Ceigall India Limited is coming up with its IPO fresh issue of Rs. 684.25 crores and offer for sale worth Rs. 568.41 crores totalling Rs. 1,252.66 crores, which will open on 1^st August 2024. The issue will close on 5^th August 2024 and be listed on the exchange on 8^th August 2024. In this article, we will look at Ceigall India Limited IPO Review and analyze its strengths and weaknesses. Keep reading to learn about the company.

Ceigall India Limited IPO – About the Company

The company was incorporated in 2002. Ceigall India is an infrastructure construction company. They are into the construction of flyovers, elevated roads, railway over bridges, tunnels, bridges, highways, runways, and expressways. They are one of the fastest-growing companies in engineering, procurement, and construction (EPC) with over 20 years of experience in the industry. 

The business model is divided into hybrid annuity model (HAM) and EPC projects in over 10 states in India. As of June 30, 2024, the Order Book stood at Rs. 9,470.84 crore. Ceigall India has completed 7 EPC projects out of 16 and received a bonus for early completion of 2 EPC and 1 HAM project.

As of March 31, 2024, the company has 1,488.17 lane km of ongoing projects. and completed 2,158.72 lane kms of O&M projects. Their geographical presence is in the states of Haryana, Punjab, Rajasthan, Uttar Pradesh, Jammu and Kashmir, Himachal Pradesh, Maharashtra, Jharkhand and others. 

Ceigall India Limited IPO – About the Industry

The Indian government promotes infrastructure development through various schemes, with a focus on increasing capex outlay. The 2023-24 Budget Estimate for infrastructure capex reaches Rs. 10 trillion, nearly tripling the FY2019-20 expenditure. Now in the recent 2024-25 Union Budget, the government maintained an allocation of Rs. 11.11 trillion for infrastructure which is 3.4% of GDP.

This increase aligns with the government’s goal to stimulate inclusive growth, as infrastructure investment multiplies economic benefits in the long run.

Public sector capex prioritises improving national connectivity, allocating 64% of total infrastructure capex to highways and railways in FY24. Roads dominate transportation, handling 87% of passenger and 60% of freight traffic. National highways, despite covering only 2% of the road network, carry 40% of traffic.

NHAI has authorised O&M projects worth Rs. 77.21 billion in the first 10 months of FY24, creating opportunities for EPC companies. The government partners with private players through PPP to achieve comprehensive road connectivity efficiently.

The Ministry of Road and Highways budget has doubled from FY19 to FY24, reaching Rs. 2.64 trillion. FY25 sees a 3% increase to Rs. 2.72 trillion, which should normalize road EPC companies order books for the coming fiscal year.

Ceigall India Limited IPO – Financial Highlights

Ceigall India reported revenue from operations of Rs. 3,029.35 crores in FY24, up 46.47% from Rs. 2,068.16 crores in FY23. Net profits in FY24 were Rs. 304.30 crore, an improvement of 81.92% from Rs. 167.27 crore in FY23. There was an improvement in construction cost, other income, and an increase in operational revenue which have contributed to its increase in profits.

The earning per share in FY24 was Rs. 19.37 per share which was an increase from 81.87% from the previous year’s Rs. 10.65 per share. The increase in EPS has increased value for its shareholders.

As the business is capital intensive, Ceigall’s total debt to equity is around 1.17 times in FY24 which is consistent compared to the previous year’s 1.18 times.

Their Book to Bill Ratio in FY24 stood at 3.05 times which is a decline from 5.23 times in FY23. The higher the ratio the better in future order expectations. Sometimes the lower ratio might be on faster execution of projects compared to its order book growth. Here, the order book has decreased from FY23 which is based on tenders. 

The RoE stood at 33.57% in FY24 and improved from 28.20% in FY23. With higher profits and a lower equity base their returns are better, based on their business operations looking at RoCE makes it relevant, and in FY24, the ratio was at 31.98% improved from 28.67% in FY23.

Ceigall India recognises its revenue from operations under Engineering, Procurement, and Construction and Built, operated, and Transfer and Annuity Projects. Their EPC segment contributed around 75%, Annuity Projects contributed around 20.23% and Others contributed the remaining 4.76% in FY24.

Ceigall India Limited IPO – Key Players 

Ceigall India’s listed peers are KNR Construction, J. Kumar Infraprojects, PNC Infratech, G R Infraprojects, H.G. Infra Engineering, and ITD Cementation India.

Compared to its peers, the debt to equity is around 0.58 compared to its peers which is the range of 0 to 0.58 in FY24. Ceigall and ITD Cementation are on the higher side of the ratio. As Ceigall is more into a capital-intensive business, the higher ratio augurs well with its operations. However, the majority of their peers are low or debt free and it shows the competitiveness in the Industry to source their operations.     

The EBITDA margin of Ceigall India is around 14.84% in FY24, compared to its peers which is in the range of 10% to 20%. Ceigall India’s margins are on par with its peers. Most of their listed peers are on the higher side of the range. However, KNR Construction among its peers has outperformed based on its EBITDA margins.

Ceigall India’s return on equity is around 31.52%, which is higher compared to its peers. The increase in RoE was due to an increase in net profits YoY and the low equity base which impacted the ratio. Even in RoCE, Ceigall has outperformed its peers. Ceigall overall has performed in line with the peers in some parameters. 

Here is a list of Order Books compared to its peers.

Strengths of the Company

1. Rapid Growth: The company has achieved fast growth, becoming one of the fastest-growing EPC firms with a 50.13% CAGR between 2021 and 2024. It specialises in roads, highways, and complex structures like elevated roads and tunnels across multiple Indian states.
2. Improving Order Book: They maintain a healthy order book, providing long-term revenue visibility. As of June 30, 2024, the order book stood at ₹94,708.42 million which is an increase of 2.65% from Fiscal 2024, with 80.31% contributed by NHAI projects. This enables the opportunity for a broader range of project tenders.
3. Execution Capabilities: The company demonstrates strong project execution capabilities, having completed over 34 projects including specialised structures. The company utilises in-house engineering expertise and efficient resource management to complete projects on or ahead of schedule, sometimes earning bonuses.
4. Cost Prudent Approach: Ceigall employs a business model focused on careful project selection, cost optimisation, and strategic pre-bidding approaches. This has resulted in high returns on capital employed and equity and effective inventory and equipment management.
5. Experienced Management: The company benefits from experienced leadership, led by promoter Ramneek Sehgal with over 20 years of industry experience. The management team’s expertise spans various sectors, enabling the company to capitalize on market opportunities and expand into new markets.

Weaknesses of the Company

1. Government contract dependence: The company heavily depends on government contracts, especially from NHAI. Over 80% of its order book comes from NHAI projects. This concentration exposes the company to significant risks if government policies or spending priorities change.
2. Cash Flow Issues: The company has experienced negative cash flows from operating activities in recent years. This trend may continue, potentially impacting its ability to meet working capital needs and repay loans without external financing, which could adversely affect business operations.
3. Land acquisition challenges: Project delays often occur due to land acquisition issues, environmental clearances, or encroachment problems. These delays, though attributable to customers, can lead to cost overruns, disputes, and losses for the company.
4. Funding Projects: The company faces high working capital requirements due to project financing needs and performance guarantees. Insufficient cash flows to fund these requirements or make debt payments could negatively impact the company’s operations and profitability.
5. Royalty Charges: Changes in royalty charges for mining materials could adversely affect project costs and profitability. The company must pay these fees for excavating minerals like sand and stone, and any unfavorable policy changes may increase expenses and reduce margins.

Ceigall India Limited IPO – GMP

The shares of Ceigall India Ltd’s price in the grey market were trading at a 22.44% premium as of July 30^th, 2024. The shares in Grey Market traded at Rs.491. This gives it a premium of Rs.90 per share over the cap price of Rs. 401.

Ceigall India Limited IPO – Key IPO Information

Promoters: Ramneek Sehgal, Ramneek Sehgal and Sons HUF, and RS Family Trust.

Book Running Lead Manager: ICICI Securities Limited, IIFL Securities Private Limited and JM Financial Limited.

Registrar to the Offer: Link Intime India Private Limited.

The Objective of the Issue

1. Equipment Purchase.
2. Repayment or/and pre-payment of certain borrowed by the Company.
3. Repayment or/and pre-payment of certain borrows of its subsidiary- Ceigall Infra Projects Private Limited.
4. General Corporate Purposes.

Conclusion

Ceigall India Limited has a good outlook based on their order book and improved execution. However, the operational cash flow is concerning to its negative cash flow. They can improve on diversifying their portfolio into other segments to reduce the risk from one concentrated client. However, many established players are bidding on the projects which can make the bids more competitive. It can have an impact on margins during Industry downturns and high inflation. 

So what do you make of this company? Will it be able to increase its market share based on its competition with peers? What is your view? Let us know in the comments below.

Written by Santhosh

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