About the company:

PKH Ventures Ltd. Is in the business of Construction & Development, Hospitality and Management Services. The Civil Construction business is executed by its Subsidiary and construction arm, Garuda Construction. They execute Civil Construction works for Third Party Developer projects and have also been awarded two Government Projects, the Hydro Power Project and the Nagpur Project. The hospitality vertical of the company is in the business of owning, managing and operating hotels, restaurants, QSRs, spas and sale of food products. Its Management Services currently provides miscellaneous Mechanical, Electrical and Plumbing (MEP) works services such as annual maintenance of our projects and certain third -party O&M contracts. The company’s future plans include developing their own Forthcoming Development Projects, which include real estate development at Amritsar, Punjab; food park at Jalore, Rajasthan; cold storage park/facilities at Indore, Madhya Pradesh; and a wellness centre & resort at Chiplun, Maharashtra.

The Objective of the Fresh Issue:

The company intends to utilize the net proceeds received from the fresh issue towards:

1. Investment by way of equity in its subsidiary, Halaipani Hydro Project Pvt Ltd. for development of Hydro Power Project (Civil Construction and Electromechanical Works)

2. Investment in Garuda Construction, its subsidiary for funding long-term working capital requirements

3. Pursuing inorganic growth through acquisitions and other strategic initiatives

4. General corporate purposes

Key Strengths and Opportunities:

1. PKH Ventures 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 for over 15 years. The knowledge and experience gained from this business enabled the company to venture into owning, managing and operating hotels, restaurants, banquets and QSRs. They currently own and manage 2 hotels and manage and operate 1 resort, 3 restaurants, 4 banquets and 3 spas.

2. 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. The company’s 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 their growing reputation, market penetration and perception. The company is currently engaged in the Civil Construction of 8 residential projects for Third Party Developers and Promoter Group in the MMR. As of March 15, 2023, the Garuda Construction’s Third-Party Developer Order Book was ? 468.28 crores.

3. The company is in the business of Construction & Development, Hospitality and Management Services. It generates income from diverse activities which are completely independent of each other. It derives 61% of its revenue from Construction & Development, 31% from Hospitality and the rest from Management Services and other areas.

4. The company’s promoter Pravin Agarwal has an experience of over 25 years in various businesses of the company. The company has attracted experienced senior management team with operational and technical capabilities, management skills, business development experience and financial management skills. The combined strength of the Promoter, Directors and senior management team provides access in securing new work orders, executing projects and expanding the business.  

Risks:

1. The company derives significant revenues from the Construction & Development vertical which has consistently increased its revenue share. The company has no assurance that it will be able to procure new contracts and execute these new contracts successfully.

2. The company intends to use the net proceeds of the issue to invest by way of equity in its subsidiary, Halaipani Hydro Project Pvt Ltd. for development of Hydro Power Project (Civil Construction and Electromechanical Works). However, the company does not have any prior experience in developing and operating a Hydro Power plant. Further, the development of the project is in the State of Andhra Pradesh, where the company has not previously undertaken any project.

3. The company has experienced negative cashflows from operations, investing and financing activities in the past and may continue to experience so in the future.

4. The company has made relevant applications to obtain approvals required for the execution of Hydro Power Plant, however, in the event of failure to obtain the approval, the schedule of implementation of the project may be affected.

Financial Snapshot:

Conclusion:

The IPO of PKH Ventures is valued at a PE of 23x based on FY22 financials at the upper end of the price band. The company’s business is diversified into 3 segments – Construction & Development, Hospitality and Management Services. The construction & development vertical had a revenue share of 0% in FY20 which rose to 61% for the nine-month period ended December,2022. The company has received 2 government orders, one of which is of the Hydro Power Project, for which the company does not have any prior experience. Under Management Services, PKH Ventures has in the past managed airport entry ticket counters, retail outlets at airports and toll management services. However, the company does not have any such active contracts of these Management Services presently. The company does not have any comparable listed peers. Further, the company’s revenues have declined in FY22 and analysing the nine-month FY23 revenues, it does not seem to cross FY22 revenues. Though the company’s EBITDA and PAT margins have improved, ROA – one of the important factors to look at in the construction segment has declined. The company is in the process of acquiring Amar Remedies through the IBC process for a lumpsum consideration of Rs.31.59 crore. The company intends to use part of the net proceeds to pursue inorganic growth through acquisitions. While inorganic growth may enable a company to expand rapidly, steady and gradual organic growth is often regarded as superior because it demonstrates the company's capacity to generate profits irrespective of the economic conditions. The company's long-term growth prospects depend on various factors, including the establishment of stable financials. Hence, we advise our investors to avoid subscribing to this IPO.