What you must know about V.L. Infraprojects IPO: Price Band ₹39 to ₹42 per share

About V.L. Infraprojects Ltd

V.L. Infraprojects Ltd was incorporated in the year 2014 and offers the planning, construction, and commissioning of various government projects with primordial focus on water infrastructure and irrigation projects. V.L. Infraprojects Ltd specializes in execution of water supply and wastewater infrastructure projects. These, inter alia, include procurement of pipes and their laying, connection, and commissioning. The service stack of the company is fully integrated as it offers the full value chain of services encompassing all related civil engineering works, including civil works, pumping stations, and installation of electro-mechanical equipment for distribution of water supply from river to the homes. 

In addition, V.L. Infraprojects Ltd also provides operation and maintenance services for water pipelines. The company already has approval from various governments and specific government departments. For instance, V.L. Infraprojects Ltd is a Class-AA approved contractor to the Government of Gujarat. It also has civil and electrical contractor license from the Karnataka State Public Works Department (PWD). In addition, the company is also in the approved list of contractors for the Government of Telangana as well as to the Government of Madhya Pradesh. The company employs 30 personnel on its rolls.

Highlights of the V.L. Infraprojects IPO

Here are some of the highlights of the V.L. Infraprojects IPO on the SME segment of the National Stock Exchange (NSE). 

•  The issue opens for subscription on 23rd July 2024 and closes for subscription on 25th July 2024; both days inclusive.

•  The stock of V.L. Infraprojects IPO has a face value of ₹10 per share and it is a book built issue. The book building price band for the IPO has been set in the range of ₹39 to ₹42 per share. The final price discovery will happen in the above price band only.

•  The IPO has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•   As part of the fresh issue portion, the company will issue a total of 44,10,000 shares (44.10 lakh shares), which at the upper band IPO price of ₹42 per share aggregates to fresh fund raising of ₹18.52 crore.

•  Since there is no offer for sale, the fresh issue will also double up as the overall size of the IPO. Therefore, the overall IPO size will also comprise of the issue of 44,10,000 shares (44.10 lakh shares) which at the upper band IPO price of ₹42 per share aggregates to overall IPO size of ₹18.52 crore.

•  Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 2,40,000 shares as quota for market inventory. Spread X Securities Private Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

• The company has been promoted by Rajagopal Reddy Annam Reddy, Mydhili Rajagopal Reddy, and Nageswara Rao Repuri. The promoter holding in the company currently stands at 90.91%. Post the fresh issue of shares, promoter equity holding share will get diluted to 65.39%.

•  The fresh issue funds will be used by the company for funding working capital needs of the business; since the business is essential working capital intensive. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•  Beeline Capital Advisors Private Ltd will be the lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Private Ltd. The IPO of V.L. Infraprojects Ltd will be listed on the SME IPO segment of the NSE.
   

V.L. Infraprojects IPO – Key Dates

Here are the key dates about the IPO.

Data Source: Company RHP

In ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 29th 2024, will be visible to investors under the ISIN Code – (INE0QXL01015). This credit to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO Allocation and Minimum Investment Lot Size

V.L. Infraprojects IPO has announced a market maker allocation of 2,40,000 shares, which will be used as inventory for market making. Spread X Securities Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of V.L. Infraprojects Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹1,26,000 (3,000 x ₹42 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 6,000 shares and having a minimum lot value of ₹2,52,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.
 

There are no upper limits for investments by HNIs / NIIs in the IPO of V.L. Infraprojects Ltd.

Financial Highlights: V.L. Infraprojects Ltd

The table below captures the key financials of V.L. Infraprojects Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have grown at a healthy clip, with FY24 revenues over 3-times the revenues of FY22, despite tepid sales growth in FY23 over FY22. Despite being an IRR based pricing business model, which is normal in this segment of business, the net profits margins are attractive at 5.39%. That has been the growing trend for the last 3 years. 

•    While net margins of the company have been relatively healthy at 5.39%, the other return margins have shown better traction in latest year. The return on equity (ROE) stands robust at 37.53% in FY24, while the return on assets (ROA) is also modestly strong at 10.79% in FY24. Both are up sharply from the previous two years.

•    The asset turnover ratio or the sweating ratio has been healthy in the latest year at 2.00X and that only gets further accentuated when you look at the modestly healthy levels of the ROA. However, in an IRR based pricing model in the service industry, it is less about asset turnover and more about how the net margins traction gets built.

The company has latest year EPS of ₹5.43, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹42 per share at 7-8 times P/E ratio. That is quite a reasonable P/E to have, especially if you factor in the robust growth in the ROE, and the return on assets in the latest year. Also, if this growth continues into FY25, then the valuations should only get a lot more attractive.

To be fair, V.L. Infraprojects Ltd some bring some intangible advantages to the table. It has an experienced promoter team with deep client links in the industry, something that matters a lot in this project execution business. Also, its end to end execution capabilities in the water supply projects and the ability to offer a one-stop solution makes it a serious player in the game. The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years. Ideally, investors must be prepared for the higher risk implicit in such IPO stocks; because as we have seen in recent months, there are risks in smaller stocks at higher levels. For now, the company has the moat to play out competition in the industry, so investors can look at the IPO favourably for long term holding.