Kaarya Facilities BSE SME IPO review (May apply)

Kaarya Facilities & Services Ltd. (KFSL) is a leading integrated Facilities and Property Management company. The company is offering its expertise to corporate, SMEs, Government institutions and Residential Segments. With a professional management team and a culture of innovation, learning, quality and deep service orientation; it has become the partner of choice for organizations who need to focus on their core business and outsource non-core operations. Initially, KFSL begun with the most basic of skills such as cleaning, kitchen, hospitality and over the period it added layers to the teams‘ skill sets to successfully bid for high skilled contracts such as Housekeeping, Maintenance, Office Administration, Help Desk & more. The management and executive team understood the constantly evolving needs of the industry and invested in continuously skilling team to take up new responsibilities. In last few years KFSL has transformed into an integrated services player offering complex facility management solutions. It has emerged as a domain expert in all kinds of realty operations & maintenance solutions.

As on June 30, 2017 Company had 297 personnel deployed. It operates on an asset-light model with low capital expenditure requirements and high working capital requirements. Currently majority of its revenues is from deployment of personnel for soft services comprising of housekeeping services, help desk management, office administration executives, and pantry & steward services. KFSL gradually also developing into suppliers of all aspects of building maintenance and operations services including technical services & other hard services such as tank cleaning, pest control, contracts management & more.

To part finance its working capital requirements and purchase of staff uniforms, equipments and ERP software, KFSL is coming out with a maiden IPO of 1599000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs.6.40 crore. Issue opens for subscription on 12.10.17 and will close on 17.10.17. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by First Overseas Capital Ltd. and Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 34.20% of post issue paid up capital of the company. Having raised initial equity at par, it raised further equity in the price range of Rs. 40 to Rs. 300 per share during October 2010 to July 2017. It also raised equity by way of rights issue at par in July 2017 and has issued bonus shares in the ratio of 12 for 1 in May 2017 and 1 for 2 in July 2017. Post issue, its current paid up equity capital of Rs. 3.08 crore will stand enhanced to Rs. 4.68 crore. Cost of acquisition of shares by promoters is Rs. 5.05.

On performance front, KFSL has posted turnover/net profits of Rs. 4.48 cr. / Rs. 0.01 cr. (FY14), Rs. 8.08 cr. / Rs. 0.15 cr. (FY15), Rs. 8.41 cr. / Rs. 0.19 cr. (FY16) and Rs. 10.67 cr. / Rs. 0.57 cr. (FY17). For four months ended on 31.07.17 of the current fiscal, it has reported net profit of Rs. 0.26 cr. on a turnover of Rs. 2.88 cr. Thus while it scaled up bottom lines on static top line for FY14 to 16, sudden rise in its top and bottom line for FY17 is surprising. It has posted an average EPS of Rs. 1.78 and average RoNW of 20.56% for last three fiscals (on a paid up equity capital of Rs. 0.11 crore. Issue is priced at a P/BV of 3.24. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of 23 plus. As per offer documents, it has no listed peers to compare with. Issue appears to have been fully priced.

On merchant banker’s front, this is 14th mandate from its stable in last three fiscals. Out of recent 10 listings, 5 opened at discount to offer price, 1 at par and the rest giving 1 to 40% premium to offer price.

Conclusion: Considering fully priced offer, cash surplus risk savvy investors may consider investment for long term.