What you must know about PKH Ventures IPO

PKH Ventures Ltd is a company with a 23 years pedigree. The company was incorporated at the turn of the millennium in the year 2000  and is engaged in the business of Construction & Development, Hospitality, and Management Services. Broadly, its two major verticals are the construction vertical and the second is the hospitality and facilities management vertical. PKH Ventures Ltd executes civil construction works on part of third party real estate development projects by some of the big realtors in India. In fact, the civil construction business of the group is executed by its subsidiary and construction arm, Garuda Construction, which basically undertakes such third party construction projects. One of its recent such marquee projects was the development of the Delhi Police Headquarters in April 2021, entailing the construction of two towers of 17 storeys each, with a complete glass façade and steel bridge connecting the two towers.

PKH Ventures also proposes to develop its own projects, which include real estate development at Amritsar, food park at Jalore in Rajasthan, cold storage facility at Indore and a wellness centre at Chiplun in Maharashtra. Its second vertical of hospitality and facilities management is conducted under the aegis of PKH Ventures' Hospitality. It owns, manages, and operates hotels, restaurants, QSRs and even spas on an outsourced basis. In addition, the company also provides additional services like mechanical, electrical, and plumbing works; apart from annual maintenance contracts. PKH Ventures has also developed two hotels in Mumbai; Golden Chariot Hotel & Spa, Vasai and Golden Chariot, The Boutique Hotel near Mumbai International Airport. It also does government projects.

Highlights of the IPO issue of PKH Ventures Ltd

PKH Ventures IPO will be a combination of fresh issue and an offer for sale. The stock has a face value of ₹5 per share and the price band for the IPO has been fixed in the range of ₹140 to ₹148 per share. The fresh issue will entail the issue of 1,82,58,400 shares of the company, which at the upper end of the price band of ₹148 works out to a new issue value of ₹270 crore.

The offer for sale (OFS) will entail the sale of 73,73,600 shares of the company, which at the upper end of the price band of ₹148 works out to an OFS sale value of ₹109 crore. Thus, the overall IPO of PKH Ventures will entail the issue of 2,53,62,000 shares, which at the upper end of the price band of ₹148 works out to an aggregate issue size of ₹379 crore. The issue will be managed by IDBI Capital Market Services Ltd. The registrar to the issue is Link Intime India Private Ltd.

The company was promoted by Pravin Kumar Agarwal. Currently the promoters hold 100% of the company, which will get diluted post the IPO to 68.84%. The fresh portion of the IPO will be used for investment in subsidiary (Halaipani Hydro Projects), investment in Garuda Projects, acquisitions / inorganic expansion and for routine needs. Investors can apply for the IPO in minimum lots of 100 shares and in multiples thereon. However, for each category of investors, there are defined limits as to the range of lots to be applied for. These limits are covered in the table below.

As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), 35% of the total issue size is reserved for the retail investors, while the residual 15% is kept aside for the HNI / NII investors . Here is the break-up of reservations.

The company has a par value of ₹5 per share and post the IPO, the stock of PKH Ventures Ltd will be listed on the NSE and on the BSE. Being a fresh issue of equity, combined with offer for sale, the IPO will result in dilution of equity and EPS, apart from transfer of ownership internally.

Key dates for PKH Ventures Ltd IPO and how to apply?

The issue of PKH Ventures opens for subscription on Friday Jun 30, 2023 and close for subscription on Tuesday July 04, 2023. Here are key dates of the IPO to know.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh).

Financial highlights of PKH Ventures Ltd

The table below captures the key financials of PKH Ventures Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of PKH Ventures Ltd which can be enumerated as under

1. In the last 2 years, the revenues have been volatile but the net profits have nearly tripled over the last two years. That is a good signa and has also resulted in a sharp improvement in the net margins, which have doubled in the last 2 years.
    
2. The weighted average EPS of the last 3 years comes to ₹5.24 and if you assume the projected FY23 EPS would be closer to ₹6. That still leaves it at a P/E in the range of 23-25 times FY23 expected earnings. That is rather fully valued for the company.
    
3. The company has a very low level of sweating of assets as depicted by its below par asset turnover ratio. That could be an impediment to valuations.

While pricing of the IPO will matter, what is more critical is the eventual PAT margins that will sustain. If the company can hold net margins above 15%, then it would be able to justify such valuations, especially since you have to provide for the low asset turnover ratio. It is a high risk investment, but investors with a longer term perspective can take a favourable view.