Why Construction & Infrastructure can sometimes be misnomers

06 Jul 2023 CW Team

Pratap Padode, Founder, FIRST Construction Council highlights that there is a thin line between lack of understanding and misrepresentation

Construction, building, infrastructure, and real estate are often used interchangeably, sometimes incorrectly. Upon joining our organization, the new joinees are given a brief orientation, personally delivered by myself, addressing the distinctions.

To illustrate, consider the recently announced initial public offering (IPO) by PKH Ventures, aiming to raise approximately Rs 379 crores (around $47 million) in funds. Out of this total, two-thirds will be allocated to the company itself, while the remaining one-third, approximately Rs 125 crores, will be the promoter's personal bounty as he is selling his personal equity in the company. Within the Rs 250 crores received by the company, half, amounting to Rs 124 crores, will be invested in a hydro power project, in which the promoters have zero experience. The other half will be divided, with Rs 80 crores dedicated to working capital by transferring it to a subsidiary of the company, and Rs 40 crores designated for acquisitions. Thus, PKH Ventures is reinvesting the proceeds into unrelated ventures. The IPO is based upon past performance which reported a topline of Rs 200 crores for FY 2022, accompanied by a profit of Rs 40 crores. It is worth noting that PKH Ventures also generates revenue from a small hospitality business, while its subsidiary specializes in building projects.

Returning to the lesson at hand, it is evident that PKH Ventures operates primarily as a real estate developer, with its subsidiary specializing in the same field. Construction activities, on the other hand, may be carried out by building contractors and specialist contractors. Although the company's core competency lies in real estate development, it is clearly diversifying into unrelated sectors.

As per latest reports the promoters have decided to withdraw the proposed IPO. Thankfully good sense has prevailed.

Pratap Padode, Founder, FIRST Construction Council highlights that there is a thin line between lack of understanding and misrepresentationConstruction, building, infrastructure, and real estate are often used interchangeably, sometimes incorrectly. Upon joining our organization, the new joinees are given a brief orientation, personally delivered by myself, addressing the distinctions. To illustrate, consider the recently announced initial public offering (IPO) by PKH Ventures, aiming to raise approximately Rs 379 crores (around $47 million) in funds. Out of this total, two-thirds will be allocated to the company itself, while the remaining one-third, approximately Rs 125 crores, will be the promoter's personal bounty as he is selling his personal equity in the company. Within the Rs 250 crores received by the company, half, amounting to Rs 124 crores, will be invested in a hydro power project, in which the promoters have zero experience. The other half will be divided, with Rs 80 crores dedicated to working capital by transferring it to a subsidiary of the company, and Rs 40 crores designated for acquisitions. Thus, PKH Ventures is reinvesting the proceeds into unrelated ventures. The IPO is based upon past performance which reported a topline of Rs 200 crores for FY 2022, accompanied by a profit of Rs 40 crores. It is worth noting that PKH Ventures also generates revenue from a small hospitality business, while its subsidiary specializes in building projects. Returning to the lesson at hand, it is evident that PKH Ventures operates primarily as a real estate developer, with its subsidiary specializing in the same field. Construction activities, on the other hand, may be carried out by building contractors and specialist contractors. Although the company's core competency lies in real estate development, it is clearly diversifying into unrelated sectors. As per latest reports the promoters have decided to withdraw the proposed IPO. Thankfully good sense has prevailed.

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