PSP Projects IPO – Should you invest in this IPO?

PSP Projects IPO ReviewPSP Projects IPO – Should you invest in this IPO?


Ahmedabad based PSP Projects IPO would open for subscription on 17th May, 2017. PSP Projects Ltd is multi disciplinary construction company offering a diversified range of construction and allied services. Its revenues grown at 27% CAGR in last 5 years. It earned over 5% profits in FY16. What are the positive factors in PSP Projects IPO? What are the hidden factors in PSP Projects Ltd IPO?  In this article, I would provide some interesting insights and hidden facts and do PSP Projects IPO Review.

About PSP Projects Ltd


They are a multidisciplinary construction company offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India. They provide services across the construction value chain, ranging from planning and design to construction and post-construction activities to private and public sector enterprises. Historically, their have focused on projects in the Gujarat region. They have completed and continue to undertake construction projects in this region. More recently, they have geographically diversified its portfolio of services and are undertaking or have bid for projects pan India.  

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Issue details of PSP Projects IPO


  • IPO opens: 17-May-2017
  • IPO closes: 19-May-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 205 to Rs 210 per share
  • Issue size: Rs 206 – 211 Crores
  • Market lot: 70 shares and in multiples of 70 shares there-of.
  • Minimum investment: Rs 14,350 on lower price band
  • Leading Managers: Karvy Investment Banking and Motilal Oswal Investors Advisors
  • Listing: BSE / NSE
  • Download PSP Projects DRHP Prospectus at this link

Objects of the PSP Prospects Ltd IPO issue


1) The Offer for Sale: Their Company will not receive any proceeds from the Offer for Sale.

2) The Fresh Issue: The Net Proceeds from the Fresh Issue will be utilised towards the following objects:

a) Funding working capital requirements of the Company

b) Funding capital expenditure requirements of the Company; and

c) General corporate purposes

Company Financials (reinstated-standalone)


  • The company generated revenue of Rs 180.7 Crores for the year ended Mar-12 and Rs 467.7 Crores for the year ended Mar-16.
  • The company posted a profit of Rs 8.3 Crores for the year ended Mar-12 and profit of Rs 24.9 Crores for the year ended Mar-16.
  • Its restated basic EPS for FY ending Mar-16 is Rs 8.66 and last 3 years EPS was Rs 6.54.

Standalone Financial summary of PSP Projects Ltd IPO-min

Company Financials (reinstated-Consolidated)


  • The company generated revenue of Rs 485.7 Crores for the year ended Mar-16. For 9 months ended Dec-16, it generated revenue of Rs 289.1 Crores.
  • The company posted a profit of Rs 22.6 Crores for the year ended Mar-16. For 9 months ended Dec-16, it posted profits of Rs 20.7 Crores. 

 Consolidated Financial summary of PSP Projects Ltd IPO

What are PSP Projects Key Strenghts?


1) Strong track record of successful project execution

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

3) Experienced management and promoter

4) Robust financial performance and financial strength

5) Long-standing relationships with Their customers

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Reasons to invest in PSP Projects IPO


  • Company revenues grew at 27% CAGR in last 5 years.
  • It is earning consistent profits in the last 5 years. Its profits are ranging between 4.5% to 5% from FY12 to FY16.

Reasons not to invest in a PSP Projects Ltd IPO


  • Its business is relatively concentrated in the state of Gujarat and any changes affecting the demand for construction services in the region may adversely impact its business, financial condition and results of operations.
  • There are legal proceedings currently outstanding involving the Company. Any adverse decision may render to liabilities and may adversely affect its business, results of operations and profitability.
  • Its 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 its control, which may materially and adversely affect its business, prospects, reputation, profitability, financial condition and results of operations.
  • They source a large part of its new orders from its relationships with corporates and other customers, both present and past. Any failure to maintain its long-standing relationships with its existing customers or forge similar relationships with new ones would have a material adverse effect on its business operations and profitability.
  • If they are not successful in managing its growth, its business may be disrupted and its profitability may be reduced.
  • Its projects are exposed to various implementation and other risks and uncertainties.
  • Its growth strategy to expand into new geographic areas poses risks which may have adverse effect on its business, financial conditions, and results of operations.
  • Its statutory auditors have included certain observations on certain matters in its audit reports.
  • They may be unable to identify or acquire new projects and its bids for new projects may not always be successful, which may stunt its business growth.
  • Further, any delay in the commencement or cancellation of the projects awarded to them may adversely affect its business, prospects, reputation, profitability, financial condition and results of operation.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus.

Also Read: Should you invest in stocks based on fundamental analysis or Technical Analysis?

Recommendation / Investment strategy – PSP Prospects IPO


  • On the upper price band of Rs 210 and on consolidated FY16 EPS of Rs 8.66, P/E ratio works out to 24x. Even based on last 3 years consolidated EPS of Rs 6.54, P/E ratio works out to be 32x. Means company is asking higher price band of Rs 210 in the P/E ratio of 24x to 32x. There is listed peers Nila Infrastructures which is trading at P/E of 35.98 (Highest) and Prakash Constructions which is trading at P/E of 10.76 (Lowest) and industry composite P/E is at 26.3. Hence PSP Projects Share Price of Rs 210 is reasonably priced.
  • Company revenues grew at 27% CAGR in last 5 years. It earns consistent profits of around 5%. PSP Projects Share price is also reasonably priced. Considering all positive and negative points indicated above, investors can invest in this IPO with a 2-3 years time horizon. If one can get listed gains, we can celebrate.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

PSP Projects IPO – Should you invest in this IPO

8 comments

  • umeshwar

    Suresh

    The economic time's analysis is not very optimistic about this IPO. The analysis says the issue is overpriced. Most of the time i found your as well as economic times analysis reliable. This time it is confusing. I hope you have gone through the economic times analysis. What do you think, is it worth going for this IPO?

     

    Thanks

    Umesh

  • Deepak J

    Mr Suresh, Thanks for the insightful articles on a wide range of topics. Helps retail investors like me a lot. 

  • Syed Maqsood

    Sureshji,

    Hello,

    As you know I am a NRE working in Riyadh, Saudi Arabia. I want to invest lumsum Rs. 20-Lacs in debt fund to receive monthly income, plz advise in which fund I should invest and how in details???.

    Thanx for your usual support.

    Regards,

    Syed Maqsood / Riyadh Sadi Arabia

    • Hi Syed, good to know about you. You can invest in MIP Mutual funds to get regular returns. Note that they do not provide monthly returns, but they would provide regular returns, but high returns.

  • Dhaval Shah

    Search Markets Guruji(Youtube) had given the correct prediction about S chand IPO and NSE IPO on his youtube channel rest all failed , 
    just watch his videos its unbelivable, his analysis was perfect, must watch for all investors.
     

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