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IPO Analysis: PKH Ventures Ltd.
IPO Analysis
PKH Ventures Limited (PKH) is in the business of Construction & Development, Hospitality and Management Services. It executes Civil Construction works for Third Party Developer projects and has been awarded with two (2) Government Projects viz., Hydro Power Project, Nagpur Project and three (3) Government Hotel Development Projects viz., Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project, being executed through its Subsidiaries/SPVs/ the Company. The Civil Construction business is executed by its Subsidiary and construction arm, Garuda Construction. Its Hospitality vertical is in the business of owning, managing and operating hotels, restaurants, QSRs, spas and sale of food products. It has concluded the development of the Delhi Police Headquarters in April 2021, which involved the construction of twin towers of seventeen storeys each, with a complete glass façade and steel bridge connecting the two towers. It is proposing to develop Forthcoming Development Projects, which include real estate development at Amritsar, Punjab; real estate redevelopment project at Dadar-Matunga, Mumbai; agro processing cluster at Jalore, Rajasthan; cold storage park/facilities at Indore, Madhya Pradesh; and a wellness centre & resort at Chiplun, Maharashtra.
PKH has been awarded two (2) Government Projects i.e. development of a 16 MW hydropower plant at Halaipani, Anjaw district in the State of Arunachal Pradesh and development of 42.42 acres entertainment centre at Ambazari, Nagpur. The aggregate cost for developing Hydro Power Project and Nagpur Project is estimated at Rs. 21,383.30 lakhs. Further, the Company has been awarded with three (3) Government Hotel Development Projects namely for restoration and development of heritage hotel at Rajnagar Garhi fort located in Rajnagar, District Chhatarpur, Madhya Pradesh, Development of resort/ hotel/ water park in Pahadikhurd, District Tikamgarh, Madhya Pradesh and development of resort/ adventure and fixed tenting unit in Tara, District Panna, Madhya PradeshRajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project in the State of Madhya Pradesh on DBFOT basis by way of a letter of award each dated November 4, 2022 from the Madhya Pradesh Tourism Board.
Industry Research:
The construction sector is the country’s second-largest economic segment after Agriculture. The sector contributed 8% to the national GVA (at constant price) in FY22.The order book of construction companies is dependent upon the capital expenditure in the economy. Broadly, the investments can be classified into infrastructure, real estate and industrial construction. Historically, infrastructure creation, spread across sectors such as roads and highways, telecom, airports, ports, power, oil and gas and railways has dominated the investments. Increase in Infrastructure demand & government initiative shows the potential for catapulting India to the third largest construction market globally. The sector is expected to contribute 15% to the Indian economy by 2030.
In FY22, developers mainly focused on completion of existing projects and sales conversions while introduction of new projects were slower. Growth in various sectors like IT segment, increase in savings because of work from home trend in the last 2 years and increase in demand for better spaces to live, have led to increase in homebuyers. In addition to these factors, a broad recovery in the economy has aided the sales and demand of the residential real estate industry. The housing market in general is seeing growth due to increase in commercial activities, need for upgraded infrastructure and living spaces and improved economic outlook. Apart from this, there is also increase in the mid segment housing project due to increase in urbanization and per capita income. Within the residential real estate segment, it is expected the following trends to lead revival and growth –
Relocations and shift in buying behavior –The pandemic related restrictions led to individuals confined to their living spaces. This in turn spurred demand, as families wanted to relocate and make new purchases due to the want of more open space, modern amenities, proximity to their workplace, leisure and desire to relocate closer to extended families and friends. The demand for projects with good architecture, uncluttered space and recreational activities for children and elderly is projected to increase. Growth in Technology – The growth in digital transformation across the globe has led to companies to grow at fast pace. In India, IT is the major contributor in the job market which has seen growth in the last few years. India being the hub for IT talents, affordable corporate setup for MNCs will in turn complement residential demand with the creation of jobs and higher income. This will lead to increase in residential and commercial spaces demand across these areas.
Government Policies – The Ministry of Housing & Urban Affairs (MoHUA) has sanctioned construction of 122.69 lakh houses under Pradhan Mantri Awas Yojana-Urban (PMAY-Urban) Scheme out of which 61.01 lakh are complete as on June,2022 which is beneficial in driving affordable housing. While the sector seems to have returned to normalcy, the rising cost of construction and raw materials due to geopolitical tensions are likely to lead to appreciation the real estate prices. The rising commodity prices are leading to inflation in the country which might affect demand from mid segment homebuyers. This pressure of escalating prices might affect the launching of new projects in short term. Apart from this, the increase in repo rate by RBI to control inflation may lead to rise in housing loan interest rates which can also affect the sentiments of homebuyers in the near future. The real estate industry is expected to grow during 2022-23. Diversified buyer pools and increase in FDI investors are resulting in bringing the real estate sector back to pre-covid levels. The demand in the office rentals are also impacted with increase in hiring across various sectors like IT, E-commerce etc. The vaccination drives, removal of restrictions, offices resumptions and increase in footfalls in retail spaces have led to the recovery of the commercial real estate sector.
PPP models for enabling infrastructure growth
The government has taken constant steps for encouraging strong private participation in infrastructure sector, particularly from the perspective of the NIP. Hence the focus has been on building a robust enabling environment with a well-thought policy framework and a well-developed public authority for encouraging PPPs.
The different types of PPP models are as follows:
Build – Operate – Transfer (BOT)
BOT is one of the most common privatization agreements. BOT model is generally used to develop discrete assets rather than a whole network, for example a toll road. In this agreement, the government will hand over the constructing and operating rights to a private sector which would be given out for a pre-determined period of time. Once the period is complete, the rights are transferred back to the government.
Build – Own – Operate (BOO)
Under this, the government grants the right to finance, design, build, operate and maintain a project to a private entity, which retains the ownership of the project. The private entity is not required to transfer the facility back to the government.
Build – Own – Operate – Transfer (BOOT)
The private sector builds and owns the facility for the duration of the contract, with the primary goal of recouping construction costs (and more) during the operational phase. At the end of the contract the facility is handed back to the government. This structure is suitable when the government has a large infrastructure financing gap as the equity and commercial risk stays with the private sector for the length of the contract. This model is often used for school and hospital contracts.
Engineering, Procurement and Construction (EPC)
In the EPC mode, the private partner is solely responsible for construction of the project, the tolling andoperations of the project are undertaken by the public partner.
Design – Build (DB)
In this project agreement, a private partner is contracted by the government to design and build the facility based on the requirements performed by the government. Along with the agreement, the government will state the responsibilities in order to perform the operation and the maintenance of the facility. DB is also called as Build – Transfer (BT).
Design – Build – Operate (DBO)
In the case of DBO, the designing and building of the facility is done based on a turn-key basis. After the completion of the facility, it is transferred to the public sector but the private sector will operate the facility for a specific period of time. The DBO can be also referred to as Build Transfer Operate (BTO).,
Design – Build – Finance (DBF)
The private sector constructs an asset and finances the capital cost during the construction period only. The variations of DBF include Design – Build – Finance – Operate (DBFO), Design – Build – Finance – Maintain (DBFM) and Design – Build – Finance – Maintain – Operate (DBFMO). These activities are performed for a particular period of time or a long - term lease. Once the lease time is over, the property is given back to the public sector.
Lease – Renovate – Operate – Transfer (LROT)
In this type, the existing infrastructure is handed over to a private facility for a particular time period. This is given to undergo renovation and its operation for a specific time period. The operation is performed on the condition that the private facility will recover the cost that is agreed in return as per the contractual agreement along with the transferring of the entity back to the government.
The pace of growth in the commercial leasing space is recovering despite the emergence of the omicron wave. The volumes of the leasing activities have improved by 11% to 14% in the last quarter of 2021-22 and are expected to continue to grow given the “Back to office” trend and hybrid working model. There has been a y-o-y growth of 23% to 26% in the transacted space on account of both, improved demand and a low base effect. The office market is turning towards the Grade ‘A’ type of offices which are well equipped with modern technology and high-end amenities and have increase in the leasing in the last quarter and is expected to grow further. Also, with the growing startups the need for co-working space is increasing. The co- working space has also contributed to a favorable 20% to 22% in the total transaction space growth. Apart from this, the hybrid model of working is creating the demand closer to home.
As almost 80% of the eligible population is vaccinated and the restrictions surrounding Covid-19 have been eliminated, there is an increase in footfall at malls and local vendors. The festive season is also expected to witness a surge in demand in demand from the local vendors, shops and malls. There is increase in the leasing activities in malls. As the fear of another wave of covid has subsided, the momentum in growth is expected to continue.
The warehousing segment will continue outpace all the other real estate segments during the year. There will be greater demand for warehousing due to a need to store agricultural produce and e-commerce products near major consumption centers. The shift towards online shopping during the pandemic year will result in e-commerce companies ramping up storage to ensure quick deliveries. The increase in quick deliveries especially in the tier 1 cities will result in the requirement of more warehouses in the same city. The warehousing market is currently concentrated in metros and tier 2 cities such as Mumbai, Delhi NCR, Bengaluru, Chennai, Ahmedabad, Kolkata, Hyderabad and Pune. This is because online marketplaces experience majority of demand from these cities.
The Indian Hotel and Tourism industry has emerged as one of the key drivers of growth among the service sector in India. The hotel industry is a part of the travel and tourism industry. Business travellers are gradually increasing due to the rapid growth of the IT sector and emergence of several global companies. In India, tourism has significant potential keeping in mind the rich cultural and historical heritage, variety in ecology. It offers a diverse portfolio of niche tourism products- cruises, adventure, medical, wellness, sports, MICE, eco-tourism, film, rural and religious tourism. Tourism is an important source of foreign exchange earnings.
Based on hotel type, the hotel industry can be segmented into independent/unbranded hotels, alternate accommodations, new-age hotel chain, and branded or traditional hotels. The independent/unbranded segment accounts for ~70% of total available hotel rooms. The second-largest segment includes alternate accommodations. The new-age hotel chain is expected to hold nearly 6% of the total available hotel rooms in India by FY25. The branded/traditional hotel segment accounts for about 5% of the overall hotel industry in terms of room supply.
The hospitality industry is expected to see robust demand in FY24. The growth outlook for hotels will be driven primarily by the ramp up in tourist sentiments, increased traction in leisure travel, increased business travel and uptick in FTAs. The domestic tourism has been a strength to the overall sector in improving the operational parameters. Destination weddings, staycations and leisure travel has increased the demand in the industry. Also, the movement in foreign tourist arrivals picked up in FY22 with the resumption of international flights from March 2022. This has resulted in more flight and hotel bookings in the country. The growth in international travel is further expected to increase occupancy levels of the hotels. As a result, the occupancy rates, average daily rates have improved. It is expected that demand for international travel will recover in the FY24. With this rise in demand, the occupancy rates and ADRs are expected to reach pre-Covid levels. As a result, the RevPARs are also expected to reach pre-Covid levels by FY23. In addition, the demand for MICE (meetings, incentives, conferences and exhibitions) is going to contribute to the growth. As India is hosting various events which include the upcoming G20 summit which will bring great opportunity for hospitality and tourism industry. As part of G20 summit, it is expected that 200+ meetings and conferences in around 50 destinations will be held which will boost the demand for hospitality. Furthermore, the control and reduction of costs in the hotels, restaurants and tourism industry can aid the overall growth of the sector.
Investment Rationale:
1. Established Track Record:
Company, for over 15 years, had been managing and operating restaurants, quick service restaurants, lounges, F&B counters, vending machines and other catering services at various airports in the country. The knowledge and experience gained from this business enabled our Company to venture into owning, managing and operating hotels, restaurants, banquets and QSRs. We currently own and manage two (2) hotels and manage and operate one (1) resort, four (4) restaurants, four (4) banquets and two (2) Spas. Additionally, two (2) Restaurants and a Spa at Golden Chariot Vasai Hotel & Spa, have been non-operational since the beginning of the Covid-19 pandemic and one (1) Restaurant namely, Oriental Bistro have recently been non-operational due to proposed change in its location. Through subsidiary, Garuda Construction provide end-to-end construction services for residential, hospitality and commercial building projects. Its capabilities include constructing concrete building structures as well as composite steel structures. It also provides MEP and finishing works as a part of its construction services. Incorporated in 2010, Garuda Construction constructed the Golden Chariot Vasai Hotel & Spa in the year 2014 and refurbished Golden Chariot, the boutique Hotel in the year 2015. In the year 2017, Garuda Construction started undertaking Civil Construction works contracts for Third Party Developers and Promoter Group for the development of residential buildings in the MMR. Garuda Construction has executed seven (7) Civil Construction/Works projects, including the development and refurbishment of our Mumbai Hotels and the construction of the Delhi Police Headquarters on DBFOTA basis in April, 2022.
2. Visible growth through increasing Third Party Developer Order Book, Government Projects, Government Hotel Development Projects and Forthcoming Development Projects:
In the construction industry, an order book is considered as one of the key indicators of future performance as it represents a portion of anticipated future revenue. Company strategy is not focused solely on order book addition but, rather, on adding quality projects with potentially higher margins and/or prestigious projects that helps enhance our growing reputation, market penetration and perception. We believe that we have established relationships and reputation which enabled them to build order book.
3. Diverse Business Model:
They are in the business of Construction & Development, Hospitality and Management Services. Their businesses generate income from diverse activities completely independent of each other. For example, step-down subsidiary, Eternal Building Assets has already received annuity for a period of three (3) years on part COD and will receive the annuity of ₹ 7,800.00 lakhs per year till FY 2033. Considering the forty percent (40%) equity stake in Eternal Infra, Company will be entitled a pre-tax amount of ₹ 2,786 lakhs per annum. Civil Construction works for Third Party Developers generates revenue from works contract charges and Hospitality vertical generates income from hotels, restaurants, and sale of foods.
4. Asset light model of our Civil Construction business:
Company believe in the asset light model approach for Civil Construction business and rely mostly on third party suppliers for equipment and labour. Further, since the location of Government Projects, Government Hotel Development Projects and Forthcoming Development Projects are in different geographies like Punjab, Arunachal Pradesh, Maharashtra, Madhya Pradesh and Rajasthan, it is difficult and unviable to mobilise heavy equipment and machinery from one place to another for execution of projects at such diverse locations. In addition to the difficulty in mobilisation of equipment and machinery, a large amount of capital is required to acquire construction equipment and machinery, which can otherwise be effectively and more profitably deployed in other areas of business. Deployment of equipment and labour through third party contractors at these locations help them reduce fixed costs, make execution of construction projects cost efficient and increase margins. Following this asset light model, it is believed that Company has prudently invested its financial resources in equipment and machinery for day-to-day use for Civil Construction business.
5. Expanding Hospitality portfolio by developing new hotels and expanding restaurants operations:
Company presently own and manage a luxury hotel at Vasai, at the outskirts of Mumbai and a boutique hotel near the Mumbai International Airport. They also manage and operate a luxury resort at Aamby Valley at Lonavala, near Mumbai. They consider the hospitality sector to be a growth driver.
6. Experienced Promoter, Directors & Management Team:
Pravin Kumar Agarwal is the Promoter, Chairman and Managing Director of our Company. He is director of our Company since incorporation. He has over twenty-five (25) years of experience in various businesses like Construction & Development, Hospitality and Management Services. He is currently responsible for overall management and affairs of our Company and entire group including devising investment strategies, developing industry networks for further business development and overall development of the business of our Company
Key Management Personnel:
Pravin Kumar Agarwal is the Promoter, Chairman and Managing Director of our Company. He is director of our Company since incorporation. He has over twenty-five (25) years of experience in various businesses like Construction & Development, Hospitality and Management Services. He is currently responsible for overall management and affairs of our Company and entire group including devising investment strategies, developing industry networks for further business development and overall development of the business of our Company.
Kingston Eric Mendes is the Executive Director of our Company. He is a commerce graduate from University of Mumbai and has done diploma in Hotel and Institutional Management from Bombay YMCA International House. He has an experience of more than twelve (12) years of experience in hospitality industry and has previously worked with Royal Palms (Gold & Country Club) and Golden Chariot Hospitality Private Limited. He is heading the Hospitality vertical of our Company.
Ram Niranjan Bhutra is appointed as Non-Executive Director of our Company. He is a member of the Institute of Chartered Accountants of India. He has more than ten (10) years of experience in field of accounting, taxation, finance and audit. He provides his guidance to our Company for operational issues and strategy planning for business development of our Company. Presently, he is a financial and business consultant advising various companies.
Venkateshkumar K. Tirupatipanyam is appointed as Independent Director of our Company w.e.f. August 27, 2021. He holds a bachelor’s degree in commerce and bachelor’s degree in laws from Gujarat University. He is a certified associate of Indian Institute of Bankers, India. Previously, he has worked with IDBI Bank. Presently, he provides financial and banking consultancy services to various companies.
Priyanka Yadav is appointed as Independent Director of our Company w.e.f. August 27, 2021. She is a member of the Institute of Company Secretaries of India. She holds a bachelor’s degree in laws from University of Mumbai. She has experience in compliance, secretarial and legal advisory. She is also a director of Artemis Electricals and Projects Limited. She has an experience of over three (3) years. She is a practising Company Secretary and is the proprietor of M/s. Priyanka Yadav & Associates.
Rajvirendra Singh Rajpurohit is appointed as Independent Director of our Company w.e.f. November 1, 2022. He is a member of the Institute of Company Secretaries of India and also a practising company secretary. He has more than six (6) years of experience in compliance and secretarial functions.
Financials:
Balancesheet:
Profit & Loss:
Cash Flow:
Key Risks:
1. Market Risk:
Fluctuations in the market conditions, including changes in demand, competition, economic factors, and regulatory environments, can pose risks to PKH Ventures Limited's operations and profitability.
2. Strategic Risk:
Strategic decisions, including expansion into new markets, entering partnerships or acquisitions, or changes in business models, can present risks. If not managed effectively, these decisions may not deliver the desired outcomes or may result in unintended consequences.
3. Operational Risk:
If the decided projects don’t get completed as per the plans laid down by the company it might lead to needing of more funds.
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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