Capacit'e Infraprojects IPO opens today: Should you subscribe?

Capacit'e Infraprojects (Capacit’e), incorporated in August 2012, is a Mumbai-based construction company focused on Residential, Commercial and Institutional buildings. It is into construction of super high-rise (>40 floors) and high rise buildings (>7 floors).

The company’s clients include Kalpataru, Oberoi Constructions Ltd, Wadhwa Group, Saifee Burhani Upliftment Trust, Lodha Group, Rustomjee, Godrej Properties Limited, Brigade Enterprises Limited and Prestige Estates Projects Limited. Capacit’e has 51 ongoing projects and order book consists of 96% residential, 3% commercial and 1% institutional projects.

The company intends to use the net proceeds for funding working capital requirements, purchase of capital assets and general corporate purposes. 

The IPO (price band: Rs 245 – 250) opens for subscription on September 13 and closes on September 15.

Should you invest? This is what leading brokerages suggest.

MOTILAL OSWAL RESEARCH

Despite the infrastructure segment struggling to grow in past few years, company has successfully delivered strong revenue / EBITDA / PAT growth of 75%/121%/169% in FY14-17. Other key strengths of the company include large order book with marquee client base and repeat orders; presence in cities with high growth potential; expansion in the mass housing segment; and superior ROEs / ROCEs of 29.6% and 38.1%. 

At upper price band, the issue is priced at PE of 24xFY17 post issue (and 19x FY17 pre-issue) which we believe is attractive in context of strengths mentioned above. Hence we recommend SUBSCRIBE for long term.

ANGEL BROKING

Considering the company's experienced management, revenue visibility, strong track record of timely delivery of projects and strong relationships, we believe that Capacit’e would continue to gain incremental order inflow going ahead. 

At the upper end of the price band, the pre-issue P/E works out to be 18.6x FY2017 earnings, which is lower compared to P/E multiple of its peers i.e. Ahluwalia - 22x, PSP 32x. Moreover, post-RERA, a contractor with strong track record of timely project delivery would garner major order. Hence, owing to all the positive factors, healthy return ratios we rate this IPO as “SUBSCRIBE”.

CHOICE RESEARCH

Going forward, the company intends to participate in the government’s housing projects. It is also aiming to bid for the NBCC projects in future. There is limited domestic competition in the construction of high rise buildings. On a pan-India basis, there are around 5-7 players competitors, while in the Mumbai metropolitan region there are only 3-4 players.

On valuation front, the company is trading at a premium to its peer. However, we feel that this is justified owing to its specialty in the construction in the high rise buildings and superior profitability and return ratios. 

Based on our quick estimate, we forecast the company to have an EPS of Rs. 14.2, which translates into a FY18E P/E multiple of 17.6x. Similarly, we forecast a RoE of 12.1% for FY18E. Thus considering the above observations, we assign a “SUBSCRIBE” rating for the issue.

GEOJIT FINANCIAL SERVICES

At an upper price band of Rs 250, CIL is available at a reasonable valuation of 24x on FY17 EPS (Post IPO dilution). Better return ratio and less leveraged balance sheet continue to support valuation. We recommend 'Subscribe' to the issue, with a medium-to-long term perspective.

DALAL & BROACHA STOCK BROKING

During the period between FY15-17 the company has shown 51% CAGR, with improvement in EBITDA margin from 11.4% - to- 13.7% and PAT CAGR over the same period has been 47.4%. Company delivered 23% ROE & 35% ROCE IN FY17. It has an Order Book of Rs 4,700 crore (i.e. about 4x the consolidated Revenue of FY17) with 56 ongoing projects as of May 2017, mainly for gated community and high rise projects. The company has good CAGR growth in terms of topline and bottom line with strong ROCE and ROE above 20%. We recommend investors to ‘Subscribe’ to the issue.