IPO Analysis: Vishnu Prakash R Punglia Limited

IPO Rating: Apply for long-term

About the issue:

Incorporated in 1986, Vishnu Prakash R Punglia Ltd (VPRPL) is engaged in the business of designing and constructing infrastructure projects for the Central and State Governments, autonomous bodies, and private bodies across 9 States and 1 Union territory in India. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 94 to Rs 99 per equity share. The issue size is Rs 308.88 crore at a higher price band.

The IPO opening date is August 24, 2023, and it will be closing on August 28, 2023. The issue is likely to be listed on the exchange on September 5, 2023. The IPO market lot size is 150 shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (1950 shares or Rs 193,050) at the upper price band.

Objects of the Issue

The proceeds from the issue will be used for the following objects:

1. Funding capital expenditure requirements for the purchase of equipment/machinery.
2. Funding the working capital requirements of the company.
3. General corporate purposes.

Promoter holding

The pre-issue shareholding is 90.45 per cent, post the IPO the promoter stake will be 67.81 per cent.

About the company

Vishnu Prakash R Punglia Ltd. (VPRPL) is an ISO 9001:2015 certified integrated engineering, procurement, and construction (EPC) company with experience in the design and construction of various infrastructure projects for the Central and State Governments, autonomous bodies, and private bodies throughout India's nine states and one union territory. Its primary business operations are broadly classified as Water Supply Projects (WSP), Railway Projects, Road Projects, and Irrigation Network Projects.

VPRPL has been accredited with various registrations as a contractor with various departments and agencies viz. Jodhpur Development Authority, Jodhpur (Class AA), Rajasthan, Public Health Engineering Department, Rajasthan, (Class AA), Water Resources Department, Rajasthan (Class AA), Roads and Building Department, Gujarat (Class AA), South Western Command, Military Engineering Services (MES), Jaipur (Class 'S'), Rajasthan, Public Works Department, Chhattisgarh (Class A), Public Works Department, Rajasthan (Class AA), Public Works Department, Madhya Pradesh, Bhopal (Civil works), pursuant to which it is also eligible to participate and undertake projects awarded by various other departments and agencies.

The company has design and engineering, procurement, project management, and quality management teams, as well as a fleet of 499 construction vehicles and equipment. Its in-house teams complete projects from start to finish. This reduces dependency on third parties for critical materials such as ready-mix concrete, stone aggregates, and bitumen, as well as services such as design and engineering, transportation, and logistics required for project development and construction.

To date, the company has not engaged in any subcontracting activities. It takes on assignments either independently or through joint ventures as needed. While the majority of the projects are completed by the company, it also forms project-specific joint ventures and consortiums with other infrastructure and construction entities. The company had an Order Book of Rs. 3799.53 crore as of July 15, 2023.

Financials

On the financial performance front, for the last three fiscals, VPRPL has (on a consolidated basis) posted a revenue/net profit of Rs 484.17 crore /Rs 18.98crore (FY21), Rs 785.54 crore/Rs 44.85 crore (FY22), and Rs 1168.4 crore/Rs 90.64 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to post-IPO fully diluted paid-up capital, then the asking price is at a P/E of around 13.62x. The issue is priced at a P/BV of 2.74 based on its NAV of Rs. 36.11 as of March 31, 2023, and at a P/BV of 1.98 based on its post-IPO NAV of Rs. 50.01 per share (at the upper cap).

According to the offer document, the company has mentioned PNC Infra, H G Infra, NCC Ltd., Rail Vikas Nigam, and ITD Cementation as their listed peers. They are currently trading at a P/E of 11.2x, 14.5x, 17.9x and 25.5x, respectively as of August 24, 2023. If we compare the valuation with peers, the issue appears fully priced.

The company has not paid any dividends since incorporation. It adopted a prudent dividend policy in January 2023, based on its financial performance and future prospects.

The company has a strong order book which is 3.25 times its FY23 revenue, demonstrating visibility in revenue over the medium term. The company is an EPC infra development company having a presence in 9 states and 1 union territory. The issue is fully priced. Considering these factors, we recommend investors to subscribe to the issue with a medium to long-term perspective.

Disclaimer: The article is for informational purposes only and not investment advice.