Ceigall India IPO Review 2024: GMP, Subscription Status, Risks & Investment Analysis

Ceigall India Ltd, a Ludhiana-based EPC contractor, is opening its Initial Public Offering (IPO) on August 01, 2024, and closing on August 5, 2024. With a Grey Market Premium (GMP) of 22% and an impressive growth trajectory, the IPO seems promising. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Ceigall India IPO Details

• Issue Size: 1,252.66 crore
• Fresh Issue: 684.25 crore
• OFS: 568.41 crore
• Price Band: Rs 380 – Rs 401
• Market Lot: 37 shares
• Minimum Investment Value: Rs 14,837
• Listing Date: August 8, 2024

Use of Proceeds

Ceigall plans to utilise the net proceeds from the fresh issue for the following purposes:

• Purchase of equipment; and
• Repayment/ prepayment of certain borrowings;

Ceigall India IPO Subscription Status

The Ceigall India Ltd IPO has attracted a 0.63 times overall subscription on its first day of bidding. Investor interest varied across different categories: The retail individual investors (RIIs) part got 0.84 times subscribed while non-institutional investors (NIIs) was subscribed 0.93 times. Meanwhile, the Qualified Institutional Buyers (QIBs) category has not yet seen any subscriptions. 

Overview of Ceigall India Ltd

Ceigall India Ltd serves as an EPC (Engineering, Procurement, and Construction) contractor, primarily engaged in the development of roads and highways. With over two decades of expertise in the construction industry, the company specializes in structural projects such as elevated roads, flyovers, bridges, rail overbridges, and tunnels. 

Ceigall India Ltd Key Strengths

• Impressive Financial Performance: Ceigall has demonstrated remarkable growth with a CAGR of 63% in revenue, 67% in EBITDA, and 55% in net profit from FY22 to FY24.
• Solid Order Book: As of June 30, 2024, Ceigall's order book stands at Rs 9,471 crore, over three times its FY24 revenue, offering significant future growth visibility. Notably, 80% of these orders are from NHAI, ensuring reliable payment terms and lower project risks. The firm also has pending bids worth Rs 16,000 crore.
• Effective Project Execution: Ceigall has completed 34 projects and is currently managing 18, including 13 EPC and 5 HAM projects, highlighting its efficiency in project delivery.
• Robust Return Metrics: Ceigall showcases superior return metrics, with a Return on Equity of 33.57% and Return on Capital Employed of 31.98% as of FY24, surpassing its industry peers.
• Shareholder-Centric Approach: Ceigall has maintained a shareholder-friendly stance, disbursing a 15% dividend for FY23 and FY24 and implementing a dividend policy in March 2024. 

Ceigall India Ltd Risk Factors

• Cash Flow Concerns: Ceigall has encountered negative cash flows from operating and investing activities in the past three years. Persistent negative cash flows, or substantial short-term deficits, could jeopardize its operational capabilities and growth strategies.
• Dependency on Government Contracts: As of June 30, 2024, 80% of Ceigall's order book is derived from NHAI projects, with the remainder from other government contracts. Changes in government policies could lead to contract issues, affecting profitability and operations.
• Legal Risks: Ceigall and some affiliates are involved in ongoing legal proceedings. Adverse outcomes could harm the company’s operations and reputation.

Ceigall India Ltd Valuation & Investment Recommendation

Ceigall India Ltd has shown significant growth in revenue and profits, leveraging an asset-light model that ensures superior asset turnover and return metrics, outperforming its peers. From a valuation perspective, the IPO seems reasonably priced with a P/E ratio of 21x based on FY24 earnings. 

With a robust order book, efficient operational model, and proven ability to execute projects effectively, Ceigall is well-positioned for sustained growth. Hence, investors may consider subscribing to the IPO from a long-term perspective.

For a deeper dive into this IPO, explore: IPO Corner on Liquide

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