PSP Projects Ltd., one of the developers involved in building the Sabarmati Riverfront, will launch its initial public offering on Wednesday to provide partial exit to promoters and to fund expenses.
The nine-year-old Gujarat-based construction company is looking to raise as much as Rs 212 crore through a mix of offer for sale and fresh issue. PSP Projects is issuing 72 lakh equity shares and the promoters will be offering 28.8 lakh shares at a price band of Rs 205-210 per share, valuing the company at up to Rs 756 crore.
The company allots 45.4 lakh equity shares at Rs 210 per share aggregating to Rs 95.3 crore to nine anchor investors.
The anchor investors include mutual funds like Reliance Mutual Fund, SBI Mutual Fund, Axis Mutual Fund, Sundaram Mutual Fund, etc. and insurance companies such as Birla Sun Life Insurance and TATA AIA.
Here’s all you need to know about the company and the offer...
The company offers a range of construction and allied services across industrial, institutional, government, and residential projects, largely in Gujarat.
The company counts the Gujarat government, Sabarmati Riverfront Development Corporation Ltd. and Cadila Healthcare among its clients. It has a standalone order book of Rs 729 crore, of which 70 percent orders are from Gujarat, and the rest from Rajasthan and Karnataka.
Use Of Proceeds
More than 50 percent of the IPO proceeds will be used for working capital and capex, and the remaining for general purposes.
Four promoters, Prahaladbhai Patel, Shilpaben Patel, Pooja Patel and Sagar Patel, are looking to sell their shares, which will bring down the promoter holding to 72 percent from 100 percent.
- The net worth of the company, as of December 31, 2016, was close to Rs 88 crore, translating to a book value of Rs 24 apiece on a post-issue basis.
- At the upper end of the price band of Rs 210, the earnings per share (EPS) and price-earnings ratio (P/E) for FY16, after issuing new shares, stand at Rs 6.9 and 29.6 times, respectively, according to BloombergQuint’s calculations.
- At the lower end of the price band of Rs 205, the earnings per share (EPS) and price-earnings ratio (P/E) for FY16, after issuing new shares (post issue basis) stand at Rs 6.9 and 30.3 times, respectively.
- PSP Projects’ revenue has been growing at a compounded annual growth rate (CAGR) of 27 percent, while the net profit grew at 31 percent over five financial years to March 2016.
Nila Infrastructures Ltd., Ahluwalia Contracts (India) Ltd. and RPP Infra Projects Ltd. are the few listed competitors. Ahluwalia Contracts is a larger peer with a market capitalisation of more than Rs 2,500 crore.
PSP Projects has been growing at a faster rate but has lower operating margins when compared to peers.
PSP Projects has a high return on equity on the back of timely completion of projects, but it also has a higher total debt-to-equity ratio.
The company is valued at a lower price-to-earnings ratio and at a stable enterprise value to EBITDA (earnings before interest, tax and depreciation and amortisation) when compared to its peers, according to BloombergQuint’s calculations.
Centrum Wealth Research has a ‘subscribe’ rating on the IPO.
At the higher price band of Rs 210, the offer value appears to be comfortable, compared to peers. Given PSP Projects’ good track record, healthy financials and comfortable valuations, we suggest that investors can subscribe to the issue.Centrum Wealth Research