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 has picked up 325000 shares in Karda Constructions Ltd. at Rs. 111 on 28th January, 2021. 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 sq. ft. 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% 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 Crs into company books will need only Rs. 30-50 Crs loan for two years and therefore interest burden on such project is just Rs.10-12 Crs. EBITDA is higher in JV model at about 45-50% on sales revenue. The new projects under this model is expected to generate sales of Rs. 600 Crs thus earning the company Rs. 300 Crs over a period of next three to four years. The company will receive contribution of PBT at Rs. 250 Crs and PAT of Rs. 200 Crs on these new projects alone. Karda pays about 18-20% 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 targetting 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 Crs is expected to reduce to 50 Crs while topline will increase to Rs. 250 Crs from current Rs. 100 Crs in the coming years. The company has projected sales of Rs. 200 Crs in FY 22, Rs. 250 Crs in FY 23 and Rs. 272 Crs in FY 24 from real estate segment alone with a projected net profit of Rs. 51 Crs in FY 22, Rs. 75 in FY 23 and Rs. 94 Crs 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 Crs in FY 21, Rs. 40 Crs in FY 22 and Rs. 80 Crs in FY 23 earning 6.5% 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 Crs 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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