PSP Projects IPO review (May apply)

PSP Projects Ltd (PSPPL) is a multidisciplinary construction company offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India. It provides services across the construction value chain, ranging from planning and design to construction and post-construction activities to private and public sector enterprises. Historically, PSPPL has focused on projects in the Gujarat region. Now it has geographically diversified its portfolio of services and is undertaking or have bid for projects pan India. PSPPL has successfully executed a number of prestigious projects across Gujarat. One of the first major projects that it completed was the construction of the GCS Medical College, Hospital and Research Centre (managed by the Gujarat Cancer Society) in June 2012. Subsequently, it has successfully executed a number of prestigious projects, including, inter alia, the construction and interior works of Swarnim Sankul 01 and 02 at Gandhinagar, the construction of the Zydus Hospital at Ahmedabad, and various works in relation to the Sabarmati Riverfront Development project at Ahmedabad. Further, the company has completed or is currently undertaking projects for a number of reputed customers, including, inter alia, Cadila Healthcare Limited, Care Institute of Medical Sciences Limited (CIMS), Claris Injectables Limited, Emcure Pharmaceuticals Limited, Gelco Electronics Private Limited, GCS Medical College, Hospital and Research Centre (managed by the Gujarat Cancer Society), the Government of Gujarat (through the Executive Engineer, Capital Project Division), Inductotherm (India) Private Limited, Intas Pharmaceutical Limited, Kaira District Co-operative Milk Producers’ Union Limited (Amul Dairy), KHS Machinery Private Limited, Nirma Limited, Sabarmati River Front Development Corporation Limited, Torrent Pharmaceuticals Limited and WTC Noida Development Company Private Limited.

To part finance its working capital and capital expenditure requirements along with raising general corpus funds, the company is coming out with a maiden IPO of 10080000 equity share of Rs. 10 each with a price band of Rs. 205-210 via book building route to mobilize Rs. 206.64-211.68 crore ( based on lower and the higher price bands). Minimum application is to be made for 70 shares and in multiples thereof, thereafter. The issue consists of fresh equity issue of 7200000 equity shares and the rest by way of offer for sale. Issue opens for subscription on 17.05.17 and will close on 19.05.17. Post allotment, shares will be listed on BSE and NSE. Issue is jointly lead managed by Karvy Investor Services Ltd and Motilal Oswal Investment Advisors Ltd. Karvy Computershare Pvt Ltd is the registrar to the issue. Its entire equity is issued at par and has also issued bonus shares in the ratio of 3 for 1 in July 2015 and 8 for 1 in October 2016. Post issue, its current paid up equity capital of Rs. 28.80 crore will stand enhanced to Rs. 36.00 crore.

On performance front, the company has (on standalone basis) PSPPL has shown inconsistency in top and bottom lines from FY 13 to FY16. It has posted turnover/net profit of Rs. 260.97 cr. / Rs. 12.25 cr. (FY13), Rs. 214.80 cr. / Rs. 10.07 cr. (FY14), Rs. 286.97 cr. / Rs. 14.05 cr. (FY15) and Rs. 467.71 cr. / Rs. 24.93 cr. (FY16). For first nine months of the current fiscal, it has reported net profit of Rs. 21.48 crore on a turnover of Rs. 249.42 cr. If we annualize latest earnings and attribute on fully diluted equity post issue then asking price is at a P/E of around 26 plus. On a consolidated basis, it has posted turnover of Rs. 485.76 crore with a net profit of Rs. 21.82 crore. For the first nine months of the current fiscal, it has earned net profit of Rs. 20.61 crore on a turnover of Rs. 289.02 crore. If we annualize the latest earnings and attribute it on the fully diluted equity post issue, then asking price is at a P/E of 27 plus and at a P/BV of 7 plus. Thus issue appears to be fully priced one. As on 31.03.17 on consolidated basis the company has Rs. 927 crore worth orders on hand. The average cost of acquisition per Equity Share by Promoters, Prahaladbhai Shivrambhai Patel is Rs. 0.28 and Shilpaben Patel is Rs. 0.01 and the Issue Price at upper end of the Price Band is significantly higher at Rs.210.

On BRLM’s front, two lead managers have handled 7 issues in the past three years out of which 2 issues closed below the issue price on the listing day.

Conclusion: Being an issue below Rs. 250 crore, its listing will be in 'T' group that will eliminate the speculative aspect for initial period. On pricing front, issue is fully priced and hence risk savvy cash surplus investors may consider investment in this issue.