Comfortable comparative valuations Subscribe PSP Projects Ltd (PSPP) is a Gujarat based multidisciplinary construction company having diverse projects across the industrial, institutional, government, government residential and residential segments in India. The company has a strong clientele which includes Government of Gujarat, Sabarmati River Front Development Corporation Ltd, Cadila Healthcare,etc. In order to reduce dependence on Gujarat (70% of PSPP’s order book), PSPP has started bidding for projects outside the region. PSPP has a good track record of on-time execution of projects and long term relationships with its clientele which it plans to leverage so as to optimize its project mix. The government’s focus on infrastructure spends would augur well for it. Recommendation: At the higher price band of ₹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). Given PSPP’s good track record, healthy financials and comfortable valuations, we suggest that investors can Subscribe to the issue. Objects of the issue: The IPO consists of a fresh issue of ₹151 crore (71% of the issue size) and an offer for sale of ₹60 crore (29%) – by promoter and group (Please refer page 2 for details). PSPP will not receive any proceeds from the offer for sale. The proceeds from the fresh issue will be used to fund working capital requirements (₹63 crore), capital expenditure (₹52 crore) and general corporate purposes.
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