Business Profile of the Varindera Constructions Limited
Varindera Constructions is an integrated engineering, procurement, and construction company with experience in construction projects, including residential units, commercial complexes, offices, railway stations, hospitals, high courts, and libraries, as well as infrastructure projects like metro depots, aircraft hangars, and roads. The company has executed 31 construction projects with an aggregate Contract Value of Rs. 5000 crores in the last 10 fiscal.
As of March 31, 2024, the company has 20 ongoing projects in India and overseas, with an Order Book of Rs. 38,447.93 million. The company has developed a project management and contract material management system to efficiently plan, monitor, control, and deliver projects. The company maintains a fleet of modern construction machinery and equipment, reducing dependence on third-party suppliers. They use technologies like BIM, SAP S/4 HANA, and MS Projects software for efficient resource deployment and decision-making. Company’s workforce consists of 1,810 full-time employees and contract laborers, adhering to quality standards.
Varindera Constructions Limited IPO Objective
As per the draft red hearing prospects, the IPO issue consists only of offer for sale.
- The OFS consists of up to XXXX Equity Shares aggregating up to Rs. 3, 000 million. Nothing from those proceeds of OFS will be allotted to company.
- Varindera Constructions IPO offer only has fresh issue of Rs. 9, 000 million. As per DRHP document, Varindera Constructions aims to utilize IPO proceedings towards purchase of equipments, funding working capital, payment of certain borrowing and corporate general expenses.
| Particulars | Estimated Amount |
| Capital expenditure towards purchase of equipments | 1601.08 |
| Funding the working capital requirements of Company | 1550 |
| Payment of certain outstanding borrowings availed by Company | 3598.92 |
| General corporate purposes | XXXX |
| Net Proceeds | XXXX |
(Rs. Million)
IPO Details of Varindera Constructions Limited:
| IPO Open Date | Not yet declared |
| IPO Close Date | Not yet declared |
| Basis of Allotment | Not yet declared |
| Listing Date | Not yet declared |
| Face Value | Rs.1 per share |
| Price | Not yet declared |
| Lot Size | Not yet declared |
| Total Issue Size | XXXX Equity Shares |
| Aggregating up to Rs.12, 000 million | |
| Fresh Issue | XXXX Equity Shares |
| Aggregating up to Rs. 9,000.00 million | |
| Offer For Sale | XXXX Equity Shares |
| Aggregating up to Rs. 3,000.00 million | |
| Issue Type | Book Built Issue IPO |
| Listing At | BSE & NSE |
| QIB Shares Offered | Not more than 50% of the Net Issue |
| Retail Shares Offered | Not less than 35% of the Net Issue |
| NII (HNI) Shares Offered | Not less than 15% of the Net Issue |
Issue Price & Size: Varindera Constructions Limited IPO
The issue price of Varindera Constructions Limited hasn’t been released yet. Upon releasing the dates, the investors can bid between those price ranges. The company has both fresh issue of Rs. 900 crores as well as offer for sale of Rs. 300 crores.
Launch Date of Varindera Constructions Limited IPO
The IPO opening date of Varindera Constructions hasn’t been officially announced yet, upon the declaration of dates investor can bid for IPO.
Varindera Constructions Limited Financial Statements
| Particulars | FY24 | FY23 | FY22 |
| Income | |||
| Revenue from operations | 13889.28 | 10485.51 | 9943.29 |
| Other income | 150.53 | 152.62 | 28.21 |
| Total income | 14039.81 | 10638.13 | 9971.5 |
| Expenses | |||
| Cost of materials consumed | 7003.27 | 5920.89 | 6227.02 |
| Construction expenses | 3171.74 | 2214.65 | 1991.81 |
| Employee benefits expense | 1017.2 | 661.63 | 441.76 |
| Finance costs | 325.79 | 168.46 | 122.09 |
| Depreciation and amortization expenses | 188.36 | 109.69 | 62.95 |
| Other expenses | 450 | 195.21 | 119.27 |
| Total expenses | 12156.36 | 99270.53 | 8964.9 |
| Profit before tax | 1883.45 | 1367.31 | 1006.8 |
| Profit for the year | 1433.82 | 1090.14 | 761.47 |
| KPI Metric | UoM | Varindera Constructions | Ahluwalia Contracts (India) | Capacite Infraprojects | NCC | PSP Projects |
| Order book | INR Billion | 38.45 | 111.8 | 90.11 | 575.36 | 60.49 |
| Order book to revenue from operations | Times (X) | 2.77 | 2.9 | 4.66 | 2.76 | 2.41 |
| Order inflow | INR Billion | 21.14 | 65.37 | 20.09 | 272.83 | N.A. |
| Total Income | INR Million | 14039.81 | 38912.71 | 19646.55 | 209761.9 | 25295.2 |
| Revenue from operation | INR Million | 13889.28 | 38552.98 | 19361.38 | 208449.6 | 25057.89 |
| EBITDA | INR Million | 2397.6 | 4244.71 | 3643.74 | 19001.1 | 2846.67 |
| EBITDA Margin (%) | % | 17.26 | 11.01 | 18.86 | 9.12 | 11.36 |
| Profit after tax ("PAT") | INR Million | 1433.82 | 3748.26 | 1203.3 | 7404.1 | 1229.73 |
| Cash Profit after Tax | INR Million | 1622.18 | 4416.82 | 2216.89 | 9523.3 | 1878.41 |
| PAT Margin (%) | % | 10.32 | 9.72 | 6.23 | 3.55 | 4.91 |
| Cash Profit Margin % | % | 11.68 | 11.46 | 11.48 | 4.57 | 7.5 |
| Total Networth | INR Million | 50.54.91 | 15999.45 | 15170.75 | 68118.8 | 9148.7 |
| Total Debt | INR Million | 3481.54 | 449.66 | 3257.98 | 9800.2 | 4550.9 |
| Net Debt | INR Million | 1976.22 | -5587.43 | 1873.66 | 3731.5 | 4046.77 |
| Net Debt to EBITDA Ratio | Times (X) | 0.82 | -1.32 | 0.51 | 0.2 | 1.42 |
| Net debt to Equity | Times (X) | 0.39 | -0.35 | 0.12 | 0.05 | 0.44 |
| Return on Equity (including total networth) | % | 33.02 | 26.51 | 9.29 | 11.14 | 14.33 |
| Return on Capital Employed (inlcuding total networth) | % | 25.03 | 19.93 | 12.21 | 19 | 15.23 |
| Working capital days | Days | 118.81 | 66.25 | 150.49 | 22.68 | 98.58 |
| Cash Flow from Operations (CFO) | INR Million | 416.68 | 2574.54 | -388.16 | 13594.5 | -2239.84 |
| Interest Coverage Ratio | Times (X) | 6.78 | 7.43 | 2.75 | 2.84 | 4.32 |
| Gross Block /Revenue from operations | % | 14.59 | 12.09 | 63.06 | 13.31 | 22.32 |
Varindera Constructions Limited Promoters & Shareholding
As of date, there are four promoters of the company, including corporate and individual.
The promoter along with promoter group in aggregate collectively holds 98.10% of the paid-up share capital of company.
| Name of the Promoter | No. of Equity Shares held | % of pre-Offer paid-up Equity Share | Selling Shareholders |
| Varinder Kumar Garg | 10,38,92,000 | 67.04% | Aggregating up to Rs. 2,010.00 million |
| Sushma Garg | 4,77,65,200 | 30.82% | Aggregating up to Rs. 990. 00 million |
| Vivek Garg | 2,82,800 | 0.18% | - |
| VG Family Trust | 1,00,000 | 0.06% | - |
| Total | 15,20,40,000 | 98.10% |
Should You Subscribe to Varindera Constructions Limited IPO or Not
While investing or subscribing to any IPO, consider the investment rationales related to the company. Hence, here you can find out the strength of the company that will be its growth factors. And also check the risk factors that can affect the growth and operational efficiency of the company.
Competitive Strengths of Varindera Constructions Limited:
One of the fastest growing construction companies
With over 30 years of experience in executing construction projects, primarily for central government agencies, the company has achieved 31 projects in the last 10 fiscal years
The company is one of the fastest growing construction companies in terms of revenue from operations, with a CAGR of 39.40% between FY19 and FY24. The revenue growth between FY22 to FY24 has grown at CAGR of 18.19%, from Rs.9,943.29 million in FY22 to Rs. 13,889.28 million in FY24. Six of the projects in the last three fiscal years were completed ahead of their scheduled completion date. The company has also undertaken non-residential building projects, including commercial, institutional, infrastructure, and healthcare building projects. The company has built requisite pre-qualification skills for departments and agencies under the central government of India.
Efficient business model
The company's growth is attributed to its efficient business model, which includes careful selection and execution of projects, modern equipment fleet, backward integration, and use of technology. The company has successfully bid for complex EPC projects with higher margins, focusing on central government agencies and international markets.
The company owns a fleet of over 945 major construction equipment, allowing it to undertake multiple projects simultaneously without compromising quality. The company has developed key competencies for in-house execution of specialized works, including HVAC, structural glazing, firefighting, and low voltage electrical works. The company continuously adopts advanced technology, such as BIM, SAP S/4 HANA, mobile automation, and monolithic construction, to improve planning, monitoring, and execution of projects.
Robust order book with government funded projects
The company's order book value increased significantly over the last three periods, reaching Rs. 38,447.93 million FY24. This growth provides financial and operational benefits, including clarity on future revenue potential and work requirements. Projects awarded by NBCC, NHAI, South Western Railway, South Central Railway, and Ministry of Health and Wellness, Mauritius contributed significantly to the company's total order book value. The company's core focus has been on bidding for and executing projects for central government agencies and departments, contributing significantly to the company's revenue.
Experienced promoters
The company has experienced robust business growth under the leadership of Promoters, including Mr. Varinder Garg, who has over 36 years of experience in the construction industry. Garg, who was elected as President of the MES Builder Association of India in 2007, has been instrumental in expanding the company's operations, particularly in international expansion in Mauritius and Maldives. Under his leadership, the company received LOAs from three private sector clients for high-rise residential buildings in Delhi-NCR region.
Future strategies
- The company aims to diversify its business into complex sectors with specialized requirements by focusing on larger building construction projects and leveraging existing capabilities.
- The company plans to expand its client portfolio to private sector clients, leveraging industry trends and private sector investment in the residential building sector.
- The company aims to grow its skilled workforce and strengthen its equipment base to ensure operational efficiency. They aim to attract, train, and retain qualified personnel by investing in advanced engineering and construction technology.
- They aim to acquire the latest equipment from reputable manufacturers and minimize reliance on hired or leased equipment.
Risk Factors of Varindera Constructions Limited:
Depends heavily on competitive bidding process
The company's business relies heavily on its ability to identify opportunities, bid for the project, and be awarded projects. Revenue from projects that are won through competitive bidding holds a significant portion to company’ total revenue. The company incurs significant costs in the preparation and submission of bids, and there is no assurance that they will meet the required qualification criteria, especially for larger projects.
The company's ongoing projects have a term of eight months to three years. Projects awarded to the company may also be subject to litigation by unsuccessful bidders, which could result in delays in awarding the projects and/or notification of appointed dates. This could adversely affect the company's results of operations and financial condition. Any unsuccessful outcome in such proceedings may lead to the termination of a contract awarded to the company, which could have a material adverse effect on future revenues and profits.
| Particulars | FY24 | FY23 | FY22 |
| Revenue from our projects won on competitive bidding | 99.34% | 99.59% | 99.99% |
Clients affiliated with government
The company's business relies heavily on obtaining projects from clients affiliated with the central government. As can be seen from data mentioned in table, as of FY24 revenue from operation from projects with clients affiliated with the central government represented to around 96%.
Contracts are awarded to the lowest bidder, making winning tenders difficult and potentially exerting pressure on margins. The tender process is long and may be subject to significant delays or renegotiation of terms. Political and economic factors, such as pending elections, changes in leadership, and changes in tax policies, can affect the number and terms of new government contracts. The company faces risks associated with doing business with government entities and any adverse change in budgetary allocations for infra development or changes in government policies may affect the company's business prospects and financial performance.
| Particulars | FY24 | FY23 | FY22 |
| Revenue from projects with clients affiliated
with the central government |
96.70% | 97.42% | 92.69% |
Client concentration
The company has successfully executed projects in various sectors, including commercial building, railway, complex and offices, institutional building, healthcare building, and infrastructure projects. The top five clients contributed significantly to the company's total revenue in the past three periods. However, larger contracts from few clients may increase the potential volatility of results and exposure to individual contract risks.
The company's total Order Book value as of March 31, 2024, was 57.29%, with projects awarded by companies like NBCC, NHAI, South Western Railway, South Central Railway, etc. The company may continue to depend on key customers for a substantial portion of its revenues, and failure to retain them could negatively impact its financial performance and results of operations.
| Particulars | FY24 | FY23 | FY22 |
| Revenue earned from top 5 clients | 92.05% | 94.64% | 97.97% |
| Revenue earned from single largest client | 55.93% | 75.34% | 51.69% |
Errors in budget estimation
Varindera Constructions entered various types of contracts and therefore the company estimate essential costs, such as construction materials and direct project costs, at the time of entering into the contract. These estimates are preliminary and may not be finalized in related contracts with subcontractors, suppliers, and other parties involved in the project.
The actual expense in executing a project may vary substantially from the assumptions underlying the bid due to various reasons, such as unanticipated increases in construction materials, fuel, labor, or other inputs, weather conditions. The construction projects typically take two to three years to complete, and the company may suffer significant cost overruns or losses due to unanticipated cost increases. If the company isn’t in condition to renegotiate the contract then the company may also bear risks associated with any increase in actual costs for construction activities exceeding the agreed work. This could adversely affect the company's profitability and overall business fundamentals.
Construction equipments
The company owns and rents large construction equipment and vehicles, which increases fixed costs. As of March 31, 2024, the company owned 945 construction equipment and vehicles, including cranes, hydra, and grader. As clients develop larger, more complex projects, the company has adopted new technologies like BIM, SAP S/4 HANA, MS Projects, and mobile automation. These technologies help monitor and improve equipment usage and operational efficiency.
To meet client needs, the company must regularly update existing technology and acquire or develop new technology. Rapid technological and market demand changes can render existing technologies obsolete, requiring substantial new capital expenditures or write-downs.
Mobilization, maintenance, and management of equipment are critical for timely project completion. If the company cannot source required equipment or dispatch construction vehicles or machinery due to any possible reason, it could disrupt operations and negatively impact the company's financial condition and operations.
Dependence on third party suppliers
The company relies on various suppliers for raw materials, components, and stock-in-trade, including diesel, cement, sand, and admixture. However, delays in supplies may result in delayed deliveries and liquidated damages. The company is also subject to risks of suppliers discontinuing operations, entering into exclusive arrangements with competitors, or unable to obtain alternative sources.
Failure to maintain a required supply of raw materials could negatively impact the company's ability to deliver cryogenic equipment and systems to clients. The company may incur additional expenses for resolving errors, providing damages, extending warranties, increasing insurance coverage, obsolescence of inventory, and defective products.
Exposed to liabilities arising from business activity
Construction defects or defaults in projects can lead to claims, liabilities, costs, and expenses. The company typically has a defect liability period post-project completion, but claims regarding construction quality may arise in the future. These defects can result in increased interest costs, increased operational costs, and additional work for rehabilitation. Defects may also result in loss of goodwill, and adverse impact on future bids and operations.
Pre-bidding engineering studies
Preparation of any project is started before the project is officially bid by the company. The company conducts engineering surveys; including site visits, assessing risks, and logistic feasibility. They also appoint technical consultants to conduct detailed inspections, record important features, and prepare detailed bills of quantities. These studies are typically conducted quickly, so they may not be exhaustive and may result in deviations in key elements, potentially impacting cash flows, operations results, and financial condition.
Varindera Constructions Limited Grey Market premium
Grey market premium is the premium quoted over the IPO issue price. GMP shows that investors are ready to pay above the upper band of the IPO issue price. GMP is determined in the grey market as per the demand and supply of the shares in the primary market. A grey market is that unofficial ecosystem of unlisted companies' stocks that start trading even before the launch of the IPO to the date of its listing.
Also Read: What is Grey Market Premium in IPO: How is GMP Calculated & Reliable
However, GMP is not a reliable factor, as it keeps fluctuating as per the demand and supply of shares in the primary market. There are numerous factors that affect the stock market in India and individual stock prices of different companies that are already listed and trading in the secondary market. However, for an IPO-bounded company, you can consider the GMP as the speculative listing price of the share
According to various online sources, the Grey Market Premium or GMP of the Varindera Constructions Limited is trading around Rs XX in the grey market. It means shares are trading at the upper band issue price of Rs XX with a premium in the grey market and may list around the same price.
