Arisinfra Solutions IPO review (May apply)

•    The company is engaged in technology enabled B2B supplier for construction materials, that has growing market.
•    It enjoys virtual monopoly in the segment and is most preferred partner in construction activities.
•    It posted losses till FY24 and has just turned corner for 9M of FY25.
•    Based on latest working the issue is aggressively priced, and based on working till FY24, the P/E is negative.
•    Well-informed/cash surplus investors may park moderate funds for long term, others may simply stay away from this pricey bet.

ABOUT COMPANY:
Arisinfra Solutions Ltd. (ASL) is a business-to-business (“B2B”) technology-enabled company operating in a growing construction materials market (Source: RedSeer Report), focusing on simplifying and digitizing the entire procurement process for construction materials, delivering an efficient end-to-end procurement experience. It utilizes a blend of technology and human expertise to simplify the procurement process for purchasing bulk quantities of various construction materials. ASL leverages network of vendors to source construction materials and provide them to real estate and infrastructure developers and contractors, striving to be a one-stop solution for all their construction material requirements. 

Between April 1, 2021 and December 31, 2024, it has delivered 14.10 million metric tonnes (“MT”) of construction materials, including aggregates, ready-mix concrete (“RMC”), steel, cement, construction chemicals and walling solutions, utilizing 1,729 vendors and serving 2,659 customers across 1,075 pin codes in various cities, including Mumbai (Maharashtra), Bengaluru (Karnataka) and Chennai (Tamil Nadu). Since inception, the company has witnessed growth, with its network of registered customers and vendors increasing from 431 customers and 441 vendors as of March 31, 2022 to 2,133 customers and 1,458 vendors as of March 31, 2024. The company has registered 2,659 customers and 1,729 vendors as of December 31, 2024. Further, for the nine months ended December 31, 2024 and for Fiscals 2024, 2023 and 2022, its active customer count (i.e., a customer that has purchased construction materials through it at least once during the relevant Fiscal) was 1,080, 1,278, 1,117 and 431, respectively.

The Indian construction materials market presents a significant opportunity as it is highly unorganized and fragmented, coupled with the absence of many large organized players, creating numerous challenges for both vendors and customers. (Source: RedSeer Report) ASL is transforming the B2B construction materials ecosystem by minimizing the need for multiple intermediaries involved in the procurement ecosystem. (Source: RedSeer Report) Further, B2B technology-enabled companies such as ASL, has the potential to enhance margins by eliminating intermediaries and inefficiencies within the ecosystem, positioning it as a cost-effective, technology-enabled alternative to the traditional approach to B2B procurement for construction materials.

The company leverages technology and human expertise to streamline and manage the process of purchasing, selling, and delivering construction materials. In particular, it has reshaped the traditional procurement process for customers by eliminating the need for them to individually contact multiple vendors and wait for separate price quotations. Instead, when customers submit a request for quotation (“RFQ”) with it, ASL leverages technology to generate a list of suitable vendors from network based on factors including their location, proximity to customers, credit terms and previous order fulfillment performance. The company seamlessly communicate with the shortlisted vendors and solicit bids from them. Thereafter, it analyzes bids for their price and credit terms, aggregate them, add its margins and share a suitable one price quotation with the customer for the construction materials requested. ASL utilizes technology-enabled workflows across operations to manage transactions involving multiple steps and stakeholders, which it believes ensures a seamless and secure procurement process while improving price discovery for construction materials and, making the purchasing experience efficient, transparent and cost-effective. Furthermore, its integrated delivery management system combines technology and operations to streamline the delivery of construction materials. Its operations team utilizes this technology-enabled approach to provide real-time updates to customers, ensuring coordination, convenience and smooth delivery.

ASL’s customer base includes large real estate and infrastructure developers and contractors, including Capacit’e Infraprojects Limited, J Kumar Infraprojects Limited, Afcons Infrastructure Limited, EMS Limited, S P Singla Constructions Private Limited, Real Gem Buildtech Private Limited, Wadhwa Group Holdings Private Limited, Casa Grande Civil Engineering Private Limited, Sheth Creators Private Limited, Puranik Builders Limited, and Transcon Iconica Private Limited. Its vendor base includes manufacturers and wholesale suppliers such as Guardian Casting Private Limited, G S Ispat, Swarajya – Stones LLP, Sun-x Concrete India Private Limited, Bigbloc Building Elements Private Limited, and Normet India Private Limited. The growth in its customer and vendor base has resulted in an increase in the volume of construction materials (i.e., aggregates, RMC, steel, cement, construction chemicals and walling solutions) delivered, from 2.32 million MT in Fiscal 2022 to 4.01 million MT in Fiscal 2023, 4.02 million MT in Fiscal 2024 and 3.75 million in the nine months ended December 31, 2024. In addition, the number of daily dispatches (calculated as number of delivery challans generated across all orders during a Fiscal divided by number of days in the Fiscal) has increased from 282 in Fiscal 2022 to 484 in Fiscal 2024, respectively.

As a B2B technology-enabled company, its business model involves procuring construction materials from vendors and securing payments from customers for construction materials sold. Given that the time to receive payments from customers (receivable days) is typically longer than the time required to pay vendors (payable days), it is essential to implement credit risk management measures. To address these challenges, it leverages technology and data-driven insights to assess and manage credit risk, make informed decisions and mitigate financial risks. ASL’s technology-enabled approach, powered by advanced tools such as artificial intelligence and machine learning, plays a pivotal role in its credit risk management strategy. As of December 31, 2024, the company had 234 employees on its payroll.

According to the company management, the company currently enjoys virtual monopoly in supplying construction materials to creamy customers like L & T, J Kumar, Puranik Builders, Wadhwa Group, Capacite Infra, Afcons etc, to name a few. Negative earnings for FY23-FY24 are attributed to change in accounting standards, ESOP expenses and change in accounting systems. It managed to turn corner in 9M FY25 with continuation of such provisioning. With the rising activities on infra and residential complexes, it is poised for bright prospects in coming years. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of fresh equity shares issue worth Rs. 499.60 cr. (approx. 22504504 equity shares at the upper cap). The company has announced a price band of Rs. 210 – Rs. 222 per equity shares of Rs. 2 each. The issue opens for subscription on June 18, 2025, and will close on June 20, 2025. The minimum application to be made is for 67 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 27.77% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 204.60 cr. for repayment/pre-payment of certain borrowings, Rs. 177.00 cr. for working capital, Rs. 48.00 cr. for investment in subsidiary Buildmex Infra for its working capital, and the rest for general corporate purposes. The company did pre-IPO placement of equity shares worth Rs. 80 cr. at a price of Rs. 222 per share in January 2025.

The joint Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd., IIFL Capital Services Ltd., and Nuvama Wealth Management Ltd., while MUFG Intime India Pvt. Ltd., is the registrar to the issue. JM Financial Services Ltd., and Nuvama Wealth Management Ltd. are the syndicate members.

Having issued/converted initial equity shares at par, the company issued further equity shares in the price range of Rs. 222 – Rs. 396 per share (based on Rs. 2 FV), between June 2021, and January 2025. It has also issued bonus shares in the ratio of 5 for 1 in July 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.31, Rs. 0.33, Rs. 13.57, Rs. 15.33, and Rs. 59.27 per share. 

Post-IPO, its current paid-up equity capital of Rs. 11.71 cr. will stand enhanced to Rs. 16.21 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1799.28 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (LOSS) of Rs. 453.77 cr. / Rs. – (6.49) cr. (FY22), Rs. 754.44 cr. / Rs. – (15.39) cr. (FY23), and Rs. 702.36 cr. / Rs. – (17.30) cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 6.53 cr. on a total income of Rs. 557.76 cr. The company appears to have turned the corner for 9M of FY25, but actual trends may be known for entire FY25 numbers.

For the last three fiscals, the company has posted an average EPS of Rs. – (4.32) and an average RoNW of – (11.82) %. The issue is priced at a P/BV of 8.13 based on its NAV of Rs. 27.29 as of December 31, 2024, and at a P/BV of 2.49 based on its post-IPO NAV of Rs. 89.24 per share (at the upper cap). 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 207.48. Based on FY24 earnings, the P/E is negative. Thus, the issue is aggressively priced. 

The offer document is missing PAT margins and RoCE margins for the reported periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in July 2024 and amended in October 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
The three BRLMs associated with the offer have handled 75 pubic issues in the past three fiscals, out of which 19 issues closed below the offer price on the listing date.