1. PSP Projects IPO hits markets today; should you subscribe?

PSP Projects IPO hits markets today; should you subscribe?

PSP Projects raised Rs 95.25 crore from nine anchor investors and allotted 45.36 lakh crore shares at a rate of Rs 210 per share.

By: | Updated: May 17, 2017 9:36 AM
PSP Projects initial public offering (IPO) hits market at a price band of Rs 205-210 per equity share.

Ahmedabad-based company PSP Projects initial public offering (IPO) hits market on Wednesday at a price band of Rs 205-210 per equity share. The issue, which will close on May 19, raised Rs 95.25 crore from nine anchor investors. PSP Projects allotted 45.36 lakh crore shares at a rate of Rs 210 per share. Investors acquiring shares in the anchor allotment include Reliance Capital, Axis Mutual Fund, Birla Sun Life Insurance, Sundaram Mutual Fund, IDFC Mutual Fund among others.

The issue includes a fresh issue of up to 72 lakh equity shares and an offer for sale of up to 28.8 equity shares.

PSP Projects plans to utilise the funds raised from the proceeds to meet its working capital requirements and capital expenditure. It will not receive any proceeds from the offer for sale. Out of the fresh issue, which will be over Rs 150 crore, Rs 63 crore will be utilised for funding our working capital requirements, while the rest will be our capex which we will be deploying for fiscals 2018 and 2019. The company plans to spend Rs 143 crore as working capital for the current fiscal.

For the nine months ended December 31, 2016, PSP Projects posted a consolidated net profit of Rs 20.7 crore. For the year ended March 31, 2016, the company posted a net profit of Rs 22.6 crore. Karvy Investor Services and Motilal Oswal Investment Advisors are the books running lead managers to the issue. PSP Projects Limited is a construction company offering construction and allied services across industrial, institutional, government, and residential projects.

On the IPO, Angel Broking has recommended a ‘Neutral’ rating on the issue. The brokerage house said, “In terms of valuation, PSP’s P/BV multiple annualised 9MFY2017 at 7.9x, works out to be at premium to peers (Ahluwalia Contracts 5.2x, Nila Infra. 3.3x, JMC projects 1.4x, Prakash Controwell 0.4x, RPP Infra 3.7x). Moreover, PSP is aspiring to get in the higher ticket size projects, which is dominated by well reputed players. Management’s lack of experience in diverse geographies and lack of visibility of future order book may become a cause of concern for growth strategy. Hence, we recommend a NEUTRAL rating on the issue.”

However, another brokerage house Centrum Wealth Research has recommended a Subscribe rating to the issue. It said,”at the higher price band of Rs 210, the offer is valued at 25.1x P/E on FY17E basis (post dilution), which is not cheap, but appears to be comfortable, compared to peers like Ahluwalia Contracts (trading at 26.5x its FY17E EPS), Nila Infrastructures (29.8x), RPP Infra Projects (28.5x). PSPP has maintained good financials (EBITDA 8%, RoE 30%+ and positive cash flow from operations).”

PSP Projects 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. The company provides its services across the construction value chain, ranging from planning and design to construction and post-construction activities to private and public sector enterprises.

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