 |
51.3 |
| Debt/Equity |
0.2 |
1.3 | 0.6 | 1.3 | 1.5 |
0.3 |
|
Profitability |
||||||
| OPM % |
13.0 |
48.2 | 22.2 | 21.3 | -29.4 |
2.4 |
| Net Margin % |
6.5 |
9.2 | 9.4 | 7.9 | 0 |
0.7 |
| Cash EPS |
3.17 |
2.1 | 18.13 | 37.75 | 6.42 |
3.52 |
| Earnings Per Share |
2.19 |
0.97 | 12.27 | 22.54 | 0.01 |
1.41 |
|
Return |
||||||
| RONW % |
15.5 |
4.7 | 14.9 | 15.9 | 0 |
1.6 |
| ROCE % |
18.6 |
9.1 | 18 | 14.7 | 0 |
5.8 |
|
Discounting |
||||||
| Price/Earnings |
16.0 |
28.0 | 21.2 | 12.6 | – |
28.4 |
| Price/Cash EPS |
11.0 |
13.0 | 14.3 | 7.5 | 2.6 |
11.4 |
| Price/Book Value |
1.3 |
1.3 | 3.2 | 2.0 | 0.2 |
0.5 |
| Price/EBIDTA |
7.8 |
4.9 | 8.7 | 4.5 | 3.7 |
4.6 |
| Price/Revenue |
1.0 |
2.8 | 2.0 | 1.0 | 1.1 |
0.2 |
| Price/Fixed Assets |
7.6 |
0.6 | 8.9 | 4.9 | 0.2 |
2.4 |
|
Distribution |
||||||
| Dividend % |
0 |
0 | 12.5 | 25 | 0 |
0 |
| Yield % |
0 |
0 | 0.1 | 0.2 | 0 |
0 |
| Pay-out % |
0 |
0 | 2 | 2.2 | 0 |
0 |
Concern
- Company has been subjected to search and seizure in the past by the Income Tax authorities. Passing of any adverse orders against the company, could adversely affect its reputation, business, results of operations and financial conditions.
- Promoter has executed a partnership deed on February 1, 2023 with third parties for forming a partnership firm under the name Maruthi Industries, which is also authorised to carry out mining, civil works and civil construction activities for government authorities.
- Company has sold a tipper and a crusher plant to the promoter as part repayment of the unsecured loans availed by the company to an extent of Rs 2.45 Cr.