Analysts divided in PSP Projects IPO recommendations


PSP Projects IPO

PSP Projects IPO, which opens tomorrow for subscription, has received mixed reactions from analyst fraternity. Brokerage house recommendations have been mixed so far, ranging from Subscribe to Neutral and Caution. Here is a snapshot of what brokerage houses have to say regarding PSP Projects IPO recommendations.

“PSP Projects is a Gujarat based Construction Company. Its revenue grew at a CAGR of 20.58% during FY12-16.The company is expected to maintain its top-line growth with its ongoing business expansion plans. At the upper price band, PSP Projects would be available at 23x FY17E EPS of Rs. 9, in line with the industry PE of 25x.Hence, we recommend investors to SUBSCRIBE the issue from a long-term prospective,” said Asit C Mehta which has a Subscribe rating on the upcoming IPO.

PSP Projects IPO recommendations received further boost as Centrum Wealth has also placed a Subscribe rating on the issue citing comfortable comparative valuations. “Over FY12-16, PSPP registered revenue and PAT CAGR of 27% and 31%, respectively. Owing to the nature of the business, the company has high working capital requirement (30-40 days). As most of the orders have a short gestation period (8-10 months), it provides better cash visibility. It has reported positive free cash flows from operations for the last 5 years. As of Mar’16, it enjoys low debt to equity of 0.7x along with high RoE of 44% and RoCE of 28%,” said the report.

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However, Choice Broking noted that the issue is fully priced, while adding that it can still benefit from the solid industry outlook. “Annualizing the nine month performance, we arrive at FY17 earning of Rs. 7.4 per share. Based on FY17 earnings, PSP is valued at a P/E multiple of 28.5x as compared to the peer average FY17 P/E multiple of 30x. Thus the issue seems to be fully priced. However, based on our quick estimate, we estimate a FY18 earnings of Rs. 10.9 per share, translating into a FY18 forward P/E multiple of 19.2x as compared to the peer average FY18 P/E multiple of 25.1x. Thus based on FY18 earnings, the issue seems to be attractive. The public issue being below Rs. 2,500mn, the share will trade under the trade for trade (TFT) segment post listing. Thus considering the above observations, attractive construction sector outlook, past financial performance and future outlook of the company, we recommend a “Subscribe with Caution” rating for the public issue,” said its research note.

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In its report, ICICIdirect noted that the company’s high business concentration in Gujarat represents a risk. The brokerage house did not offer a rating to the upcoming IPO.

Overall, PSP Projects IPO recommendations are not unanimously positive. We raised some of these concerns in our review of the IPO and found high valuations haven’t left much on the table. Meanwhile, head to this discussion page to stay updated about the grey market premium (GMP) in the informal market.


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