PSP Projects IPO Fully Subscribed On Day 3: Should You Put Your Money?

On the last day of issue, the initial public offer of PSP projects was subscribed 1.9 times as of 1:30 pm. The IPO received bids for 1.05 crore shares against 55.44 lakh shares on offer. PSP Projects, a multidisciplinary construction company, launched the initial public offer of its shares on Wednesday. The Ahmedabad-based construction company plans to raise Rs 212 crore through this IPO, which is a mix of fresh issue and offer for sale by promoters. Priced in a band of Rs 207-212, PSP Projects IPO will be open for three days through May1 9, 2017. The issue can be applied for a minimum of 70 shares and in multiples thereof. PSP Projects has raised Rs 95 crore from 9 anchor investors on Tuesday.

Here are 5 things to know about this issue:

1) Out of the total issue size of Rs 210 crore, Rs 151 crore will be raised through fresh issue of shares, while the remaining are offer for sale by the promoters of the company. Post this IPO, promoter holding in the company will drop to 71.99 per cent from 99.99 per cent now. Proceeds of the IPO will be used to fund working capital requirement (Rs 63 crore) and capital expenditure (Rs 52 crore).

2) PSP Project offers diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India. It provides services across the construction value chain, ranging from planning and design to construction and post-construction activities to private and public sector enterprises. Till now PSP has focused mainly on projects across Gujarat region but recently it has diversified to other geographies as well. As of March 31, 2017, PSP Projects' standalone orderbook was at Rs 729 crore.

3) Since incorporation in August 2008, PSP has executed a diverse mix of 80 construction projects as of March 31, 2017. PSP Projects 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, Claris Injectables Limited, Emcure Pharmaceuticals Limited, Gelco Electronics Private Limited etc. It's expanding geographical footprint and experienced management augurs well for its future growth, analysts say.

4) PSP Projects had reported a net profit of Rs 22.7 crore on revenues of Rs 476 crore for FY2016 and in the first nine months of last fiscal it reported a net profit of Rs 20.8 crore on revenues of Rs 278.5 crore. At the upper end of the price band, PSP shares are valued at 7.9x its FY2017 estimated book value, which is at a premium to its peers (Ahluwalia Contracts 5.2x, Nila Infrastructures 3.3x,JMC projects 1.4x, RPP Infra 3.7x), says Angel Broking. The brokerage has a "neutral" rating on the issue. However, Nirmal Bang has recommended subscribing the issue with a "long term view". "We believe it (PSP Projects IPO) is aggressively priced; hence there is limited room for upside is near term," Nirmal Bang said.

5) PSP's business is concentrated in the state of Gujarat and any changes affecting the demand for construction services in the region may adversely impact their business, which is a key risk in the business of the company, says Nirmal Bang. The company's lack of experience in different geographies may escalate the cost of project and delivery, says Angel Broking.