Integrity Infra NSE SME IPO review (Avoid)

•    The company is an integrated civil contractor specializing in contracting and subcontracting services for various government projects.
•    It provides its construction services for road construction, building and bridges.
•    The company posted growth in its top and bottom lines for the reported periods.
•    It surprised with improved bottom lines from FY24 onwards.
•    Tiny equity capital post-IPO indicates longer gestation for migration.
•    There is no harm in skipping this “High Risk/Low Return” aggressively priced bet.

ABOUT COMPANY:
Integrity Infrabuild Developers Ltd. (IIDL) is an integrated Civil Contract Company registered as a Class-A contractor since August 24, 2018 and has received the renewed certificate dated June 29, 2024 with the Government of Gujarat. The company specializes in contracting and sub-contracting services for various government projects, including road construction, building, and bridge construction. Subcontracting involves a main contractor, awarded a project by a government entity, delegating part or all of the work to specialized subcontractors. The main contractor retains overall responsibility for the project, ensuring deadlines, quality standards, and delivery are met. The subcontracting process includes identifying needs, selecting qualified subcontractors, formalizing agreements, and supervising execution.

The subcontractor completes the work as per the contract, while the main contractor ensures it aligns with project specifications, timelines, and budget. Both parties must adhere to legal, safety, and regulatory standards, with the main contractor ultimately accountable for the project's success. Since January 4, 2017, IIDL has executed various projects in the State of Gujarat. From FY 2021-22, it has completed 111 projects having an aggregate contract value of Rs. 213.37 cr., which includes 103 roads & 8 Buildings. Out of these 111 completed projects, 100% were under direct contract with the Gujarat Government & Semi Government authorities and none of them were under sub-contract with the main contractor.

As of March 31, 2025, it had an order book worth Rs. 205.98 cr. (gross) and Rs.163.07 cr. (net). As of the said date, it had 53 employees on its payroll, and also hires contract workers as and when required.  

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1200000 equity shares of Rs. 10 each to at a fixed price of Rs. 100 per share to mobilize Rs. 12.00 cr. The issue opens for subscription on May 13, 2025, and will close on May 15, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.91% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.93 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 5.03 cr. for purchase of machinery and equipment, Rs. 3.64 cr. for working capital, and Rs. 2.40 cr. for general corporate purposes. 

The IPO is solely lead managed by Aryaman Financial Services Ltd., and MUFG Intime India Pvt. Ltd., is the registrar to the issue. Aryaman group’s Aryaman Capital Markets Ltd., is the Market Maker for the company. Aryaman Capital Markets Ltd. has underwritten the IPO to the tune of 85% and the balance 15% is underwritten by Aryaman Financial Services Ltd.

The company has converted entire initial paid-up equity capital at par value. The average cost of acquisition of shares by the promoters is Rs. 10 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 3.10 cr. will stand enhanced to Rs. 4.30 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 43.00 cr. Tiny paid-up equity capital post-IPO indicates longer gestation period for migration.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 33.48 cr. / Rs. 0.30 cr. (FY22), Rs. 45.23 cr. / Rs. 0.29 cr. (FY23), and Rs. 64.63 cr. / Rs. 0.95 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 1.94 cr. on a total income of Rs. 68.97 cr. Boosted profit in pre-IPO period of FY25 indicates some window dressing for getting fancy valuations for the IPO.

For the last three fiscals, the company has reported an average EPS of Rs. 2.01 and an average RoNW of 22.76%. The issue is priced at a P/BV of 6.80 based on its NAV of Rs. 14.70 as of December 31, 2024, and at a P/BV of 2.60 based on its post-IPO NAV of Rs. 38.50 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.61. Based on FY24 earnings, the P/E stands at 45.25. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of 0.90% (FY22), 0.65% (FY23), 1.47%, (FY24), 2.82% (9M-FY25), and RoCE margins of 8.04%, 12.80%, 13.14%, 18.70%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Udayshivakumar Infra, and V R Infraspace as their listed peers. They are trading at a P/E of 15.9, and 78.2 (as of May 09, 2025). However, they are not truly comparable on an apple-to-apple basis. Peer compare with VR Infra appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 19th mandate from Aryaman Financial in the last four fiscals (including the ongoing one).  From the last 10 listings, all listed with a premium ranging from 2.86% to 31.15% on the listing date.