About the company
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. It provides services across the construction value chain, ranging from planning and design to construction and postconstruction activities to private and public sector enterprises. It has successfully executed a number of prestigious projects across Gujarat. One of the first major projects that the company 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: The Company has a track record of successfully executing a diverse mix of construction projects. Since its incorporation in August 2008, the company has executed 80 projects as of March 31, 2017, for a host of corporate, government and other customers across diverse segments. The company believes that its experiencedmanagement and execution teams give it a competitive advantage and this has contributedsignificantly in increasing its project execution capabilities. The company believes that it has developed a reputation for undertaking challenging and diverse projects in a timely manner, which is reflected by its track-record of project execution and its long-standing relationships with a number of its key customers.
Visible growth through a robust order book and growing pre-qualification credentials: The Company focuses on adding quality projects with potentially higher margins and/or prestigious projects that help to enhance its growing reputation. Bydiversifying its skill set and order book across different sectors, it is able to pursue a broader range of project tenders and consequently, optimize its business volume and profit margins. The Company’s total order book as of March 31, 2017, was Rs. 7,29.16 Cr. which comprised of 17 institutional projects, four industrial projects, four government projects and two government residential projects. Further, it’s Subsidiaries and Joint Venture’s total order book as of March 31, 2017, was Rs.90.85 Cr and Rs. 1,07.39 Cr, respectively.
Experienced management and promoter: The Company has a qualified and dedicated management team. It believes that its management team’s collective experience and execution capabilities enable 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.
Robust financial performance and financial strength: The Company has a strong track record of completing diverse construction projects across Gujarat. It believes that it has been able to maintain its financial performance due to its experienced management team, efficient working capital management and its prudent bidding strategy. Further, its financial strength also enables the company to access additional bank financing, which in turn, will enable it to bid for larger and more prestigious projects, with opportunities for potentially higher margins.
Long -standing relationships with its customers: The Company believes that its reputation for completing projects in a timely manner and its focus on quality has helped it to build strong relationships with its customers. It 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, IntasPharmaceutical 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, it has received additional projects from several of its customers despite increased competition in the region within which the company operate.
Leverage its position as a fast - growing Construction Company in Gujarat: The Company is a fast - growing Construction Company based in Gujarat, and intends to grow into one of the leading construction companies in the state. The company believes that economic growth in Gujarat is expected to result in an increased demand for government and infrastructure, industrial, residential and commercial projects. Thus, it intends to continue to leverage its growth and increased execution capacities to consolidate its position in the Gujarat market.
Enhance its project execution capabilities: The Company intends to continue to focus on enhancing its project execution capabilities. The company believes that this continued focus will help it to improve its operating margins and simultaneously enhance its reputation amongst its existing as well as new customers. Further, the company intends to leverage its existing infrastructure and human capital by utilizing advanced project management tools/software so as to increase productivity and maximize asset utilization on capital intensive projects. The company intends to grow its execution capabilities by strengthening its human capital and attracting professionals, and nurturing their growth within its organization by way of in-house training and developments programs.
Augment customer relationships and optimize its project mix: To improve its profitability and cash flows, the company intends to select its future projects carefully and optimize its client mix. Over the years, the scale and complexity of its projects has gradually increased and the company seeks to continue to focus on projects with higher contract value. Further, the company believes 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 forth, the company intends to actively access such leverage opportunities to bid for larger and more prestigious projects, with opportunities for potentially higher margins.
Expand its geographical footprint: The Company intends to expand its geographical footprint and grow its business by increasing orders from outside of Gujarat. Through an increasingly diversified portfolio, the company hopes to broaden its revenue base and also hedge against risks in specific areas or projects and protects itself from fluctuations resulting from business concentration in limited geographical areas.
Strengthen its human capital: Its human capital contributes significantly to its business operations and the company believes that its employees and workers are an invaluable asset that is essential to its success. The company relies upon them to operate its modern construction equipment, undertake various complex tasks at its construction projects and uphold industry-leading quality standards whilst completing its customers’ projects in a timely manner. As the company builds its human resource systems and processes, the company intends to continue to focus on improving health, safety and environment for its employees and provide various programs and benefits for their wellbeing and skill-enhancement. The company intends to further strengthen its workforce through more comprehensive training programs. The company intends to strive to further reduce the employee attrition rate and retain more of its skilled workers for its future growth by providing them with conducive, safer and healthier working environment.
1. Business is relatively concentrated in the state of Gujarat: The business of the company is heavily dependent on the demand for construction services in Gujarat. As of March 31, 2017, projects in Gujarat accounted for approximately 70.20% of the Company’s total order book. If the company fails to mitigate this concentration risk, it may not be able to develop its business as it planned and its business, financial condition and results of operations could be materially and adversely affected.
2. Face significant competition: The Company operates in a competitive environment and its industry has been frequently subject to intense price competition for the acquisition and bidding of projects. Its competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. If it fails to compete effectively, its business, prospects, financial condition and results of operations will be adversely affected.
3. Have had negative cash flows in recent periods: The Company has had negative cash flows in recent periods. Its inability to generate and sustain adequate cash flows in the future may adversely affect its business, results of operation and financial condition.
Considering the P/E valuation on the upper end of the price band of Rs. 210, the stock is priced at pre issue P/E of 21.84x on its FY17 EPS of Rs. 9.61. Post issue, the stock is priced at a P/E of 27.31x on its EPS of Rs. 7.69. Looking at the P/B ratio at Rs. 210 the stock is priced at P/B ratio of 7.15x on the pre issue book value of Rs.29.36 and on the post issue book value of Rs. 67.41 the P/B comes out to 3.12x.
On the lower end of the price band of Rs.205 the stock is priced at pre issue P/E of 21.32x on its FY17 EPS of Rs. 9.61.Post issue, the stock is priced at a P/E of 26.66 on its EPS of Rs7.69. . Looking at the P/B ratio at Rs. 205 the stock is priced at P/B ratio of 6.98x on the pre issue book value of Rs. 29.36 and on the post issue book value of Rs. 67.41 , the P/B comes out to 3.04x.
Though the 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, but it has had negative cash flows in the recent periods. Moreover, its business is relatively concentrated in the state of Gujarat. Hence investors with high risk appetite may consider investment in the issue.
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