Dhruv Concultancy BSE SME IPO review (Apply)

Dhruv Consultancy Services Ltd. (DCSL) is an infrastructure consultancy company providing design, engineering, procurement, construction and integrated project management services for Highways, Bridges, Tunnels, Architectural, Environmental Engineering and Ports. Its services includes Preparation of DPR and feasibility studies for infrastructure projects, Operations & Maintenance Works, Project Management Consultancy Services, Independent Consultancy, Project Planning, Designing, Estimation, Traffic and Transportation Engineering, Financial Analysis, Technical audits, Structural Audit, Inspection of bridges and Techno Legal Services. DCSL has provided services to clientele such as Ministry of Road Transport and Highways, National Highways Authority of India, The City and Industrial Development Corporation of Maharashtra Ltd., Jawaharlal Nehru Port Trust, Maharashtra State Road Development Corporation, Mumbai Metropolitan Region Development Authority, Public Works Department, Maharashtra Tourism etc. Over the years DCSL has developed a track record of working majority of projects with government bodies and public sector undertakings. As of December 31, 2017, company has provided a range of consultancy services on 41 projects in the area of Highways, Bridges, Tunnels, Architectural, Environmental Engineering and Ports. Company has a qualified and professional employee base of over 313 employees, including 240 Engineers as on December 31, 2017. It also outsources certain contracts to the third party services providers.

To part finance its repayment/Pre-payment of certain debts, working capital and general corpus fund needs,  DCSL is coming out with a maiden IPO of 4296000 equity shares of Rs. 10 each at a fixed price of Rs. 54 per share to mobilize Rs. 23.20 crore. Issue opens for subscription on 27.04.18 and will close on 02.05.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Hem Securities Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 30.05% of the post issue paid up capital of the company. Company has issued entire equity at par so far. It has also issued bonus shares n the ratio of 1.63 shares for every 1 share held in December 2017 and 9 shares for every 1 share held in January 2018. Average cost of acquisition of shares by the promoters is Rs. 0.38 per share. Post issue, its current paid up capital of Rs. 10.00 cr. will stand enhanced to Rs. 14.30 cr.

On performance front, for last four fiscals DCSL has posted turnover/net profits of 9.17 cr. / Rs. 1.13 cr. (FY14), Rs. 9.74 cr. / Rs. 0.79 cr. (FY15), Rs. 15.15 cr. / Rs. 1.32 cr. (FY16) and Rs. 30.46 cr. / Rs. 3.08 cr. (FY17). For first nine months of FY18 it has earned net profit of Rs. 5.40 cr. on a turnover of Rs. 33.52 cr. As on 31.12.17 it had an order book of Rs. 131 cr. plus. It has posted an average EPS of Rs. 2.13 and an average RoNW of 28.85% for last three fiscals. Issue is priced at a P/BV of 3.83 on the basis of its NAV of Rs. 14.09 as on December 2017 (post adjustment of bonus issued in January 2018) and at a P/BV of 2.07 on the basis of its post issue NAV of Rs. 26.08 per share. Company suffered a setback in bottom line for FY15 and super profits for FY17 and for nine months of FY18. Company has utilized most of reserves as bonus shares. For last five fiscals, DCSL has shown healthy CAGR of 56.27% in revenues and CAGR of 72.85% in net profits. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 11 against industry average of 73. Thus issue is priced very reasonably. As per offer documents it has shown Artefact Proj and MITCON Consultancy as its listed peers and they are trading at a P/Es of around (0) and 24 (as on 25.04.18). Artefact has incurred losses for quarter ended 31.12.17.

On merchant banker’s front, this is 47th mandate from its stable in last six fiscals. Out of last 10 listings, 1 open at a discount to offer price and the rest opened with a premium ranging from 2.7% to 20% on the day of listing.