Garuda Construction and Engineering IPO: 10 key risks investors should know before subscribing to the ₹264-crore issue

Garuda Construction and Engineering IPO: The first day of bidding for Garuda Construction and Engineering Ltd started well, with the issue being fully booked and receiving a positive response from retail investors.

The Garuda Construction IPO consists of a combination of 1.83 crore fresh equity shares and an Offer For Sale (OFS) of 95 lakh equity shares by promoter PKH Ventures. At the upper end of the price band, the IPO is valued at ₹264 crore. Out of the fresh issuance, ₹100 crore will be used for working capital needs, and the remaining amount will be allocated to general corporate purposes, including potential inorganic acquisitions.

Qualified institutional buyers have been allocated half of the issue size, while 35 per cent is reserved for retail investors and the remaining 15 per cent for non-institutional investors. Investors have the option to bid for a minimum of 157 equity shares and in multiples of 157 equity shares thereafter.

Currently, Garuda Construction and Engineering is involved in the civil construction of six residential projects, two commercial projects, one industrial project, and one infrastructure project, with an order book totalling ₹1,408.27 crore.

Garuda Construction and Engineering IPO price band is set in the range of ₹92-95 per share. The investors can subscribe to the initial share sale from today (Tuesday, October 8) until Thursday, October 10.

Garuda Construction IPO - Key Risks

Here are some of the key risks listed by the company in its Red-Herring Prospectus (RHP):

• The top ten clients of the business, primarily group companies and associations connected to promoters, account for all of its income. Their operations, prospects, financial situation, and business may all suffer if they lost any of their major clients.
• The operations and financial performance of the firm may be significantly impacted by the cyclical and sensitive nature of the construction sector.
• The success of India's real estate market, in especially in the Mumbai Metropolitan Region (MMR), has a major impact on the company's operations and financial performance. The capacity of the MMR to guarantee the sale of their projects and the pricing of units in such projects may be impacted by fluctuating market circumstances, which might have a negative impact on their operational and financial performance.
• The business enters into a number of subcontracts for building projects with main contractors. These agreements include terms and conditions, which, if not met, may cause delays and need indemnification and compensation.
• Delays in acquiring necessary permissions or statutory clearances can cause problems and have a negative effect on future projects' profitability, as was the case with their "Trinity Oasis" project located on Ghodbunder Road in Thane.

• Proof of stamp duty payment for the issue or allocation of securities is not in the company's possession.
• The firm is in a competitive industry, and its prospects, financial situation, and operational outcomes might all suffer if it is unable to successfully compete.
• Their business, financial situation, and operational outcomes might be negatively impacted by ongoing legal procedures affecting their company, promoter, certain directors, and group companies.
• The process of bidding for a contract entails a number of management tasks, including thorough project analysis and cost projections. The predicted rate of return and profitability forecasts may decline as a result of inaccurate cost estimation.
• None of the banks or financial institutions have evaluated the purposes of the offer for which money are being sought. The allocation of money is contingent upon their management's decision and follows the guidelines outlined in the "Objects of the Offer" section. If the estimations change, they could have to rearrange their expenses, which could impact their anticipated earnings and sales.

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