Core4 Engineers IPO: fast water-led growth

1. IPO Overview

Core4 Engineers is raising about Rs 54.82 crore at the top of its Rs 88-93 band, entirely through new shares to fund working capital and a small factory-office purchase. The offer lists on the BSE SME platform, where trading is usually thinner than on the main board.

The one thing to notice is the shape of the deal and the business behind it. There is no offer for sale, so all the money stays in the company, and promoter holding will fall from a high 82.09% as nearly 40% new shares are added. Behind that, growth in the last year has come almost entirely from water jobs done as a sub-contractor to private builders in Karnataka, with customer dues far exceeding sales and operating cash negative in every period shown.

2. What the company does

Builds power and water systems and hands them over working

Core4 Engineers is a Mysuru-based contractor that does the whole job for electrical and water infrastructure. When railways need wires above tracks, a station building or platform lights, when a utility needs a substation or power line, or when a town needs clean water or sewage treatment, Core4 designs the system, buys steel, cables, pipes and switchgear, builds it on site, tests it and switches it on.

The industry calls this EPCC — engineering, procurement, construction and commissioning. Procurement means buying all materials. Commissioning means proving the plant works before the customer accepts it. In some water jobs Core4 also looks after the plant for five years.

Money comes in milestone bills. It finishes a foundation, erects a mast, lays a kilometre of pipe or installs a panel, gets it certified by the project in-charge, raises a bill and waits weeks or months for payment. A second, smaller stream is product sales from its own factory.

Makes its own panels in Mysuru and wires them into projects

What sets the model apart is that Core4 is both contractor and manufacturer. Its plant at Hootagalli-Koorgalli Industrial Area in Mysuru builds high-tension panels up to 33 kV, low-tension panels up to 1.1 kV, automation panels and compact substations up to 2.5 MVA and 11 kV.

High-tension means higher-voltage equipment that distributes power safely. Low-tension means lower-voltage boards used inside buildings. A compact substation is a factory-built metal box that puts a high-tension panel, transformer and low-tension panel together in one ready unit.

In almost all its service projects about 20% of the project value is electrical panels, so making them in-house saves vendor margins, shortens delivery and lets it tailor designs. It says it voluntarily carries out all eight type tests approved by the Central Power Research Institute in Bengaluru, even when the customer does not ask for them.

Railways built the past, water drives the present

Core4 works across five applications of the same system, but the mix has shifted sharply toward water.

Railway electrification and station work was once more than half the service business. It covers 25 kV overhead wires, traction sub-stations that step grid power down for trains, sectioning posts that balance load, plus station buildings, foot over bridges, lighting, water supply and signage under programmes like Amrit Bharat.

Extra high-tension transmission and distribution is the smallest line in every year. It covers substations, lines and 11 kV to 220 kV distribution networks, often linked to feeder segregation and green-energy evacuation work.

Water and wastewater treatment is now the dominant line. It covers water treatment plants, sewage treatment plants, effluent plants, intake wells, pumping stations and pipelines, plus civil, electrical and automation work. Much of the FY26 surge was done as a sub-contractor to private builders rather than directly for water boards.

Automation and SCADA is both a standalone offer and the glue inside the others. SCADA means the computers, sensors and communication links that let a utility monitor pumps or traction power from a control room. It covers controllers, remote units, operator screens, fibre and radio networks and central software.

Composite panel supply is the factory leg. Panels are supplied with installation and testing inside EPCC jobs and also sold to outside industrial customers. Product sales were nil in FY24 and FY25, then started in FY26.

Three-month stub.

Water rose from about one-fifth of service revenue in FY24 to about two-thirds in FY26 and almost nine-tenths in the June quarter. Railways fell from about three-fifths to about one-tenth over the same span.

Three-month stub.

Karnataka was about 40% of sales in FY24, about 86% in FY26 and about 95% in the June quarter. The prospectus risk section says all ongoing projects were in Karnataka, but its detailed ongoing-project list includes locations outside the state; the current project footprint needs clarification.

Governments give the programmes, private builders give the work

Core4 sells to two worlds. Government customers — zonal railways, water boards like Karnataka Urban Water Supply and Drainage Board, municipalities, power utilities and public builders like Rail Vikas Nigam — award work through competitive tenders. They offer large programme pipelines but pay slowly, impose strict penalties and can suspend or terminate jobs.

Private customers — industries, hospitals, IT parks, renewable developers and, most importantly, large private EPC contractors who hire Core4 as a sub-contractor — decide faster but pass on tight back-to-back terms. Core4 often does not control when work is certified or paid.

That intermediated model now dominates. Private-sector revenue rose from about 30% in FY24 to about 68% in FY26 and about 89% in the June quarter. Sub-contracting revenue moved almost identically, from about 27% to about 68% and then about 89%. Concentration has risen with it. The top customer was about 16% of sales in FY24, about 42% in FY26 and about 32% in the June quarter. The top five were about 48%, about 66% and about 85%.

Bidding remains active but win value is not disclosed. Bids made were 233 in FY24, 261 in FY25, 189 in FY26 and 30 in the June quarter. Contract sizes in completed jobs mostly ran from about Rs 99 lakhs to about Rs 5.50 crore, while ongoing jobs range from small maintenance jobs under Rs 25 lakhs to transmission jobs over Rs 30 crore.

Growth consumes cash long before customers pay

The math of the business is simple: number of projects under execution times pace of certification times billed value per milestone, plus panels sold times price per panel. The constraint is working capital.

Core4 buys materials against each project with no long-term supply deals, deploys its own engineers plus floating labour, and bills stage by stage. Suppliers must often be paid sooner, while government certification, audits and retention holdbacks stretch receivables. Growth therefore locks cash in inventory, advances and unpaid bills, funded by overdrafts, NBFC loans and guarantees.

The operating metrics show larger, longer jobs and a water surge.

Three-month stub.

Average duration lengthened as the company moved to larger jobs. The business description uses Rs 5 crore to distinguish the two sizes, although a separate KPI note uses Rs 3 crore. Railway station works rose from 2 to 12 between FY24 and FY26, while electrification kilometres fell. Water plants completed rose from 3 to 10, and sewage capacity handled rose from nil to 3.81 MLD.

Factory output is volatile and mostly for captive use. Low-tension panels made were 73, 102, 32 and 42 across the four periods. Compact substations made were 3, 20, 6 and 1. The company says installed capacity is not applicable because work is mainly assembly and integration.

The team is lean on rolls and heavy on site. On June 30, 2026 it had 62 people on payroll, led by 23 in electrical projects and 9 in civil, plus about 400 floating labour, for 462 in all. Attrition for full-time staff was very high at 53.85% in FY24, 173.80% in FY25, 255% in FY26 and 42.11% in the June quarter.

3. Use of Funds

The issue is entirely new shares, so all net proceeds stay with the company. No money goes to selling shareholders.

• Rs 4.12 crore from net proceeds to buy land with an existing building at Hebbal in Mysuru for a new manufacturing facility and corporate office. The estimated-cost table shows Rs 4.42 crore before a Rs 30.00 lakh advance paid from internal accruals. A separate source paragraph instead calls Rs 4.12 crore the total consideration; this discrepancy needs clarification.
• Rs 40.48 crore to fund incremental working capital in FY27, mainly for higher customer dues, stock and project needs
• Balance for general corporate purposes, amount not disclosed

No amount is earmarked for repaying borrowings.

4. Financials Overview

Three-month stub, not annualised.

Revenue was almost flat in FY25 then nearly tripled in FY26 as water sub-contracting scaled, while EBITDA margin widened from about 15% in FY24 to about 20% in FY26 and held near that level in the June quarter. Returns rebounded sharply in FY26 after falling in FY25, but debt-equity was near or above one time across the periods shown, including 0.99 times in FY25, and operating cash flow was negative in every period. The deep dive follows in the next section.

5. What the financials tell us

The headline is simple: sales and reported profit jumped in FY26, but cash did not follow. Growth is narrow, buyers are few, bills wait long for payment, and debt bridges the gap. The IPO money mainly funds that wait.

Fast growth in FY26 came from one work type in one state

Revenue was almost flat in FY25 and then jumped to about Rs 91.34 crore in FY26. The cause is water and wastewater treatment, which rose to about Rs 59.83 crore and about two-thirds of service revenue in FY26, and to almost nine-tenths in the June quarter.

The same periods show the channel and geography moving together:

• Private-sector share rose from about three-tenths in FY24 to about two-thirds in FY26 and about nine-tenths in the June quarter
• Sub-contracting share rose from about one-quarter to about two-thirds and then about nine-tenths
• Karnataka share rose from about four-tenths to about 86% and then about 95%

For an investor, this is real but narrow growth. One segment, one channel and one state have to keep firing together. A delay in water certification, a pause by one main contractor or a state-level slowdown hits almost all current sales at once.

Sales and future work rest on a handful of buyers

Dependence on a few buyers rose as the model shifted to sub-contracting. The top customer was about 42% of revenue in FY26. The top five were about 66% in FY26 and about 85% in the June quarter, with the top ten at about 94%.

Paper visibility looks strong. The standalone order book is stated at about Rs 285.83 crore, about three times FY26 sales. But history shows orders turn into bills slowly. The disclosed billed share of contract value was about 20-24% in FY24-FY26; it was about 12% for the separate three-month June 2026 period, with the balance shown as unbilled.

Conversion has also been disputed. Two Southern Railway jobs were ended early and are now in arbitration, with claims of about Rs 17.04 crore and about Rs 1.54 crore. Orders therefore do not always become revenue and cash as planned, especially when Core4 does not hold the main contract and cannot control certification or payment timing.

Profits stayed on paper while unpaid bills absorbed the cash

The company reported a profit in every period, totalling about Rs 25.23 crore from FY24 through FY26 plus the June quarter. Yet cash from running the business was negative in all four periods, totalling an outflow of about Rs 41.08 crore.

The reason given is milestone billing and slow collection. When sales jumped, unpaid customer balances jumped far more than profit:

• Customer dues rose from about Rs 7.59 crore in FY24 to about Rs 36.19 crore in FY25, about Rs 75.45 crore in FY26 and about Rs 101.54 crore by June 2026
• Dues were about 23% of annual sales in FY24, then about 106% in FY25 and about 83% in FY26
• About Rs 15.27 crore was outstanding for more than a year from due date at June 2026

The June quarter ratio of over 200% looks extreme because three months of sales are compared with a full stock of dues, so full-year ratios are the fair comparison. Even those show more than nine months of sales locked in bills.

Customer dues are about six times supplier dues, so the company funds the wait with borrowing. Fund-based loans were about Rs 40.57 crore at June 2026, plus about Rs 6.58 crore of bank guarantees. Finance costs rose from about Rs 1.54 crore in FY24 to about Rs 3.07 crore in FY26. Cash on hand stayed thin.

IPO money mainly pays for the billing wait

Of the planned use, a small part buys the Hebbal property for a factory and office. The large part, about Rs 40.48 crore, funds working capital in FY27.

That matches the stated need. On the standalone basis used in the issue’s working-capital schedule, total working capital is projected at about Rs 100.18 crore in FY27 against about Rs 45.04 crore in FY26. The projection includes stock of about Rs 40 crore and customer dues of about Rs 100 crore, less supplier credit of about Rs 50 crore, alongside other current assets and liabilities.

This should ease pressure to pay suppliers and run projects without adding as much short-term debt, if sales and collections follow the plan. It does not fix slow payment itself. The company still expects to need its own earnings and bank funds alongside issue money, and past statements filed with banks have differed from books by large amounts due to reconciliation issues, which adds uncertainty to working-capital discipline.

What you buy is essentially the parent company

For the June quarter the parent held about 97% of net assets and about 90% of profit. The new wholly owned subsidiary and two 49% joint ventures together accounted for about 3% of net assets and about 10% of profit. Consolidated profit today is essentially parent profit.

That is a sharp change from FY24, when the Niranjan joint venture supplied about one-third of profit. Years are therefore not like-for-like. The two ventures are unregistered partnerships whose statements were not audited and were given by management, which the auditor relied on. Their combined assets are about 3-4% of consolidated assets. That comparison does not establish the potential impact of a misstatement on net worth; reliance on unaudited information adds uncertainty to the reported balances and profit contribution. There is no minority leakage because the subsidiary is wholly owned and ventures are taken only for the 49% share.

Separately, insider links still matter. Purchases from promoter-linked Nandi Enterprises were over half of FY25 profit in size. Unsecured loans from promoters and directors repayable on demand were about Rs 2.26 crore at June 2026. Personal guarantees of promoters backed about Rs 20.63 crore of borrowings. Panel sales from the new subsidiary only began in FY26. Margins and liquidity therefore still depend partly on insider funding and supply terms, not only on outside banks and customers.

6. Valuation Analysis

At the top of the band, the IPO values the company at about 15.6 times its FY26 profit, a lens that fits this profitable contractor. That is roughly four times the 3.97 times multiple of its only listed peer.

The premium looks demanding rather than earned. Reported margins and returns improved as water sub-contracting scaled, but operating cash flow was negative in all four reported periods, dues exceed a year of sales in some years, and growth rests on few private buyers in one state. The price looks fair only if collection speeds up and the concentrated order book converts without further delays or disputes.

7. Peer Analysis

Basis: Core4 post-issue market cap at Rs 93 divided by FY26 reported profit; K2 closing price on October 16, 2026 divided by FY26 Basic EPS, both on consolidated financials.

K2’s inventory and working-capital days are reproduced as published. The source also says FY26 closing inventory was nil; its listed components, -7 inventory days plus 268 receivable days less 96 payable days, sum to 165 rather than the published 172. This source inconsistency needs clarification.

Core4 really compares with only one listed peer, and even that is an imperfect match. K2 Infragen is about twice Core4 by FY26 sales and works across water, railways, roads and buildings in nine states, with some trading-led revenue. Two other names in the industry report — Trimurthi Hitech in railway electrification and SN Enviro-Tech in water — are private and have no market multiples, and each overlaps only one of Core4's five lines.

The growth paths diverged. Core4 grew revenue about 173% from FY24 to FY26 in one FY26 jump after a flat FY25, while K2 grew about 68% more steadily. Core4's EBITDA margin expanded from about 15% to about 20% as water scale and in-house panels helped, while K2's margin compressed from about 19% to about 12%. Returns tell the same story: Core4's return on equity rebounded to about 50% in FY26, well above K2's about 16%.

That edge comes with heavier strain. Core4's working-capital cycle was 240 days in FY26 against K2's 172 days, with receivables at 223 days and inventory at 86 days while K2 carries almost no inventory. K2 also faces long receivables at 268 days, so slow government and contractor payment is partly industry-wide. But Core4 adds concentration and non-conversion that K2 does not show to the same degree: about 95% Karnataka and about 89% sub-contracting in the latest quarter, top-five at about 85%, and negative operating cash in every period.

In short, Core4 earns more per rupee of sales and equity, but on a narrower, intermediated and cash-hungry base. Paying about 15.6 times earnings against about 4 times for a larger, diversified peer prices in perfect collection and repeatability that past billing pace, ageing dues and arbitration history do not yet support.

8. Moat

In-house panels and integrated execution lower cost but do not protect pricing

The genuine edge is operating, not strategic. Doing design through commissioning in-house, wiring its own Mysuru panels into jobs and voluntarily running all eight institute tests gives better control over quality, delivery and cost on small to mid-size jobs. With panels at about a fifth of project value, that saving drops straight to project margin.

Tailwinds help fill the tender pipeline. Railway electrification and station redevelopment, feeder segregation and grid strengthening, and piped-water and sewerage build-out under Jal Jeevan, AMRUT and pollution norms all expand the work Core4 bids for. Its factory also rides grid spending through substation and feeder panels.

The edge is not durable. Bidding still goes to the lowest qualified bidder, inputs have no long-term cover, and past experience and financial strength decide pre-qualification. Concentration in one state, a few private main contractors and sub-contracts means Core4 cannot set price or payment terms. Rivals can match the factory over time, while Core4 cannot easily replicate a diversified, multi-state direct-contract franchise. Without faster collection, more wins simply mean more receivables and guarantees.

9. Risks

• Customer and channel concentration. The top ten were about 94% of sales in the June quarter and private sub-contracting was about 89%. Losing or facing delay from one main contractor directly cuts revenue and cash, because Core4 does not control certification.

• Single-state and single-segment bet. Karnataka was about 95% of sales in the June quarter and water was about 87% of service revenue. A state budget pause, approval delay or water-programme slowdown falls almost entirely on current sales.

• Cash locked in bills and funded by debt. Customer dues of about Rs 101.54 crore dwarf supplier dues, with about Rs 15.27 crore over a year old. Negative operating cash in every period forces reliance on overdrafts, NBFC loans and guarantees, raising interest and rollover risk. The IPO working-capital funding buffers liquidity but does not speed up payment.

• Termination and guarantee risk. Two railway jobs were ended early and are in arbitration for large claims. Pre-termination strands men and machines, can trigger encashment of performance guarantees of typically 5%, and recovery takes years.

• Fixed-price bids without supply cover. Steel, copper, cement, transformers and cables swing in price, with top ten suppliers at about 88% of purchases and no long-term deals. Cost overruns on fixed-price tenders are largely unrecoverable, and back-to-back sub-contracts can be tighter than the main contract.

• Governance and reporting overhang. Promoter on-demand loans, large personal guarantees, material related-party purchases, unaudited joint ventures and past gaps in tax, provident fund and bank-statement reconciliations mean investors must trust execution discipline as much as growth.

10. Verdict

Core4 offers fast but narrow growth, higher reported margins than its listed peer, a large order book on paper, and a fresh issue that funds working capital rather than paying sellers. Against that, sales rest on few private contractors in one state, operating cash flow was negative in all four reported periods, dues and debt fund the wait, and past orders show slow billing and disputes.

The price at about 15.6 times FY26 profit demands clean conversion that the record does not yet show. For the thesis to work, milestone certification and collection must accelerate so scale brings cash, not just receivables. If payment slips further or a key contractor pauses, more wins will mean more borrowing and the premium will look stretched.