PKH Ventures IPO: Key details to know

PKH Ventures decided to cancel its initial public offering (IPO) on the final day, primarily due to a lackluster response from investors. The IPO received bids for only 65 percent of the total offer size, indicating a tepid interest in the company's shares. 

However, here are the key factors of the company and its failed IPO.

PKH Ventures IPO Details

• PKH Ventures IPO Date: 30th June - 4th July 2023
   
• PKH Ventures IPO Price band: Rs 140 - Rs 148
   
• PKH Ventures IPO Issue Size: Rs 379 crores (Fresh Issue of Rs 270.22 crores and an OFS of Rs 109.13 crores)
   
• Reservation: QIB - 50%, Retail Investors - 35% and  NII - 15% (QIB - Qualified Institutional Buyers, NII - Non - Institutional Investors)
   
• Minimum Order Quantity: 56 shares

PKH Ventures IPO: Issue objective

PKH Ventures expects to utilize the net proceeds from the IPO to:

• To develop the Halaipani Hydro Power Project.
• To fund the working capital requirements of the Garuda Construction project.
• To fund acquisitions.
• General corporate purposes.

PKH Ventures IPO : About PKH Ventures

• Founded in the year 2000, PKH Ventures’ business model is unique with operations in the construction and hospitality sector. The construction business is carried out through its subsidiary, Garuda Construction which provides complete construction services for residential and commercial buildings. The business has been awarded government projects like the Hydro Power Project and the Nagpur Project. Notably, the construction business also completed the development of the Delhi Police Headquarters in April 2021. As of March 15, 2023, the Garuda Construction’s Third Party Developer Order Book was ₹ 46,827.59 lakhs.
   
• Meanwhile, the hospitality business is engaged in the business of owning, managing and operating hotels, restaurants, QSRs and spas. Notable developments by the company in the hospitality space include Golden Chariot Vasai Hotel & Spa and the Golden Chariot, The Boutique Hotel near Mumbai International Airport. It conducts operations in the hotels business under the brand name Golden Chariot and Balaji while its QSR brands include Zebra Crossing, Hardy’s Burger and Mumbai Salsa.
   
• The company’s upcoming projects include projects in Amritsar, Mumbai, Rajasthan, Madhya Pradesh and Chiplun, Maharashtra. A diversified geographical base of projects makes the company less vulnerable to any area-specific adverse developments. Moreover, the company deploys labour and equipment through third party contractors. This ensures efficiency, less capital expenditure and increasing margins for the company.

PKH Ventures IPO : Industry Overview

• The construction industry has got a renewed push amid the Government’s thrust for infrastructure growth in recent years. Taking this into consideration, it is expected that construction is likely to contribute about 15% to the Indian economy by 2030 compared to almost 8% now. By being an important player in the construction space with a diversified geographical base, PKH remains well positioned to benefit from this rise.
• The company also operates in the burgeoning hospitality space in India. Pent-up demand due to the pandemic amid prolonged closures coupled with rising income levels has resulted in heightened travel sentiments in the country. Moreover, PKH’s strong presence in the Mumbai market also makes it well poised to take advantage of the resumption in travel activities in the country especially in the Meetings, Incentives, Conferences and Exhibitions (MICE) segment.
• PKH Ventures’ presence in the restaurant space is also noteworthy. The industry is expected to witness a CAGR of ~10% over the next five years to reach a size of Rs Rs. 6.2 lakh crores by FY25. Increasing urbanisation, favourable demographics and shift towards formalisation are being seen as major contributors to the growth in the restaurant space in the country.

PKH Ventures IPO: Listed Peers

Although the company has no listed peers in India who are engaged in both the construction and hospitality businesses, peers exist in the individual businesses. Let’s have a look at how the company fares compared to its competitors in the respective industries.

Construction Business

Hospitality Business

(as of FY 22, in Rs lakhs )

PKH Ventures IPO: Financials

• PKH Ventures has witnessed steady revenue growth over the years. This can be gauged from the fact that revenues increased from Rs 169 crores in FY 20 to roughly Rs 245 crores in FY 22. This denotes a CAGR of 13.2%. Increased construction activities post the Covid induced lockdown coupled with rising disposable income levels have acted as tailwinds for the company’s revenues.
• Meanwhile, the company’s expenses management has been quite efficient in the past few years. This is because it has remained fairly stable from the FY 20 levels of Rs 161.5 crores to Rs 160 crores in FY 22. Easing raw material costs and government’s thrust for the construction sector have aided expense management for the company.
• With rising revenues and efficient expense management, the company’s profits have soared over the years. Profits have jumped from about Rs 14.1 crores in FY20 to Rs 40.5 crores in FY22, representing a CAGR of 42.1%.

PKH Ventures IPO: Risks

Lack of experience in hydro projects: PKH Ventures has no prior experience in developing and operating a hydropower project. The company’s probable lack of fulfilment of the hydro power project in Arunachal Pradesh can not only lead to reputational damage for the company, it can also hurt its operations and financial performance.

Meanwhile, the company also entered the construction business as recently as FY21 through the acquisition of Garuda Construction and Eternal Infra. This has made the company vulnerable to third party contractors and consultants for the execution of projects which remains a risky proposition.

Concentration of revenues: The company derives a significant chunk of its revenues from its Construction & Development segment. This can be seen from the rising contribution of the segment to the company’s total revenues. It increased from 47.26% in FY21 to 61.24% for the nine months ended FY23.

As mentioned above, the company has entered into the construction vertical fairly recently and have not developed the requisite expertise for the same. In such a scenario, rising contribution from the sector makes it vulnerable to any untoward developments and consequent reduction in revenue visibility from the same.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.