Ceigall India Limited IPO: Get Date, Price, Review and Details

Introduction:

Ceigall India Limited was incorporated in July 2002. Currently, the company is an established Engineering, procurement, and Construction (EPC) company demonstrating experience in the design and construction of various roads and highway projects spread over 10 states in India. The company has completed 34 projects in the road and highway sector till date and is in the process of completing 18 projects constituting of constructing flyovers, bridges, metros, tunnels, runways, multilane highways, etc.

IPO Details:

Objectives of Issue:

• Purchase of Equipment
• repayment or prepayment of all or a portion of certain of the outstanding borrowings of the company and its subsidiary

Key Strengths:

• Adherence to Due Date- Seven of the sixteen EPC projects that the company worked on were finished on or before the deadline. There have never been any situations where the company's negligence caused a project to be delayed.

• Significant Growth in recent years – With a 3-year compound annual growth rate (CAGR) of 50.13%, the company is among the fastest growing EPC companies. Over the last three years, the company's order book has also grown significantly, with a CAGR growth that is higher than the average order book growth of its listed rivals.

• Efficient Capital Utilization - With a three-year average ROCE of 39.76% and a three-year average ROE of 30.37%, the company has demonstrated its ability to produce exceptional returns on capital. These returns significantly exceed the average of their listed industry rivals. 

Risks:

• Overdependence on NHAI- The company is primarily dependent on governmental authority for its revenue. Orders from NHAI constitute more than 80% of the order book as on 30^th June 2024. It experienced a self-imposed restrain of engagement with NHAI for 6 months due to the collapse of installation work at Adit tunnel. Such instances in the future can affect its operation.
• Negative Cash flows- The company has regularly witnessed negative operating cash flows from business in the last 3 years which has resulted into increasing working capital days and increasing trade receivable days. The continuation of the trend can affect its business operations. The company also has more than 10% of its financial obligation repayable on demand.
• Concentrated Geographical Mix- The company majorly generates revenue from road projects in Punjab, Jammu and Kashmir, Haryana, and Uttar Pradesh which amounts to more than 95% in the last 3 years. Any disruption in this year could significantly affect the business.
• Cancellation of Projects -The company sources major of its orders from NHAI. The projects are cleared for execution once the land is cleared of all encumbrances. The company in the history has faced cancellation due to the non-availability of land by the authority. Such instances could affect the operations of the company.

Financial Snapshot:

Interest Coverage Ratio – Interest Coverage Ratio determines the ability of a company to fulfill its interest obligations. It is a ratio that compares company earnings (before interest and taxes) to interest expenses. Essentially, it shows how many times a company can pay its interest charges using its operating profit. A higher ICR suggests a company is in a good financial position to handle its debt, while a lower ICR could signal potential financial difficulties.

Debt to Equity Ratio - The debt-to-equity (D/E) ratio is used to evaluate a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources.

KPI comparison with Industry Peers

Conclusion

The company being primarily involved in the road and highway projects attracts great growth as the government puts great emphasis on the road and highway sector with maximum allocation towards the sector. Due to company's excellent growth in revenue and order book and superior returns on the capital as compared to the peers the company is available at a relatively cheaper valuation compared to the peers even though the Company P/E is slightly higher than the Industry average P/E. Hence investors should subscribe to it for longer terms considering the growth and excellent fundamentals.