Published on 16/05/2017 4:28:05 PM | Source: GEPLCapital Ltd

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Company Background

PSP Projects Ltd.( PPL) is incorporated in 2008, PSP Projects Ltd is an India based construction company offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects. The company constructs industrial buildings for pharmaceutical plants, food processing units, engineering units and manufacturing and processing facilities; and buildings for hospitals and healthcare services, educational institutes, malls, hospitality services, and corporate offices. They also undertakes government projects and government residential projects; and constructs buildings for group housing and townships, as well as independent residences for select private customers, as well as manufactures ready mix concrete. They have successfully executed a number of prestigious projects across Gujarat. One of the first major projects that they completed was the construction of the GCS Medical College, Hospital and Research Centre (managed by the Gujarat Cancer Society) in June 2012.


Strong track record of successful project execution

The company has established a track of successfully executing a diverse mix of construction projects. Since their incorporation in August 2008, they have executed over 71 projects as of November 30, 2016, for a host of corporate, government and other customers across diverse segments. One of the first major projects that they have completed was the construction of the GCS Medical College, Hospital and Research Centre (managed by the Gujarat Cancer Society) in June 2012. Subsequently, they have successfully executed a number of prestigious projects, including, the construction and interior works the office of the Chief Minister and the Cabinet Ministers of the State of Gujarat.

The company has built expertise in executing projects across a wide range of segment such as the construction of manufacturing and processing facilities, hospitals, government buildings, educational institutes, corporate offices and residential buildings, which in turn, enables them to diversify their order book and reduces their dependence on any one sector or type of project.


Visible growth through a robust order book and growing pre-qualification credentials

The Company’s total order book as of November 30, 2016, was `5,939.11 million, which comprised of fifteen institutional projects, five industrial projects, five government projects, two government residential projects and one residential project. Further, their Subsidiary’s and Joint Ventures total order book as of November 30, 2016, was `1,058.02 million and `1,183.49 million, respectively. The company’s growing order book was partly due to their increased pre-qualifications, which has been aided by their strong track record of project execution and their robust financial performance. The increase in their pre-qualifications and financial strength has helped them increase their target market size, maintain the momentum of their order book growth and enhance their reputation.


Experienced management and promoter

The company has a qualified and dedicated management team, which is led the Chairman and Managing Director and CEO, namely Prahaladbhai Shivrambhai Patel, who is also one of the Promoters. He had been carrying on the business of civil construction by way of a proprietorship firm, namely BPC Projects, whose business was taken over by the Company in 2009. Prahaladbhai Shivrambhai Patel, who has over 30 years of experience in the business of construction, has played a significant role in the development of the company’s business, and the business has benefitted from his technical expertise, industry knowledge and customer relationships. Further, the company’s management team also comprises of a number of qualified, experienced and skilled professionals, who have several years of experience across various sectors.


Robust financial performance and financial strength

The company’s business growth during the last five Fiscals and the six months ended September 30, 2016, contributed significantly to their financial strength. The Company’s total order book as of November 30, 2016, was `5,939.11 million, which comprises of a number of projects with a relatively short gestation period, and provides the Company with significant near term cash flow visibility. As per the Restated Standalone Financial Statements, the Company’s contract income has grown from `1,781.95 million in Fiscal 2012 to `4,541.67 million in Fiscal 2016, at a CAGR of 20.58%.The company has a strong track record of completing diverse construction projects across Gujarat. The company has been able to maintain its financial performance due to their experienced management team, efficient working capital management and their prudent bidding strategy. Further, their financial strength also enables them to access additional bank financing; as a result it enables the company to bid for larger and more prestigious projects, with opportunities for potentially higher margins.


Long-standing relationships with the customers

The company’s customer base includes Cadila Healthcare Limited, Care Institute of Medical Sciences Limited (CIMS), Claris Injectables Limited, Emcure Pharmaceuticals 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), Kaira District Co-operative Milk Producers’ Union Limited(Amul Dairy), Torrent Pharmaceuticals Limited, etc. In spite of increasing competition in the region, the company has been receiving additional projects from several customers. For example, since incorporation in Fiscal 2009, they have executed 13 projects for Cadila Healthcare Limited and its affiliates, six projects for Torrent Pharmaceuticals Limited and its affiliates and four projects for Nirma Limited and its affiliates. The company intends to continue to leverage these longstanding relationships and continue to grow their business operations in the future.


Key Risks

* The company’s business is relatively concentrated in the state of Gujarat and any changes affecting the demand for construction services in the region may adversely impact the business, financial condition and results of operations.

* There are legal proceedings currently outstanding involving the Company. Any adverse decision may render them liable to liabilities and may adversely affect their business, results of operations and profitability.

* The company’s order book may not be representative of its future results and projects included therein and future projects may be delayed, modified or cancelled for reasons beyond control, which may materially and adversely affect the business.

* A large part of the new orders is sourced from their relationships with corporate and other customers, both present and past. Any failure to maintain their long-standing relationships with existing would have a material adverse effect on their business operations and profitability.

* The company’s projects are exposed to various implementation and other risks and uncertainties .The construction or development of their projects involves various implementation risks including construction delays, delay or disruption in supply of raw materials, unanticipated cost increases, force majeure events, cost overruns or disputes with their counter-parties.


Valuation & Recommendation

PSP Projects Ltd.(PPL) stands to gain from operating leverage. At a P/E of 24.1xs of FY16 EPS. We believe that PPL. demands a discount to its domestic peers. We assign a Subscribe rating to the IPO.


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