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NACDAC Infrastructure

• NACDAC Infrastructure is coming out with an initial public offering (IPO) of 28,60,000 equity shares in a price band Rs 33-35 per equity share.
• The issue will open on December 17, 2024 and will close on December 19, 2024.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 3.30 times of its face value on the lower side and 3.50 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Pradeep Singh.

Profile of the company

NACDAC Infrastructure is primarily a core-construction company specializing in comprehensive range of civil and structural services. Its core offerings encompass the construction of multi-story buildings, electrical works (both Low-Tension & High-Tension), steel structure works, as well as bridges (including FOBs and ROBs) and all associated civil and structural works. With a strong focus on quality and efficiency, the company serves a diverse clientele spanning government agencies, and private corporations. It has successfully completed many projects in various departments of various departments of Government of India and Government of Uttarakhand. It benefitted significantly from the good relationship established by its Promoters. The company has an established track record of executing projects with more than a decade of experience in construction activities.

The company’s execution capabilities have grown significantly with time, both in terms of the size of projects that it bids for and execute, and the number of projects that it executes simultaneously. The company has been ISO 9001:2015 accredited for its Quality Management System, ISO 14001:2015 for its Environmental Management System, ISO 45001:2018 for its Occupational Health and Safety Management System and are also registered as class A contractor with Uttarakhand Peyjal Sansadhan Vikas Evum Nirman Nigam, Uttarakhand. The company is committed to providing its customers with excellent work that satisfies project standards and specifications for materials, craftmanship, scheduling, and public service, while remaining profitable and competitive. It ensures continuous improvement through quality processes that are overseen by a competent management team.

The company undertakes contracts independently or whenever required, through its project-specific joint ventures with other infrastructure and construction entities when a project requires it to meet specific eligibility requirements in relation to such certain large projects, including requirements relating to particular types of experience. The company also undertakes sub-contracting projects from third-party major infrastructure and construction entities. Its qualified team of engineers and site managers ensures that its services are focused on producing exceptional results for its clients. 

Proceed is being used for:

• Working Capital
• General Corporate Purposes

Industry Overview

India’s high growth imperative in 2023 and beyond will significantly be driven by major strides in key sectors with infrastructure development being a critical force aiding the progress. Infrastructure is a key enabler in helping India become a $26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors. The government’s focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The $1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway. Infrastructure support to the nation’s manufacturers also remains one of the top agendas as it will significantly transform goods and exports movement making freight delivery effective and economical.

In Budget 2023-24, capital investment outlay for infrastructure is being increased by 33% to Rs.10 lakh crore ($122 billion), which would be 3.3 per cent of GDP. As per the Union Budget 2023-24, a capital outlay of Rs 2.40 lakh crore ($29 billion) has been provided for the Railways, which is the highest ever outlay and about 9 times the outlay made in 2013-14. Starting with 6,835 projects, the NIP project count now stands at 9,142 covering 34 sub-sectors, as per news reports. Under the initiative, 2476 projects are under the development phase with an estimated investment of $1.9 trillion. Nearly half of the under-development projects are in the transportation sector, and 3,906 are in the roads and bridges sub-sector. The Indian Railways expects to complete total revenue of Rs. 2,64,500 crore ($31.81 billion) by the end of 2023-24. India's Logistics Market is estimated to be $435.43 billion in 2023 and is expected to reach $50.52 billion by 2028, growing at a CAGR of 8.36%. India intends to raise its ranking in the Logistics Performance Index to 25 and bring down the logistics cost from 14% to 8% of GDP, leading to a reduction of around 40%, within the next five years. 

India, it is estimated, needs to invest $840 billion over the next 15 years into urban infrastructure to meet the needs of its fast-growing population. This investment will only be rational as well as sustainable, if it additionally focus on long-term maintenance and strength of its buildings, bridges, ports and airports. The infrastructure sector has become the biggest focus area for the Government of India. India plans to spend $1.4 trillion on infrastructure during 2019-23 to have a sustainable development of the country. The Government has suggested investment of Rs. 5,000,000 crore ($750 billion) for railways infrastructure from 2018-30. India's GDP is expected to grow by 8% over the next three fiscal years, one of the quickest rates among major, developing economies. India and Japan have joined hands for infrastructure development in India's Northeast states and are also setting up an India-Japan Coordination Forum for development of Northeast to undertake strategic infrastructure projects for the region. 

Pros and strengths

Proven track record of efficient execution of civil projects: The company’s primary focus on the civil and structural constructional works which includes multi-story buildings, steel structure works, housekeeping & manpower supply, as well as bridges (including FOBs and ROBs), all associated civil and structural works and electrical works (both Low-Tension & High-Tension) has helped it in gaining technical expertise of undertaking such projects of different sizes involving varying degree of complexity while simultaneously helping it also to develop quality control systems, acquire a fleet of modern construction equipment and employ manpower to supplement the growth of construction business. It has proven track record of successful execution of works in difficult terrain of Uttarakhand and Himachal Pradesh. As on October 31, 2024, the company has completed 63 projects having an aggregate value of Rs 9674.88 lakh.

Wide range of services: The company offers a comprehensive array of construction and structural services. This diversification not only enables it to serve a wide range of clients but also strengthens its presence in the target market. Multi-story buildings, steel-structure works, housekeeping and manpower supply, bridges (including FOBs and ROBs), and electrical works (both Low-Tension & High-Tension) encompass a broad scope, reflecting its expertise in various facets of construction and infrastructure development. This versatility likely enhances its competitiveness and positions it well to tackle diverse projects with efficiency and quality.

Work order: Consistent growth in its Order Book is a result of its focused approach towards building a specialized service portfolio and its ability to successfully bid and win projects. Its experience in execution of construction and infrastructure projects. Having a strong work order book is a significant indicator of the company’s stability and growth potential. This could be achieved with the proper resource management and right quality assurance where it ensures that the necessary resources, including skilled & unskilled labour, materials, and equipment, to fulfill the orders efficiently without compromising on quality and also upholding the high standards of quality in its work to enhance client’s satisfaction and reputation for reliability and excellence.

Risks and concerns  

Maximum revenue comes from limited customers: The company’s top ten customers contribute 96.05%, 91.93, 87.86%, and 99.98% of its total sales for the period ended October 31, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022 respectively. The company’s business heavily relies on its customer base, and the potential loss of any of its customers could have a negative impact on its sales and, consequently, its overall business and financial performance. If it was to lose one or more of its significant or key customers or experience a reduction in the volume of business they provide, it could result in adverse consequences for its business, financial health, and cash flow. The company cannot guarantee that it will be able to maintain the same levels of business as it has historically or secure long-term contracts with its major customers on mutually beneficial terms. Additionally, reducing its dependence on a few key customers may pose challenges in the future.

Geographical constrain: The company’s business is primarily dependent on projects undertaken or awarded in the states of Uttarakhand, Uttar Pradesh and Delhi. As on October 31, 2024, the company derives 41.43% of its total revenue from operations in the state of Uttarakhand, 31.83% of its total revenue from the state of Uttar Pradesh and 24.00% from Delhi. In the FY 2023-2024, the company derived majority of its total revenue from the state of Uttarakhand. It has historically focused primarily on civil construction activities in the states of Uttarakhand, Uttar Pradesh and Delhi. The concentration of its operations in the state of Uttarakhand heightens its exposure to adverse developments which may be beyond its control such as economic, political, demographic, regulatory and other changes, which may adversely affect its business prospects, financial conditions and results of operations.

Working capital requirements: Typically, projects in the infrastructure sector which it undertakes are working capital intensive in nature and involve long implementation periods. Majority of the working capital funds of the company are blocked due to providing margin money for Bank Guarantee, Earnest Money Deposit, Performance Deposit and Security deposit (for its Projects) on which the banks are not providing finance. As on October 31, 2024, the company’s net working capital consisted of Rs 1788.00 lakh. Further, as on March 31, 2024, the company’s net working capital consisted of Rs 1520.21 lakh as against Rs 373.34 lakh as on March 31, 2023. As on October 31, 2024, the company’s total borrowings for meeting working capital requirements stood at Rs 781.93 lakh. The company may incur additional indebtedness in the future. Additional debt financing could increase its interest costs and require it to comply with additional restrictive covenants in its financing agreements.

Outlook

NACDAC Infrastructure is a construction company specializing in the construction of multi-story buildings, residential, commercial, and institutional structures. The company works for government agencies and private companies and has completed several projects for the Government of India and Uttarakhand. The company also undertakes sub-contracts for third-party infrastructure and construction projects. On the concern side, the company derives a significant portion of its revenues from a limited number of clients. The loss of any significant clients may have an adverse effect on its business, financial condition, results of operations, and prospects. The company’s business is majorly concentrated in the state of Uttarakhand, Uttar Pradesh and Delhi and it is exposed to risks emanating from economic, regulatory and other changes in the state of Uttarakhand and Uttar Pradesh.

The company is coming out with a maiden IPO of 28,60,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 33-35 per equity share. The aggregate size of the offer is around Rs 9.44 crore to Rs 10.01 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2024 was Rs 3,629.68 lakh against Rs 1,172.19 lakh revenue from operations for Fiscal year 2023, an increase of 209.65% in revenue from operations. This increase was due to successful execution of large-scale infrastructure projects, an increase in project backlog conversion, and winning high-value government or private contracts. Profit after tax for the Fiscal 2024 was at Rs 316.90 lakh against profit after tax of Rs 56.15 lakh in fiscal 2023, an increase of 464.38%. This increase was due to the increase stems from optimized tax planning and improved net margins due to efficient execution of contracts and cost management. 

The company’s project execution approaches prioritize on-time project completion as one of its major goals. It also wants to maintain its focus on performance and project execution in order to increase client satisfaction and profitability. It uses technologies and project management systems to boost productivity. It strives to reduce operating and overhead costs in order to increase its operating margins. Effective project management is vital for its success as a reputable construction company. It wants to continuously increase its execution capabilities by expanding its present personnel base, attracting new graduates from Indian engineering universities, and supporting continuous learning through in-house and external training opportunities.