1
Please refer to important disclosures at the end of this report
1
1
PSP Project Ltd. (PSP) 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. PSP
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, PSP has focused on projects in the Gujarat region. PSP
has recently diversified its portfolio of services across geographies and is
undertaking or has bid for projects pan India. The company’s standalone total
order book as of March 31, 2017 was `729.2Cr, which comprised of 17
institutional projects, 4 industrial projects, 4 government projects and 2
government residential projects. Further, subsidiaries and JV’s have total order
book of `90.9Cr and `107.4Cr respectively as of March 31, 2017.
Positives: (a) Strong track record of successful project execution; (b) Long-standing
relationships with customers; (c) Leveraging position as a rapidly growing
construction company in Gujarat; (d) Augment customer relationships and
optimize project mix; (e) Expanding geographical footprint; (f) Experienced
management and promoter.
Investment concerns: (a) Historically PSP has executed ~70% of its total projects in
Gujarat except three which have been recently added (i.e. two in Rajasthan & one
in Karnataka); (b) PSP’s aspiration of getting in the higher value projects may not
capitalize as that space is highly competitive and dominated by bigger and
renowned players; (c) Current strategy of bidding for project of tenure 12-18
months leaves less visibility of future order book vis-à-vis future revenue growth;
(d) Margin profile may not be sustainable, as it is function of project mix; (e)Lack
of experience in different geographies may escalate the cost of project and
delivery.
Outlook and Valuation: 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 NEUTRAL rating on the issue.
Key Financials
FY2013
FY2014
FY2015
FY2016
9MFY17
257.2
210.4
280.5
476.0
278.5
44.0
-18.2
33.3
69.7
-
12.3
10.1
14.1
22.7
20.8
46.4
-17.7
39.4
60.8
6.0
8.5
8.0
8.0
7.3
11.5
4.3
3.5
4.9
7.9
7.2
49.2
59.8
42.9
26.7
-
22.7
17.4
12.9
9.5
-
46.1
28.9
30.0
34.2
-
2.2
2.6
1.9
1.1
-
25.9
33.0
24.1
15.0
-
Source: Company, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
NEUTRAL
Issue Open: May 17, 2017
Issue Close: May 19, 2017
QIBs 75% of issue
Non-Institutional 10% of issue
Retail 15% of issue
Promoters 72%
Others 28%
Post Issue Sh areholdin g Pattern
Post Eq. Paid up Capital: `36.0cr
Issue size (amount): *`207cr -**212 cr
Price Band: `205-210
Lot Size: 70 shares and in multiple
thereafter
Post-issue implied mkt. cap: *`738cr -
**`756cr
Promoters holding Pre-Issue: 99.99%
Promoters holding Post-Issue: 71.99%
*Calculated on lower price band
** Calculated on upper price band
Book Bu ilding
Fresh issue: `151.2 cr
Face Value: `10
Present Eq. Paid up Capital: `28.8cr
Offer for Sale: **0.29cr Shares
Abhishek Lodhiya
+022 39357600, Extn: 6811
Abhishek.lodhiya@angelbroking.com
PSP Projects Limited
IPO Note | Construction
May 16, 2017
2
PSP Projects | IPO Note
May 16, 2017
2
Company background
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. Company 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, company has focused on projects in the Gujarat region.
PSP has recently diversified its portfolio of services across geographies and is
undertaking or has bid for projects pan India.
Over the years, PSP has successfully executed a number of prestigious projects
across Gujarat. One of the first major projects that the company had completed
was the construction of the GCS Medical College, Hospital and Research Centre
(managed by the Gujarat Cancer Society) in June 2012. Subsequently, PSP has
successfully executed a number of prestigious projects, including, Inter Alia, the
construction and interior works of Swarnim Sankul 01 and 02 at Gandhinagar,
Zydus Hospital at Ahmedabad, and various activities in relation to the Sabarmati
Riverfront Development project at Ahmedabad. Further, 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.
Company’s execution capabilities have grown significantly with time, both in terms
of the size of projects bid for and the number of projects that it executes
simultaneously. Since incorporation in August 2008, PSP has executed 80 projects
as of March 31, 2017. Company’s Chairman and Managing Director and CEO,
Prahaladbhai Shivrambhai Patel, who is also a Promoter, has been associated with
the construction business for over 30 years and has been instrumental in the
growth of Company.
PSP Projects has two subsidiaries namely PSP Projects Inc. (USA, 100%) and PSP
Projects and Proactive Constructions Private Limited (74%), and a joint venture
between GDCL & PSP where company’s economic interest is 49%. P & J Builders
LLC is a step down subsidiary of the PSP Projects Inc.
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PSP Projects | IPO Note
May 16, 2017
3
Exhibit 1: Corporate Structure
Source: Company, Angel Research
Issue details
The company is raising `151.2cr through a fresh issue of equity shares in the price
band of `205-210. The fresh issue will constitute ~20% of the post-issue paid-up
equity share capital of the company, assuming the issue is subscribed at the upper
end of the price band. The company is offering 0.29cr shares that are being sold
by the promoter group.
Exhibit 2: Pre and Post-IPO shareholding pattern
No. of shares (Pre-issue)
(%)
No. of shares (Post-issue)
(%)
Promoters
2,87,96,400
99.99
2,59,16,400
71.99
Others
3,600
0.01
1,00,83,600
28.01
2,88,00,000
100
3,60,00,000
100
Source: RHP, Angel Research; Note: Calculated on upper price band
Objects of the offer
Funding future working capital requirements of the company (`63Cr will be
utilized).
Funding capital expenditure requirements of the company (`52cr will be
utilized).
General corporate purpose.
PSP Projects Inc. (100%)
Subsidiary
Subsidiary
PSP Projects and Proactive Constructions Private
Limited (74%)
Joint Venture
GDCL & PSP Joint Venture
(49% Interest)
PSP Projects Limited
Step-down Joint Venture
P & J Builders LLC (50%)
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PSP Projects | IPO Note
May 16, 2017
4
Investment Rationale
Strong track record of successful project execution:
PSP has established a track record of successfully executing a diverse mix of
construction projects. Since incorporation in August 2008, company has executed
80 projects as of March 31, 2017, for a host of corporate, government and other
customers across diverse segments. One of the first major projects that had been
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 office of the Chief Minister and the Cabinet Ministers of
the State of Gujarat), the construction of the Zydus Hospital at Ahmedabad, and
various activitiess in relation to the Sabarmati Riverfront Development project at
Ahmedabad. A breakdown of the Company’s aggregate contract income for the
preceding five Fiscals and the nine-month period ended December 31, 2016, on a
restated standalone basis, is represented in the chart below:
Exhibit 3: Breakup of Contract Income
Source: Company, Angel Research
The Company’s standalone total order book as of March 31, 2017, was `729.2cr,
which comprised of 17 institutional projects, four industrial projects, four
government projects and two government residential projects.
PSP believes that its experienced management skills and execution teams give it a
competitive advantage and has contributed significantly in increasing company’s
project execution capabilities. Over the years, PSP has developed its capabilities
across various stages of a typical project life cycle, commencing from business
development, tendering, engineering and design, procurement and construction.
This has also helped build expertise in executing projects across a wide range of
segments such as the construction of manufacturing and processing facilities,
hospitals, government buildings, educational institutes, corporate offices and
residential buildings, which in turn, enables it to diversify its order book and
reduces its dependence on any one sector or type of project. Company believes
that over the years, it has developed a reputation for undertaking challenging and
22%
9%
22%
19%
28%
Industrial
Residential
Government
Government Residential
Institutional
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PSP Projects | IPO Note
May 16, 2017
5
diverse projects in a timely manner, which is reflected by track record of project
execution and long-standing relationships with a number of key customers.
Long-standing relationships with customers
Company believes that its reputation for completing projects in a timely manner
and focus on quality has helped build strong relationships with its customers. PSP
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.
Further, Company has received additional projects from several of its customers
despite increased competition in the region within which the company operates.
For example, since incorporation in Fiscal 2009, PSP has executed 14 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.
Further, company has also executed various works in relation to the Sabarmati
Riverfront Development project at Ahmedabad for the Sabarmati River Front
Development Corporation Limited. PSP believes that its experienced management
team and specifically, Chairman and Managing Director and CEO, Prahaladbhai
Shivrambhai Patel, has been instrumental in establishing and preserving these
customer relationships. Company intends to continue to leverage these long-
standing relationships and continue to grow its business operations in the future.
Leveraging position as a rapidly growing construction company in Gujarat
PSP is a rapidly growing construction company based in Gujarat, and intends to
establish itself as one of the leading construction companies in the state. As per the
Restated Standalone Financial Statements, the Company’s contract income has
grown from `178.2Cr in FY2012 to `454.2Cr in FY2016, at a CAGR of 26.35%,
and the Company’s profit after tax, as restated, has increased from `8.4cr in
FY2012 to ` 24.9cr in FY2016, at a CAGR of 31.44%. Further, as per the Restated
Standalone Financial Statements, the Company’s contract income for the nine
months ended December 31, 2016, was ` 23.9Cr, and the Company’s profit after
tax, as restated, was `21.5Cr. Company intends to continue to focus on
undertaking industrial, institutional and government projects in Gujarat, where it
believes it has an established reputation associated with quality and a track record
of successful execution. As of March 31, 2017, 70.20% of the Company’s total
order book consisted of projects that we are executing in Gujarat. Company
believes that economic growth in Gujarat is expected to result in an increased
demand for government and infrastructure, industrial, residential and commercial
6
PSP Projects | IPO Note
May 16, 2017
6
projects. Thus, company intends to continue to leverage its growth and increased
execution capacities to consolidate its position in the Gujarat market.
Augment customer relationships and optimize project mix
Company intends to further develop its long-standing customer relationships by
providing high quality services with the same amount of dedication as it had in the
past. Through its robust systems and capable project management teams,
company intends to closely monitor client satisfaction and be responsive to its
evolving needs. PSP believes that completing customers projects in a timely manner
whilst upholding the highest-standards of quality, is the most effective manner in
which companies can develop and maintain strong relationships with its
customers. Thus, PSP intends to strive to exceed client expectations during every
stage of the project life cycle.
To improve profitability and cash flows, company intends to select its future
projects carefully and optimize its client mix. Over the years, the scale and
complexity of projects has gradually increased and PSP seeks to continue to focus
on projects with higher contract value. Further, PSP believe that its financial
strength also enables it to access additional bank financing, which in turn, will
allow it to bid for larger and more prestigious projects, with opportunities for
potentially higher margins. Going forward, company intends to actively access
such opportunities to bid for larger and more prestigious projects, with
opportunities for potentially higher margins.
Expanding geographical footprint
PSP intends to expand its geographical footprint and grow its business by
increasing orders from beyond Gujarat. To control diversification risks, PSP may at
first, limit its expansion to other states for undertaking projects first in the areas
where its core competencies lie. Through an increasingly diversified portfolio,
company hopes to broaden its revenue base and also hedge against risks in
specific areas or projects and protect themselves from fluctuations resulting from
business concentration in limited geographical areas. With increased experience
and success, however, company’s rate of expansion may increase in terms of
increases in the number of new states and projects it undertakes. In FY2017, the
Company was awarded projects in Bangalore, Karnataka, in Churu, Rajasthan,
and in Udaipur, Rajasthan and the aforesaid projects constituted 11.56%, 8.39%
and 9.85%, respectively, of the Company’s total order book as on March 31,
2017. The Company has also bid for projects in Kochi, Kerala, Hyderabad,
Telangana and Udaipur, Rajasthan.
PSP believes that geographical diversification of projects will reduce its reliance on
home state of Gujarat and allow it to capitalise on different growth trends in
different states across the country.
Experienced management and promoter
Company has a qualified and dedicated management team, which is led by
Chairman and Managing Director and CEO, Prahaladbhai Shivrambhai Patel,
7
PSP Projects | IPO Note
May 16, 2017
7
who is also one of Promoters. Immediately prior to the incorporation of the
Company, Prahaladbhai Shivrambhai Patel, 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. Company believes that
Prahaladbhai Shivrambhai Patel, who has over 30 years of experience in the
business of construction, has played a significant role in the development of its
business, and benefited from his technical expertise, industry knowledge and
customer relationships. Further, management team also comprises of a number of
qualified, experienced and skilled professionals, who have several years of
experience across various sectors.
Company believes that its management team has been instrumental in the growth
of its business operations, customer relationships and reputation. Further,
company believes that management team’s collective experience and execution
capabilities enables it to understand and anticipate market trends, manage the
growth and expansion of its business operations, and respond to trends in design,
engineering and construction of projects based on the preferences of its customers.
Company will continue to leverage on the experience of management team and
their understanding of the construction market, particularly in the areas where
company operates and proposes to operate, to take advantage of current and
future market opportunities.
8
PSP Projects | IPO Note
May 16, 2017
8
Outlook and Valuation
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 NEUTRAL rating on the issue.
Key risks
Currently there are outstanding legal proceedings involving PSP. Any adverse
decision may render it liable to liabilities and may adversely affect its business,
operations and profitability.
Company sources a large part of new orders from its relationships with
corporate and other customers, both present and past. Any failure to maintain
long-standing relationships with existing customers or forge similar
relationships with new ones would have a material adverse effect on
company’s business operations and profitability.
If the company is not successful in managing its growth, company’s business
may be disrupted and profitability may be reduced.
9
PSP Projects | IPO Note
May 16, 2017
9
Consolidated Income Statement
z
Y/E March (Rs cr)
FY2013
FY2014
FY2015
FY2016
9MFY17
Total operating income
257
210
280
476
279
% chg
44.0
(18.2)
33.3
69.7
-
Total Expenditure
235
194
258
441
247
Cost of materials consumed
98
80
132
206
102
Construction & Subcontracting Expenses
119
95
93
205
119
Personnel
6
11
24
14
14
Others Expenses
12
8
9
16
11
EBITDA
22
17
22
35
32
% chg
42.6
(23.8)
33.9
55.9
(% of Net Sales)
8.5
8.0
8.0
7.3
11.5
Depreciation& Amortisation
4
4
5
7
6
EBIT
18
13
17
27.8
26
% chg
45.1
(28.3)
31.8
61.3
(% of Net Sales)
7.1
6.2
6.1
5.8
9.4
Interest & other Charges
4
2
2
4
6
Other Income
4
4
7
10
10
(% of PBT)
20.5
28.4
30.6
28.9
34.0
Exceptional Items
-
-
-
-
-
Recurring PBT
18
15
21
34
31
% chg
(15.3)
38.0
59.5
Tax
6
5
7
12
10
PAT (reported)
12
10
14
22
21
% chg
(17.8)
39.6
55.3
(% of Net Sales)
4.8
4.8
5.0
4.6
7.4
Basic & Fully Diluted EPS (Rs)
4.3
3.5
4.9
7.9
7.2
% chg
(17.7)
39.4
60.8
10
PSP Projects | IPO Note
May 16, 2017
10
Consolidated Balance Sheet
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
9MFY17
SOURCES OF FUNDS
Equity Share Capital
1
1
1
3
29
Reserves& Surplus
26
34
46
61
56
Shareholders Funds
27
35
47
64
85
Minority Interest
-
-
-
0
0
Total Loans
13
25
33
46
86
Deferred Tax Liability
-
-
-
-
-
Total Liabilities
40
60
80
110
171
APPLICATION OF FUNDS
Net Block
18
19
33
54
53
Capital Work-in-Progress
-
-
0
-
-
Investments
3
9
13
14
17
Goodwill
-
-
-
0
0
Current Assets
79
109
140
183
222
Inventories
2
2
4
10
19
Sundry Debtors
12
14
24
20
13
Cash
45
68
85
112
145
Loans & Advances
16
19
14
27
33
Other Assets
4
6
13
14
12
Current liabilities
61
76
107
143
125
Net Current Assets
18
32
33
40
97
Deferred Tax Asset
0
0
0
2
3
Mis. Exp. not written off
-
-
-
-
-
Total Assets
40
60
80
110
171
Source: Company, Angel Research
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PSP Projects | IPO Note
May 16, 2017
11
Consolidated Cash Flow Statement
Y/E March (Rs cr)
FY2013
FY2014
FY2015
FY2016
9MFY17
Profit before tax
18
15
21
34
31
Depreciation
4
4
5
1
6
Change in Working Capital
10
8
15
55
(25)
Interest / Dividend (Net)
0
0
0
0
0
Direct taxes paid
(5)
(5)
(7)
42
(10)
Others
(0)
(2)
(5)
(132)
(5)
Cash Flow from Operations
26
20
30
0
(4)
(Inc.)/ Dec. in Fixed Assets
4
(4)
3
(27)
7
(Inc.)/ Dec. in Investments
(2)
(37)
(28)
27
(16)
Cash Flow from Investing
2
(41)
(26)
0
(9)
Issue of Equity
4
4
6
(27)
8
Inc./(Dec.) in loans
0
0
(0)
(0)
(1)
Others
(17)
5
(2)
29
29
Cash Flow from Financing
(14)
9
4
1
36
Inc./(Dec.) in Cash
15
(12)
8
1
23
Opening Cash balances
69
84
72
82
82
Closing Cash balances
84
72
81
84
105
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
Valuation Ratio (x)
P/E (on FDEPS)
49.2
59.8
42.9
26.7
P/CEPS
37.8
44.0
31.5
20.9
P/BV
22.7
17.4
12.9
9.5
EV/Sales
2.2
2.6
1.9
1.1
EV/EBITDA
25.9
33.0
24.1
15.0
EV / Total Assets
14.3
9.2
6.8
4.8
Per Share Data (Rs)
EPS (Basic)
4.3
3.5
4.9
7.9
EPS (fully diluted)
4.3
3.5
4.9
7.9
Cash EPS
5.5
4.8
6.7
10.1
Book Value
9.2
12.1
16.3
22.2
Returns (%)
ROCE
45.7
21.8
21.6
25.4
ROE
46.1
28.9
30.0
34.2
Turnover ratios (x)
Inventory / Sales (days)
3
3
5
8
Receivables (days)
17
24
31
16
Payables (days)
50
69
82
63
Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
12
PSP Projects | IPO Note
May 16, 2017
12
Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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