Ceigall India IPO

Ceigall India IPO (initial public offering) is set to open for subscription on August 1, 2024 and will close on August 5, 2024. Below is a breakdown of the infrastructure company's strengths, weaknesses and growth prospects to help investors make an informed decision.

Ceigall India IPO in a nutshell

• Quality: Between FY22-24, Ceigall India reported a three-year average ROE and ROCE of 30.3 and 30.2 per cent, respectively.
  
• Growth: During FY22-24, its revenue and net profit grew by 63.5 and 56 per cent per annum, respectively.
  
• Valuation: Ceigall India's stock will trade at a P/E and a P/B of 22.8 and 4.4 times, respectively.
  
• Overview: The growing focus of the government on infrastructure development, particularly roads and railways, should help Ceigall India get consistent orders and scale up its business. However, factors such as cyclicality and price-based competition from both large and small players can pose a threat to the company's growth.

About Ceigall India

Ceigall India is an infrastructure construction company that was incorporated in the year 2002. It is known for undertaking specialised construction work such as elevated roads, expressways, flyovers, highways, runways and tunnels. The company got its first major order in 2006, when it bagged a project worth Rs 6.3 crore for the Punjab Public Works Department.

The engineering, procurement and construction (EPC) segment is the largest revenue generator for the company, constituting 66 per cent of its total revenue share in FY24, followed by the hybrid annuity model (HAM) segment at 26 per cent.

Strengths of Ceigall India

• Healthy order book value: Presently, Ceigall India has around 18 ongoing projects with a total order book value of Rs 9,471 crore (3.12 times of FY24 revenue). Such sizable numbers provide healthy revenue visibility and solid growth prospects for the company.

Weaknesses of Ceigall India

• High revenue concentration: Ceigall India's revenue is concentrated among a handful of regions, with around 50 per cent of its FY24 revenue coming only from Punjab. Thus, any political or environmental disruption in the state may affect the company's financials.
  
• Negative cash flows: Ceigall India's cash flow from operations have been in the red over the last three years owing to high receivables.

Risk report

Company and business

• Were Ceigall India's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. Its earnings before tax in FY24 was Rs 405 crore.
  
• Will Ceigall India be able to scale up its business?
  Yes. Increased government focus on infrastructure development is expected to help the company bag consistent orders and scale up its operations. Further, Ceigall India aims to diversify into projects pertaining to the construction and maintenance of runways, railways and metros including earthwork and water treatment and sewerage related projects, which may become a major growth driver for the company.
  
• Does Ceigall India have recognisable brands with client stickiness?
  No. This is because the company is engaged in the construction business, which is known for low differentiation and price-based competition. However, due to its strong execution record, it has managed to secure consistent orders from the National Highways Authority of India.
  
• Does the company have a credible moat?
  No. Ceigall India lacks a credible moat as it operates in a highly competitive environment, with stiff competition from both small and large players. Further, there exists very low differentiation in the construction industry, making it difficult for the company to have a competitive advantage over its peers.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over 25 per cent stake in the company?
  Yes. Post the IPO, the promoters' stake will increase to 82.1 per cent.
  
• Do the top three managers have over 15 years of combined leadership at Ceigall India?
  Yes. Ramneek Sehgal, its managing director, has been with the company since its incorporation in 2002.
  
• Is the company's management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Ceigall India free of promoters pledging their shares?
  Yes. The company is free of promoters pledging their shares.

Financials

• Did the company generate a current and three-year average ROE of more than 15 per cent and an ROCE of more than 18 per cent?
  Yes. Ceigall India's three-year average ROE and ROCE were 30.3 and 30.2 per cent, respectively. In FY24, it reported an ROE and ROCE of 33.6 and 32 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. The company reported negative cash flow from operations (CFO) in the last three years.
  
• Is Ceigall India's net debt-to-equity ratio less than one?
  Yes. Its net debt-to-equity ratio stood at 0.8 times as of FY24.
  
• Is Ceigall India free from reliance on significant working capital for day-to-day affairs?
  No. As of FY24, it had a receivables cycle of 52 days.
  
• Can the company operate its business without relying on external funding in the next three years?
  No. Over the last three years, Ceigall India generated negative cash flows from operations. As a result, its debt has soared by almost three times. Moreover, to execute the order book of over Rs 9,000 crore, the company would need high working capital and will likely have to raise funds.
  
• Is Ceigall India free from meaningful contingent liabilities?
  No. As of FY24, its contingent liabilities as a percentage of equity stood at around 106 per cent.

Valuations

• Does the company's stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 6 per cent.
  
• Is the stock's P/E ratio less than its peers' median level?
  No. Ceigall India is valued at a P/E ratio of 22.8 times compared to its peers' median of 14.5 times.
  
• Is the stock's P/B value less than its peers' average level?
  No. It is valued at a P/B ratio of 4.4 times compared to its peers' median of 2.9 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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