Vishnu Prakash R Punglia coming up with IPO to raise upto Rs 309 crore

Vishnu Prakash R Punglia

• Vishnu Prakash R Punglia is coming out with a 100% book building; initial public offering (IPO) of 3,12,00,000 shares of Rs 10 each in a price band Rs 94-99 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on August 24, 2023 and will close on August 28, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 9.40 times of its face value on the lower side and 9.90 times on the higher side.
• Book running lead manager to the issue is Choice Capital Advisors and Pantomath Capital Advisors.
• Compliance Officer for the issue is Neha Matnani.

Profile of the company

The company is an ISO 9001:2015 certified integrated engineering, procurement and construction (EPC) company with experience in design and construction of various infrastructure projects for the Central and State Government, autonomous bodies, and private bodies across 9 States and 1 Union territory in India. Its principal business operations are broadly divided into four categories: (i) Water Supply Projects (WSP); (ii) Railway Projects; (iii) Road Projects and (iv) Irrigation Network Projects. The company 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 along-with fleet of four hundred and ninety nine (499) construction equipment and vehicles. Its in-house teams deliver its projects from design to completion. This reduces its dependency on third parties for key materials such as ready-mix concrete, stone aggregates, bitumen and services such as design and engineering, transportation and logistics required in the development and construction of its projects. The company undertakes projects on EPC basis, with or without operation and maintenance services (O&M). The scope of its services includes detailed engineering of the project, procurement of key materials, and project execution at the sites with overall project management up to the commissioning of these projects. In addition, it also undertakes operation and maintenance of projects in accordance with its contractual arrangements. Its employee resources and fleet of equipment, together with its engineering capabilities, enable it to execute a range of projects on turnkey basis.

Proceed is being used for:

• Funding capital expenditure requirements for the purchase of equipment/machineries.
• Funding the working capital requirements of the company.
• General corporate purposes.

Industry overview

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads, and urban infrastructure. In other words, infrastructure sector acts as a catalyst for India’s economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure and construction development projects. In order to become a $ 5 trillion economy by 2025, infrastructure development is the need of the hour. The Government has launched the National Infrastructure Pipeline (NIP) combined with other initiatives such as ‘Make in India’ and the production-linked incentives (PLI) scheme to augment the growth of infrastructure sector. Historically, more than 80% of the country's infrastructure spending has gone towards funding for transportation, electricity and water & irrigation. Centre’s share in NIP is 39% whereas, State and Private sector’s share is 39% and 22% respectively.

The Indian Railways is the largest rail network in the World and is a regulated body under GoI and is the backbone of the Indian economy. It is also the fourth largest national railway system in the world. It consists of a total track length of over 0.12 Million km with over 0.07 Million km route consisting of more than 7,000 stations. Indian railways run about 9,000 freight trains and 13,500 passenger trains carrying a total passenger count of over 24 Million passengers and more than 203 Million tonnes of freight. It is also the largest employer in India and contributes to about 1.5% of the GDP as it supports about 45% share of the modal freight of India. It is the driver of India’s economic growth and is considered safe, viable and environment friendly mode of transport in India. The Railways operations can be divided into passenger and Freight segments. The Government has proposed a 70% Y-o-Y increase in budgetary allocation of Rs 2,400 Billion to Railways in Budget FY24. 

Robust infrastructure is an essential sign of a developing nation. Development of roads, bridges, airports and railways is crucial for economic development of the country. Out of all modes of transport, road is the only mode which has ability of last mile connectivity. Transportation of freight as well as passengers by road is one of the most cost-effective mode. With a total 6.37 Million kms of road network, India ranks second in the world after USA. This road network supports movement of 60% of freight traffic in the country and 87% of the total India’s passenger traffic. The Indian road network comprises of National Highways, Expressways, State Highways, Major District Roads, Other District Roads and Village Roads. To get the country in fast forward mode, development of National Highways has been key focus area, however state highways, district and rural roads continue to be large part of overall road network.

Pros and strengths

Focused player in Water Supply Projects (WSPs): The company has over 36 years of experience in executing WSPs comprising of construction and development of pipelines, water tanks, reservoirs, tunnels, overhead tanks, water treatment plants and irrigation projects. It has executed more than 75 WSPs till the date of this RHP. Its Order Book contains WSPs for execution across the states of Rajasthan, Uttar Pradesh, Manipur, Uttarakhand, Gujarat, Assam and Haryana as on July 15, 2023. The growth in its WSPs Order Book is on account of its continued focus on WSPs, technical capabilities, timely performance, emphasis on high quality, financial strength and prudent bids. Over the years, the company has gained experience for execution of WSPs and has developed financial strength and managerial capabilities, thereby motivating it to venture into new segments like railways, roads and various other segments.

Visible growth through robust order book across segments: In company’s industry, Order Book is considered as an indicator of future performance since it represents a portion of anticipated future revenue. However, it is focused on undertaking quality projects with potentially higher margins rather than merely increasing its Order Book. By expanding its Order Book and skill set across different business segments and geographical regions, it is able to pursue a broader range of project tenders and therefore maximize its business volume and profit margins. As on July 15, 2023, it has on-going projects aggregating Rs 61,835.81 million, of which Rs 23,840.53 million worth of work has been executed and balance Rs 37,995.28 million form part of its Order Book. It has been able to achieve and maintain such Order Book positions due to continued focus on its core areas and ability to successfully bid and win new projects across multiple segments.

Track record of successfully completed projects: With more than 36 years of experience in the EPC construction industry, the company has developed a reputation for project management and execution on account of its engineering team and labour, in-house integrated model and equipment deployment. These capabilities have enabled it to complete projects in a successful manner. Its in-house material supply chain management ensures that key construction materials are delivered on timely basis at its facilities and construction sites, thereby enabling it to manage its processes effectively and maintain its inventory efficiently. Its project management team, working in conjunction with the design and engineering team, ensures operational efficiencies through overall supervision of the project execution process.

In-house integrated model: The company’s in-house integrated model, helps reduce its dependency on third parties for key materials required to execute its projects, such as, ready-mix concrete, stone aggregates, and processed bitumen, in a cost effective manner. It also facilitates timely transportation of these materials to project sites through vehicles owned by it with GPS tracking devices, reducing pilferage and adulteration. The sites are centrally monitored throughout the duration of the project by CCTV cameras. As on March 31, 2023, its equipment fleet comprised about 499 construction equipment and vehicles. Further, as on March 31, 2023, the aggregate gross block value of the company’s property, plant and equipment was Rs 1,361.24 million. Its in-house integrated model ensures that products and services required for development and construction of a project meet quality standards and are delivered in a timely manner, thereby reducing contractual risks associated with third party suppliers. This has contributed to its ability to successfully complete projects, without compromising on quality and allowing it to capture a larger proportion of the value chain in the infrastructure development business, including returns and O&M margins.

Risks and concerns

Significant portion of revenues concentrated from limited number of clients: Significant revenue from a limited number of clients increases the potential volatility of the company’s results and exposure to individual contract risks. It may be required to accept onerous contractual terms in its contracts for projects awarded to it by such clients. While, the company has not experienced such instances in the past, in the event the company is unable to comply with its obligations in any contract with such top five (5) clients, it would result in a substantial reduction in the number of contracts awarded by such client in future resulting in an impact on the overall business and revenue generated by the company from such client. Further, such concentration of its business on selected projects or clients may have an adverse effect on its results of operations. 

Business is working capital intensive: Typically, projects in the infrastructure sector which the company undertakes are working capital intensive in nature and involve long implementation periods. This requires it to obtain financing through various means. As on March 31, 2023, its total short term borrowings stood at Rs 1,900.77 million. It may incur additional indebtedness in the future. Additional debt financing could increase its interest costs and require it to comply with additional restrictive covenants in its financing agreements. Additional equity financing could dilute its earnings per Equity Share and interest in the Company, and could adversely impact its Equity Share price. 

Revenue is concentrated from projects undertaken with Government entities: The company’s business is dependent upon infrastructure projects undertaken by governmental authorities including State PHEDs, WRD, PWDs, Railways, MoRTH and NHAI. Its construction contracts with Government entities are usually based on standard terms and conditions set out by the said entities. Thus, it has had only limited ability to negotiate the terms of these contracts, which tend to favour its Government clients and it may be required to accept unusual or onerous provisions in such contracts in order to be engaged to execute such projects. These onerous conditions forming part of Government contracts may have adverse effects on its profitability. Further, any change in governmental policies that results in a reduction in capital investment in the infrastructure sector could adversely affect it. 

Rely on effective and efficient project management: The company executes projects on turnkey basis as EPC, with or without O&M. The scope of its services includes engineering of the project, procurement of materials, and project execution at the sites with overall project management up to commissioning of the projects. With more than thirty-six years of experience in the EPC construction industry, it has developed a reputation for efficient project management and execution, which combines qualified and skilled labor, effective equipment deployment and an in-house integrated model. Its project-based businesses depend on proper and timely management of its projects. There have been no instances in the 3 financial years, where any change in management procedures has affected its ability to complete projects on timely basis. 

Outlook

Incorporated in 1986, Vishnu Prakash R Punglia 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's principal business operations are broadly divided into four categories: (i) Water Supply Projects (WSP); (ii) Railway Projects; (iii) Road Projects and (iv) Irrigation Network Projects. VPRP 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). On the concern side, the infrastructure sector, is competitive and highly fragmented. It competes against various domestic engineering, construction and infrastructure companies. Thus, it operate in a very competitive environment. It may also be exposed to risks associated with the ability of the sub-contractors to obtain requisite regulatory and statutory approvals, arranging required equipment and materials. In addition, it can make no assurance that such sub-contractors will timely mobilize adequate resources required for execution of the project. 

The company is coming out with an IPO of 3,12,00,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 94-99 per equity share. The aggregate size of the offer is around Rs 293.28 crore to Rs 308.88 crore based on lower and upper price band respectively. On the financial front, the company’s total income has increased by 48.78% to Rs 11,714.64 million in Financial Year ended March 31, 2023 from Rs 7,873.87 million in Financial Year ended March 31, 2022. The company has recorded significant increase of 102.12% in profit after tax from Rs 448.47 million in Financial Year ended March 31, 2022 to Rs 906.43 million in Financial Year ended March 31, 2023. Meanwhile, the scale and complexity of the company’s projects have increased in recent years and it intends to continue focusing on bidding for projects with higher contract values. Further, to fuel its growth and expand operations, it intends to invest in latest equipment and technology, wherever necessary. To increase its equipment fleet, it intends to purchase latest equipment from reputed manufacturers and continue with its strategy of placing minimum reliance on hired or leased equipment.