Lotus Global Investment Fund picks up stake in Karda Constructions Ltd.

Lotus Global Investment Fund has picked up stake in BSE and NSE-listed real estate giant, Karda Constructions Ltd. As per bulk deal data available on NSE, Lotus Global Investment Fund picked up 325000 shares in Karda Constructions Ltd at Rs 111 on January 28.

The company had recently announced that it had contract orders worth Rs 1835.14 million in hand.

The company said that its focus would be on improvising the processes, adaptable approach in business, use of technology & online and digital platforms and cost optimization for better performance and for reaching out to the millennial that constitute the larger part of buyers.

The company has successfully delivered over 1 mn square feet Carpet Area. Karda Constructions Limited posted good income, sales volume and collections during FY20 despite challenges thrown by COVID-19 during last fortnight of the fourth quarter.

Karda group enjoys a very high reputation for on-time deliveries and providing value for money to buyers in all the three segments viz. affordable, mid and high income segment. Karda group has rather grown in deliverables and continues to make a healthy 25-28 per cent EBITDA margins.

Post IPO of the company, along with taking advantage of its good reputation, lean market condition and an eye on profitability the company changed its business model of building new projects to a Joint Venture model. By entering into a JV with the land owner, the company avoided taking debts on its books to fund the land cost leading to substantially lower loans on the project resulting in saving interest costs.

This model ensures that a sales value of Rs 250 crores into company books will need only Rs 30-50 crores loan for two years and therefore interest burden on such project is just Rs 10-12 crores. EBITDA is higher in JV model at about 45-50 per cent on sales revenue.

The new projects under this model is expected to generate sales of Rs 600 crores thus earning the company Rs 300 crores over a period of next three to four years. The company will receive contribution of PBT at Rs 250 crores and PAT of Rs 200 crores on these new projects alone. Karda pays about 18-20 per cent near MAT on book profits.

Company has a continuous pipeline of new projects planned based on JV model. Having established an excellent name for delivery and quality, the company now has managed to capitalise on its goodwill to change the model to almost zero working capital basis for the projects. With sales increasing, interest load reduction and the company targeting to low debt or zero debt balance sheet, we expect the company's equity value to increase substantially higher.

The current Debt at Rs 100 crores is expected to reduce to 50 crores while topline will increase to Rs 250 crores from current Rs 100 crores in the coming years. The company has projected sales of Rs 200 crores in FY 22, Rs 250 crores in FY 23 and Rs 272 crores in FY 24 from real estate segment alone with a projected net profit of Rs 51 crores in FY 22, Rs 75 in FY 23 and Rs 94 crores in FY 24.

The company is involved in services sector of constructing for government tenders as well as other company's project. Construction services is expected to contribute gross revenue at Rs 20 crores in FY 21, Rs 40 crores in FY 22 and Rs 80 crores in FY 23 earning 6.5per cent EBITDA margins.

Several Broking Houses including IIFL, Khambatta Securities, Mangal Keshav Securities have previously given Buy Call for investment in shares of Karda Construction Ltd. Looking at the substantial jump in debt reduction, capitalisation of goodwill by way of joint venture agreements with landowners, a steady sales achieved scenario in commercial and residential even during lockdown period, the company is expected to become an Rs 1000 crores plus market cap company. The company is cash flow positive and would remain so in the coming years. The company provides excellent quality at affordable rates.

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( With inputs from ANI )