Kaushalya Infrastructure Development Corporation (Kidco) is a Kolkata-based small construction company promoted by the Mehras. The company specialises in the construction and maintenance of roads and highways and bridges, erection of transmission lines, electrification projects as well as commercial and residential complexes. It also operates a hotel in Jhargram, West Bengal.
Originally incorporated in 1992 as RMS Exim, Kidco got into construction in 2001 and executed around 32 projects in its last six years of active presence in the construction sector. The company is strongly focused on the eastern part of the country with most of its construction happening in West Bengal. The company subsequently extended its operations to other eastern states such as Jharkhand, Sikkim and then to Chhattisgarh. It undertakes contracts both as a primary contractor as well as a sub-contractor providing services to various government, semi government organisations, and public sector undertakings. Its clients includes AMR Construction., Punj Lloyd., Engineering Projects (India), Power and Energy Department of the government of Sikkim, Tantia Construction, Balasore Alloys, Allied Infrastructure and Projects, Purulia Zilla Parishad, PMGSY, and National Projects Construction Corporation.
For its realty foray Kidco acquired land either directly or through its subsidiaries and proposes to buy more land and development rights. These are in various stages of identification and acquisition. For the projects undertaken by its subsidiaries or joint ventures (JVs), the company will undertake development of land parcel including construction activity.
On 23 March 2006, Kidco entered into a memorandum of understanding (MOU) with West Bengal Housing Board (WBHB) to develop housing and related infrastructure in Bengal. For this, the company has incorporated a JV with WBHB, Bengal KDC Housing Development. The subsidiary had bid for an expression of interest for development of residential complexes in Himachal Vihar, Siliguri, issued by the Siliguri Jalpaiguri Development Authority, on 11 October 2006. The area of the project is four acres to be given on a 30-year lease (renewable) to the successful bidder. The project involves construction of residential complex. The estimated cost of the project would be Rs 20 crore. After completion, the successful bidder will sell/ lease/ give on rent the project to various parties. The project, to be completed in three years, is to be executed on build-operate-transfer basis.
To further consolidate its position in infrastructure development, the housing and real-estate sector, Kidco has entered into/executed a JV agreement /MoU with various government and private bodies like the West Bengal Small Industries Development Corporation, Santech Communication and Rose Land and SSNNLL Corporation, an IIIinois (US)-based company.
Kidco is tapping the capital markets to fund its plan of1) purchasing construction and infrastructure equipment for execution of projects amounting to Rs 5.01 crore; 2) acquisition of land and land development rights and realty development amounting to Rs 17.50 crore; 3) Investment in BOT/ build-own-operate-transfer (BOOT) projects and JV amounting to Rs 12 crore; and 4) meeting long-term working capital requirement of Rs 12.04 crore and corporate expenses.
Strengths
Unexecuted part of the order book stood at Rs 76.01 crore end June 2007. Though order backlog seems small compared with the other listed peers, the completion of all the orders by June 20’08 gives strong revenue visibility.
Presently owns 28.39 acres of freehold land close to Hyderabad at Hothi Village, Zaheerabad, Medak District, Andhra Pradesh. This is close to the industrial belt. Subsidiaries have acquired 4.004 acres of land at Rajarhat, West Bengal, which is fast emerging as IT hub of Kolkata. Entered into either an agreement for purchase or MoU for further 8.016 acres of land at Rajarhat, West Bengal.
Weakness
Continues to claim benefits under Section 80IA of the Income-Tax Act, 1961 in spite of the recent clarification stating these benefits are applicable only to infrastructure developers. If the litigation seeking clarity brought by the construction industry against the income-tax department fails, adjustment will have to be made to liabilities over the years against general reserve, affecting net worth apart from hitting the margin factored in current orders.
About 61% of the unexecuted part of the order book accounted by two packages/orders from Sipat Super Thermal Power Project. Hence, any delay in completing the project will adversely affect performance in the coming quarters.
Has little experience in real estate development
Is yet to undertake large-ticket orders (in excess of Rs 50 crore). Moreover, the execution track record in road space largely comprises rural and district roads. Capability to scale up either on own and or in consortium is yet to be seen in highly competitive National Housing Authority of India (NHAI) or state road-sector projects.
Valuation
On adjusted net profit in the year ending March 2007 (FY 2007), the EPS works out Rs 2 on post-issue equity capital. At the price brand of Rs 50 –Rs 60, P/E works out to 25 times on the lower band and 30 times on the upper band. In comparison peers such as MSK Projects and Roman Tarmat are available at a P/E of 19.8 and 16.7 times.