PKH VENTURES LIMITED IPO OPENS FOR SUBSCRIPTION ON 30TH JUNE

The third IPO that opens for subscription this week is PKH Ventures Limited. IPO opens for subscription on 30th June and closes on 4th July. In this article, we will share various aspects related to the company which may help you decide whether to subscribe or invest in the IPO for the long term. Let us get started.

PKH Ventures Limited IPO: Key Details

Below are the key details related to PKH Ventures IPO

• Issue Size: Rs 359 crore - Rs 379 crore
• Price Band: Rs 140 - Rs 148
• Issue Details: Fresh issue of Rs 270.22 crore and remaining Offer For Sale (OFS - Rs 109.13 crore)
• Market Cap: At the upper price band, Rs 1217 crore 

PKH Ventures Limited: Business

The company was incorporated in 2000, and they are in the business of Construction & Development, Hospitality, and Management Services. PKH has developed two hotels in Mumbai viz., Golden Chariot Vasai Hotel & Spa and Golden Chariot, The Boutique Hotel near Mumbai International Airport, and has been owning, managing, and operating the Mumbai Hotels since FY15. 

Under Management Services vertical, they have in the past managed airport entry ticket counters, retail outlets at airports, and toll management services. However, there are no such active contracts for this segment.

They execute Civil Construction works for Third Party Developer projects and have been awarded two Government Projects viz., Hydro Power Project, Nagpur Project, and three Government Hotel Development Projects viz., Rajnagar Garhi Project, Pahadikhurd Project, and Tara Resort Project, being executed through its Subsidiaries/SPVs and the company itself.

PKH Ventures Limited: Industry overview

Below are some key numbers related to the various sectors in which PKH Ventures work:

Construction: 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. The sector was hit hard during the pandemic because of the lockdown, and labor migration leading to logistical challenges. However, the sector has witnessed growth in FY22, supported by unlock measures and significant infrastructure investments by the government. 

Domestic Hotels and Tourism: The Indian Hotel and Tourism industry has emerged as one of the key drivers of growth in the service sector in India. The important facts about tourism in India include the number of foreign tourist arrivals (FTA’s) in India is 19.7 lakhs with an annual growth rate of 220%. It is expected that demand for international travel will recover in 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.  

PKH Ventures Limited: Listed & Unlisted Peers

PKH Ventures operates in multiple industries. Hence it has peers across industries. 

One of the industries in which operate is Construction EPC (Engineering, Procurement, and Construction). In this space, there are multiple players. The industry itself is divided into sub-categories. Let us look at the details (Source: CareEdge Research):

• Infrastructure /General Contracting: Larsen & Toubro Ltd, Gammon India Ltd, and NCC Ltd.
• Building construction (Residential and Commercial Segments):  Larsen & Toubro Ltd, Shapoorji Pallonji & Co. Ltd., and Ahluwalia Contracts (India) Ltd. 
• Oil & Gas: Larsen & Toubro Ltd and Petron Engineering Construction Limited,  
• Power: BHEL, Larsen & Toubro Ltd and Tata Projects Ltd.,  

In the hospitality space, the key players are names like Sayaji Hotels Limited, Graviss Hospitality Limited, Gujarat Hotels Limited, Advani Hotels & Resorts (India) Ltd, Indian Hotels Co. Ltd, Chalet Hotels Ltd, Lemon Tree Ltd, EIH Ltd, Kamat Hotels (India) Limited. 

PKH Ventures Limited: Financials

One of the crucial parameters to consider while evaluating an IPO is the financial data of the last three financial years. Let us look at how the company has performed:

• For FY20, FY21, and FY23, the company has reported a revenue of Rs 165.89 crore, Rs 241.51 crore, and Rs 199.35 crore, respectively. For 9MFY23, the revenue reported Rs 125.46 crore. The revenue has dropped in FY22, and based on nine-month data for FY23, looks like the number will be lower.
• The EBITDA has increased almost four-fold from Rs 22.62 crore in FY20 to Rs 99.03 crore in FY22. For 9MFY23, EBITDA reported by the company was Rs 64.67 crore. The EBITDA has increased by of increase in EBITDA percent which has increased to 40.35% in FY23 from 13.38% in FY21.
• For FY20, FY21, FY22, and 9MFY23, the profit reported by the company was Rs 14.09 crore, Rs 30.57 crore, Rs 40.52 crore, and Rs 28.64 crore, respectively.
• For the last three financial years, the company has posted an average EPS of Rs 5.24 and an average RoNW of 13.28%.
• On annualizing FY23 earnings and attributing it to the company's post-IPO fully diluted paid-up equity capital, the asking P/E is 23.42. Based on the net profit shown post adjustments (on a consolidation basis), the P/E stands at 31.90. 
• The ROCE has increased to 15% in FY22 from 10.61% in FY20, and 12.94% in FY21.
• The debt to equity ratio for the last three financial years is 0.17 (FY20), 0.52 (FY21), and 0.30 (FY22). 

What are the competitive strengths of PKH Ventures?

As per the company, their competitive strength is as below:

• They have visible growth through increasing Third Party Developer Order Book, Government Projects, Government Hotel Development Projects, and Forthcoming Development Projects. 
• The company is the business of Construction & Development, Hospitality, and Management Services. These businesses generate income from diverse activities, completely independent of each other.
• They have an asset-light model of our Civil Construction business.  

Risks associated with the PKH Ventures business

Below are the risks the company has highlighted in its RHP documents:

• PKH Ventures has no experience, in developing and operating a hydropower plant, and they may not be successful in these endeavors. In the event of failure of execution of the Hydro Power Project, the financials will be impacted.
• Similarly, they have no experience and expertise in developing and operating some of the other businesses and they may not be successful in these endeavors.
• They have experienced negative cash flows in the past and may continue to do so in the future and the same may adversely affect its cash flow requirements.