What you must know about the Udayshivshankar Infra IPO

Udayshivakumar Infra IPO, as the name suggests, is into the business of road construction. The company was incorporated in the year 2019, so it has a business history of about 4 years. The portfolio of Udayshivakumar Infra Ltd comprises of the construction of a full range of roads including the building of state highways, district roads, smart roads etc. Under the Prime Minister Smart City Mission project, the Smart roads were conceived to enhance the value of the smart cities. Udayshivakumar Infra Ltd has its primary operation in the southern state of Karnataka. The company typically bids for roads, bridges, irrigation projects, canals, and industrial area construction with the various concerned agencies like the National Highways Development Corporation, the State Highway Development Corporations, various government departments in the state of government, the Karnataka Public Works Department etc.

Udayshivakumar Infra Ltd has already executed a total of 30 projects in and around the State of Karnataka and the company is currently working on 25 ongoing infrastructure projects. The current IPO will enable the company to have a bigger balance sheet and higher risk capacity to undertake bigger and larger projects in joint venture with other infra companies in the construction sector. The construction and infrastructure space is very working capital intensive and most of the funds will go into providing working capital for their infrastructure projects. The IPO of Udayshivakumar Infra Ltd will be lead managed by Saffron Capital Advisors Private Limited while the registrars to the issue are MAS Services Ltd.

Key terms of the IPO issue of Udayshivakumar Infra Ltd

The IPO of Udayshivakumar Infra Ltd entails the issue of 188.57 lakh shares with the price band fixed in the range of Rs33 to Rs35. Out of the total sale of 188.57 lakhs shares as part of the IPO, the entire IPO will be the fresh issue portion with no offer for sale (OFS). Hence the entire capital raising will be EPS and capital dilutive since it will entail fresh funds coming into the company in exchange for dilution of equity. At the upper end of the price band at Rs35 per share, the total size of the issue will be Rs66 crore.

As per the terms of the offer, 10% of the net offer is reserved for the qualified institutional buyers (QIBs), while 60% of the total issue size is reserved for the retail investors. The residual 30% is kept aside for the HNI / NII investors . The company has a par value of Rs10 per share and post the IPO, the stock of Udayshivakumar Infra Ltd will be listed on the NSE and on the BSE. The pre-issue ownership of the promoters stands at 100% and this is likely to get diluted post the IPO, where there will be equity dilution due to the entire IPO being in the form of a fresh issue.

The minimum lot size for application to the IPO by retail investors will be 1 lot of 428 shares each. The table below captures the minimum lots that can be applied for various categories under the retail and the HNI / NII category.

Key dates for the Udayshivakumar Infra Ltd IPO and how to apply?

Udayshivakumar Infra IPO opens for subscription on 20th March 2023 and closes for subscription on 23rd March 2023 (both days inclusive). The basis of allotment will be finalized on 28th March 2023 and the refunds will be initiated on 29th March 2023. In addition, the demat credits are expected to happen on 31st March 2023 and the stock will list on 03rd April 2023 on the NSE and the BSE. This is one of the handful of mainboard IPOs that will open for subscription in the first quarter of 2023. Here is how to apply for the IPO of Udayshivakumar Infra Ltd.

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 Rs2 lakh per application) or in the HNI / NII quota (above Rs2 lakh).

Financial highlights of Udayshivakumar Infra Ltd

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

Data Source: Company DRHP filed with SEBI

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

1. The growth of the company has been erratic in the last 3 years, but that is normal in a cyclical business where contracts by state governments are a function of who is in power at the state level.
    

2. The PAT margins have been single digits, but that is the nature of the roads business, which normally tends to have very low margins. The positive takeaway for the company is that its RONW and its asset turnover have been stable through the years, hinting at aggressive sweating of assets.
    

3. Too much of regional focus may be a risky business model since the preferred contractors tend to change with the change in the government. This is more so in the case of state contracts. That is a risk for Udayshivakumar Infra Ltd

The company is a very niche infrastructure play but also high on the risk scale. The size of the operations is quite small and that makes it vulnerable to cycles. The stock is suited to an investor with a much higher risk appetite.