KHFM Hospitality and Facility Management Services Limited

Incorporated in 2006, Mumbai based KHFM Hospitality and Facility Management Services Limited provides integrated hospitality and facility management services to PSUs, MNCs, Railways, and other commercials. The company primarily offers Security Service, Horticulture & Gardening, Hospitality Services & Catering, and Facility Management services. It has a PAN India presence with site offices in 21 cities across 10 states. The company works on an asset-light model where it maintains fewer capital assets as compared to the value of its working capital requirements. The majority of revenues of KHFM is generated from soft services such as Guest House Management & Catering, Hospitality Services, Facility Management, and housekeeping services. KHFM Hospitality and Facility Management Services Limited obtain the majority of business through Tender Process which includes competitive bidding process. Some of the contracts of the company are with the government agencies and Government of India which may be affected by the change in government policies in future. The competitive strengths of the company are: • Experienced team with domain expertise• 70% client retention for last 2-years• Technological advancement• Diversified service portfolio• PAN India presence On the financial performance front, KHFM has posted turnover/net profits of Rs. 45.97 cr. / Rs. 2.13 cr. (FY14), Rs. 46.12 cr. / Rs. 2.09 cr. (FY15), Rs. 44.98 cr. / Rs. 1.95 cr. (FY16), Rs. Rs. 44.88  cr. / Rs. 1.81 cr. (FY17), Rs. 45.08 cr. / Rs. 2.22 cr. (FY18).  For the H1 of FY19, it has earned a net profit of Rs. 1.37 cr. on a turnover of Rs. 37.85 cr. Performance of company remained almost static in all these years. Its current debt / equity ratio is 1.39. For last three fiscals, KHFM has posted (on a consolidated basis) an average EPS of Rs. 3.02 and an average RoNW of 12.07%. The issue is priced at a P/BV of 1.30 on the basis of its NAV of Rs. 29.24 post issue. If we annualise latest earnings and attribute it on fully diluted post issue equity, then asking price is at a P/E of around 13.33, thus issue appears fully priced and if we take FY18 earnings, then P/E is around 16.57. Comparison with listed peers is given in above table. On BRLM's front, for Bonanza portfolio Limited this is the 1st SME IPO. Company has shown improvements in results, RoNW is 12.07% and issue looks fully priced with respect to current earnings. It's expected that hospitality, facility management and security services will expand at the rate of 16% to 20% and future of this industry is very good. So we give NEUTRAL rating to this SME IPO.

• 1 Mr. Ravindra Hegde
• 2 Mrs. Sujata Hegde