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Sonu Infratech

• Sonu Infratech is coming out with an initial public offering (IPO) of 24,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 36 per equity share.

• The issue will open on April 29, 2022 and will close on May 5, 2022.

• The shares will be listed on NSE Emerge Platform.

• The share is priced 3.60 times higher to its face value of Rs 10.

• Book running lead manager to the issue is Swastika Investmart.

• Compliance Officer for the issue is Puja Paras Mehta.

Profile of the company

The company is engaged into the business of civil construction services, such as piling, excavation, road preparation, land leveling, structural painting, building construction in nature of commercial and industrial project, mechanical scaffolding services including structuring and piping, Plant maintenance at Reliance DTA (Domestic Territory Area), Reliance SEZ (Special Economic Zone), Reliance MTF (Marine Time Farm including DTA and SEZ), Reliance J3 (C2 Complex, PCG DTA, PCG SEZ, Rubber Plant), Nayara Maintenance, Repairs and Maintenance services such as plumbing, electrification, cleaning of vessels, plant and machinery, tanks during shut down period of the company who had awarded company contract etc. It also has its own plant and machinery and vehicle which enables it to provide a complete range of civil construction services for majority of all type of civil construction and infrastructure related work.

The company is class ‘C’ contracts (Upper Tendering Limit of Rs 100 Lakh) which enables it to bid the contract for any kind of defense segment work in India. It has successfully completed various contracts awarded by Military Engineering Services (MES). Its management always emphasis on core strength and policies that focus on technology and great deliverance. With a passion to set high standards of services, the management has always taken all measures to scale up as and when required only to deliver the best. It work diligently and have a wide range of equipment’s to cater to every need and to reach the client sensitivity and centricity.

Proceed is being used for:

• Meeting incremental working capital requirements.

• General corporate purpose.

• Meeting public issue expenses.

Industry Overview

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDIs in the construction development sector (townships, housing, built up infrastructure and construction development projects) and construction (infrastructure) activities stood at $26.14 billion and $25.38 billion, respectively, between April 2000 and June 2021. In FY21, infrastructure activities accounted for 13% share of the total FDI inflows of $81.72 billion.

In India, the real estate sector is the second-highest employment generator, after the agriculture sector. Real estate sector in India is expected to reach $1 trillion by 2030. By 2025, it will contribute 13% to country’s GDP. Emergence of nuclear families, rapid urbanisation and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential, commercial, and retail. Rapid urbanisation in the country is pushing the growth of real estate. >70-75% of India’s GDP will be contributed by urban areas by 2020. Real estate sector is one of the most globally recognized sectors. It comprises of four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth in the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.

Pros and strengths

Established brand and image: The company has been awarded from Reliance Industries, Refinery Division/ SEZ Refinery Division/DTA Refinery Division, C2 Complex, Jamnagar for Best Contractor safety Performance Awards/Civil and Admin/Operation in the year 2011, 2013, 2014, 2015, 2016, 2018, 2019, 2021 and Essar Oil, Refinery Division, Vadinar for Appreciation for contribution towards safety promotion in the year 2017 and Certificate of Appreciation from NAYARA Energy for winner of Best Contractor Civil. The awards received from the renowned company witness its brand and image. Moreover, the company is engaged in providing services to aforesaid clients over the years, and has established ourselves as a reliable brand in the state of Gujarat especially in Jamnagar and near by location, Maharashtra and Uttar Pradesh wherein its clients trust it for its quality, safety consistency and continuous performance.

Domain expertise and technical excellence: The company has a dedicated workforce, who is the strength and power of its organization. Its workforce is doing their individual bit in achieving its cumulative goals successfully. It has experienced management team with established processes. Its management team has a long-term vision and has proven its ability to achieve long term growth of the Company. Its Promoters have more than two decades of experience in segment of civil construction services, mechanical scaffolding services, repair and maintenance services etc. The strength of its management team and their understanding of civil construction market, mechanical scaffolding, repair and maintenance services will enable it to continue to take advantage of current and future market opportunities.

Impeccable track record: The company’s strengths lie in its track record of completing its projects efficiently and effectively within the stipulated time period. It is critical in the construction industry that projects are completed as per contracted schedule. It has a track record of timely execution of the projects which minimizes cost overruns and eliminates any possibilities of penalties and liquidated damages, while earning repeat orders from its clients. It has never been penalized for delayed execution of a project.

Risks and concerns

Geographical concentration: Although almost entire sales of the company is in the state of Gujarat especially in Jamnagar region and also it did projects in the state of Maharashtra and Uttar Pradesh. Such geographical concentration of its business in this region heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in this region which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in these regions to expand its operations in other parts of India, should it decide to further expand its operations. Further, factors such as competition, culture, regulatory regimes, business practices and customs, customer tastes, behaviour and preferences in the cities where it may plan to expand its operations may differ from Gujarat, and its experience in the Gujarat may not be applicable to these states.

Labour shortage: The construction industry in India is currently experiencing a shortage of labour. As a consequence, it face competitive pressures in recruiting skilled and unskilled labour and professionally qualified staff as and when it need them. The company currently pay salaries / wages at market rate in order to secure an adequate number of skilled and unskilled labours; however, it may in the future need to pay remuneration that is above market rates which could result in lower profit margins for it. Further, there can be no assurance that increased salaries / wages will result in a lower rate of attrition. The loss of the services of company’s skilled and unskilled labour or its inability to recruit or train a sufficient number of experienced personnel or its inability to manage the attrition levels in different employee categories may have an adverse effect on its financial results and business prospect.

High working capital requirements: The company’s business demands substantial funds towards working capital requirements. In case there are insufficient cash flows to meet its working capital requirement or it is unable to arrange the same from other sources or there are delays in disbursement of arranged funds, or it is unable to procure funds on favorable terms, at a future date, it may result into its inability to finance its working capital needs on a timely basis which may have an adverse effect on its operations, profitability and growth prospects.

Outlook

Sonu Infratech is engaged in the business of Civil Construction Services. The company's major business segments are Civil Construction Services, Building Construction, Mechanical Scaffolding, Plant Maintenance and Repairs and Maintenance and offer services such as piling, excavation, road preparation, land levelling, structural painting, building construction for commercial and industrial projects, mechanical scaffolding services including structuring and piping, Plant maintenance at various Reliance Plants and Farms, Nayara Maintenance, Repairs and Maintenance services such as plumbing, electrification, cleaning of vessels, etc. It also owns and operates plants, machinery, and vehicles for all types of civil construction and infrastructure projects. On the concern side, the company’s business operations may be materially and adversely affected by severe weather, which may require it to evacuate personnel or curtail services and may result in damage to a portion of its ongoing projects, resulting in the suspension of operations. Its business operations require it to obtain and renew from time to time, certain approvals, licenses, registration and permits, some of which may expire and for which it may have to make an application for obtaining the approval or its renewal.

The company is coming out with a maiden IPO of 24,00,000 equity shares of Rs 10 each at a fixed price of Rs 36 per share to mobilize around Rs 8.64 crore. On performance front, the total revenue from operations for the year ended on FY 2020-21 was Rs 4051.04 lakh as compared to Rs 4097.69 lakh during the FY 2019-20 showing a decrease of 1.14%.Profit after Tax (PAT) increased from Rs 66.01 lakh in the FY 2019-20 to Rs 139.80 lakh in FY 2020-21 showing increase of 111.80%. The company intends to continue its focus in enhancing project execution capabilities so as to derive twin benefits of client satisfaction and improvements in operating margins. It will constantly endeavor to leverage its operating skills through its equipment and project management tools to increase productivity and maximize asset utilization in its capital intensive projects. To facilitate efficient and cost effective decision making, it intends to continue to strengthen its internal systems. Its ability to effectively manage projects will be crucial to its continued success as a construction company.