IPO: Vishnu Prakash R Punglia

Vishnu Prakash R Punglia, a leading infrastructure construction company, has come out with its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality : Vishnu Prakash's three-year average return on equity (ROE) and return on capital employed (ROCE) are 29.8 per cent and 27.7 per cent, respectively. In FY23, the company's ROE and ROCE were 38.3 per cent and 33.7 per cent, respectively.
  
• Growth : Its topline grew by 48.7 per cent and 61.7 per cent in FY23 and FY22, respectively, mainly due to new projects undertaken in the road infrastructure segment.
  
• Valuation : The stock will be priced at a P/E and P/B of 13.6 and 2 times, respectively, as compared to its peer's median and average of 14.4 and 2.5 times, respectively.
  
• Overview : High focus on investment in infrastructure projects and new initiatives by the governments can help the company grow, as 99 per cent of the revenue generated is from such projects. However, changes in government policies and decreased spending on these projects by the government can pose a threat.

About Vishnu Prakash R Punglia

Vishnu Prakash R Punglia (incorporated in 1986) is an engineering, procurement and construction (EPC) company mainly dealing in water supply, railway, road and irrigation network projects for the Central and State Government of India. Its clientele includes various government agencies such as the National Highway Authority of India, Indore Smart City Development and the Public Works Department, among many others.

Strengths of Vishnu Prakash R Punglia

• Established relationships with various Central and State Government departments which has helped the company in bagging multiple projects from the same clients.
  
• Order book of about Rs 3,800 crore (or about 3.3 times of FY23 revenue).

Weaknesses of Vishnu Prakash R Punglia

• High reliance on the government for infrastructure projects. Any shift in focus or decrease in spending by the government on these projects can significantly affect the top line of the company.
  
• Revenue concentration - top 10 clients accounted for about 93.4 per cent of FY23 revenue.

Risk report

Company and business

• Are Vishnu Prakash R Punglia's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. The company's profit before tax for FY23 was Rs 122 crore.
• Will Vishnu Prakash R Punglia be able to scale up its business?
  Yes. Increased spending on infrastructure projects and new initiatives introduced by the Government for this sector can help the company scale up its business.
• Does Vishnu Prakash R Punglia have recognisable brands with client stickiness?
  No. Although the company is a recognised player in the industry, it has to procure new projects from its clients through a competitive bidding process. This may lead to clients opting for another company that may align best with their pre-qualified criteria.
• Does the company have a credible moat?
  No. It faces stiff competition from private as well as public players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Promoters' stake will be 67.8 per cent post-IPO.
• Do the top three managers have more than 15 years of combined leadership at Vishnu Prakash R Punglia?
  Yes. Mr Vishnu Prakash Punglia (Chairman) has been with the company since its incorporation in 1986.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is Vishnu Prakash R Punglia free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. The company's three-year average ROE and ROCE are 29.8 and 27.7 per cent, respectively. In FY23, the company's ROE and ROCE were 38.3 and 33.7 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  No. The company reported negative cash flows from operations in FY22 and FY23.
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity ratio, as of March 2023, is 0.6 times.
• Is Vishnu Prakash R Punglia free from reliance on huge working capital for day-to-day affairs?
  No. The company's business affairs are working capital intensive. They rely on short-term loans to fund these requirements.
• Can the company run its business without relying on external funding in the next three years?
  No. The company's operations are highly capital intensive and they have generated negative cash flows in the past two years.
• Is Vishnu Prakash R Punglia free from meaningful contingent liabilities?
  No. Contingent liabilities as a percentage of equity stood at 88 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  Yes. The stock will offer a 10.6 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. The company will trade at a price-to-earnings ratio of 13.6 times compared to peers' median level of 14.4 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The company will trade at a price-to-book ratio of 2 times compared to peers' average of 2.5 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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