The IPO of VPRPL (Vishnu Prakash R Punglia ltd) opens today -- August 24, 2023 -- and closes on August 28, 2023. The issue size of around ₹308 crore consists entirely of a fresh issue. Of the issue proceeds, ₹62 crore will be used for procuring new capital equipment/machinery, ₹150 crore for working capital needs, and the balance for general corporate purposes. The promoter and promoter group holding in the company is 90.5 per cent; post-issue, their stake will come down to 68 per cent.

The company is an integrated engineering, procurement, and construction (“EPC”) company, with experience in design and construction of infrastructure projects for the Central and State Governments, autonomous bodies, and private bodies across nine states and 1 Union territory, with 70 per cent of the orderbook coming from Rajasthan.

The price band of the issue has been set at ₹94-99, which implies market capitalisation (on upper price band) of around ₹1,234 crore. The trailing EV/ EBITDA comes to 5.4 times and the PE is 13.6 times, which appears cheap and reasonable, when compared to its listed peers. Given the smaller scale of its business and lower margins, some discount versus peers may be warranted. However, considering the reasonable valuation and the government’s allocation for infra projects, investors can subscribe to the issue. At the same time, it would be ideal to take a limited exposure in the stock, given its small cap nature.

Business

 The company started off as a partnership firm in 1986, with a focus on water supply projects, and later entered into railways, roadways, and other projects. The business operations are broadly divided into four categories: Water Supply Projects (WSP); Railway Projects; Road Projects; and Irrigation Network Projects.

The company is mainly focussed on EPC projects - Engineering, Procurement, and Commissioning - where the contractor executes the work and gets paid, unlike the hybrid annuity model (HAM) and build operate and transfer (BOT) models of road infra, where the revenue is staggered over future periods and may be tied to factors like toll revenue.

Within EPC, VPRPL is mainly focussed on water supply projects that account for 78 percentage of the orderbook. The company is involved in the survey, design, construction, commissioning, operation, maintenance, and management of water supply projects. The scope of the projects include supply, laying and testing of pipelines, construction of water tanks, reservoirs, overhead tanks and water treatment plants.

In the railway works segment, the company is involved in laying railway tracks, construction of platforms, major bridges, rail-over-bridges, rail-underbridges, station buildings and other related works.

In the roadways and irrigation network segments, the company is involved in construction and/ or strengthening of roads and highways, including bridges, both minor and major ones. It is also involved in survey, design, construction, operation, maintenance, and management of irrigation network.

In addition to these works, the company carries out construction of sewerage treatment plants, sewerage pipelines, sewer tank drains, construction, and commissioning of tube settlers (device placed on inclined surface to aid sedimentation).

Also read: IPO screener: Vishnu Prakash R Punglia issue opens today

Orderbook

Of its ₹3,799.5-crore orderbook , 78 per cent is from water supply projects (38 projects), 10 per cent from Railway projects (7 projects), 8 per cent from road projects (4 projects), and the remaining from sewage and other projects (2 projects).

Its book-to-bill ratio (FY23 revenue) is 3.25, which gives revenue visibility of around 3 years and four months.

Prospects

The government focus on infrastructure was evident in the Union Budget 2023-24 and even the previous budget. The total capital outlay for infrastructure was ₹10 lakh crore, which is 33 per cent higher than previous budget. The bulk of the company’s projects come from water supply projects. In Union Budget 2023-24 the allocation for Jal Jeevan Mission is ₹69,684 crore, which is 27 per cent higher than the previous budget.

Similarly, the allocation to the Ministry of Road Transport and Highways (MoRTH) stands at ₹2.7 lakh crore. This number is 35 per cent higher than the allocation for 2022-23.

Financials

Revenue in FY23 was ₹1,168.4 crore, which is 49 per cent higher YoY, while EBITDA was ₹159.6 crore, which is 80 per cent higher YoY, and net profit was ₹90.6 crore, which is 102 per cent higher YoY. The EBITDA margin in FY23 was 14 per cent, which has been rising steadily from FY2020, when it was 10 per cent. The net profit margin for FY23 was 8 per cent, which has also grown steadily from FY2020, when the net profit margin was 3.4 per cent.

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