What you must know about Vishnu Prakash R Punglia IPO

Brief on the company and its business model

The company, Vishnu Prakash R Punglia Ltd , was incorporated in the year 1986 to undertake the business of designing and constructing infrastructure projects. The company implemented such infrastructure projects for the Central and State Governments; apart from autonomous bodies and private bodies. It has operational presence across across 9 States and 1 Union territory in India. The major business lines of Vishnu Prakash R Punglia Ltd can be divided into 4 categories viz. Water Supply Projects (WSP), Railway Projects, Road Projects, and Irrigation Network Projects. The company is already accredited with various government departments and agencies as a contractor for such works. Some of the departments and agencies the company is accredited include Jodhpur Development Authority, Public Health Engineering Department, Rajasthan, Water Resources Department, Rajasthan, Roads and Building Department, Gujarat, South Western Command, Military Engineering Services (MES) etc.

The company has made some additional business forays of late. Vishu Prakash R Punglia Ltd has ventured into the tunnel business with the government thrust on infrastructure. The make tunnels for hydropower, railways, metro rail, roads, and highways in India. It looks to capture lucrative growth opportunities in the tunnel sector. The second foray is into warehousing projects, especially for the storage of food grains and other perishable materials. It has also executed several independent warehouse projects. Finally, it has also forayed into sustainable sewerage projects. Sewerage projects are made sustainable, cost-effective, and low-maintenance. Vishu Prakash R Punglia Ltd also provides end-to-end wastewater management solutions.

The public issue of Vishu Prakash R Punglia Ltd will be Choice Capital Advisors Private Ltd and Pantomath Advisors Private Ltd. For managing shareholder records, Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the Vishnu Prakash R Punglia IPO issue

Here are some of the key highlights to the public issue of Vishnu Prakash R Punglia IPO.

• Vishnu Prakash R Punglia IPO has a face value of ₹10 per share while the price band for the book building IPO has been set in the band of ₹94 to ₹99 per share. Of course, the final price will be discovered within this band.
   
• Vishnu Prakash R Punglia IPO will comprise entire of a fresh issue of shares and there will be no offer for sale (OFS) component in the IPO. The fresh issue portion entails the issue of 3,12,00,000 shares (3.12 crore shares), which at the upper price band of ₹989 per share will translate into fresh issue size of ₹308.88 crore.
   
• It must be recollected here that while the fresh issue brings in fresh funds into the company, it is also EPS and equity dilutive. On the other hand, the OFS is just a transfer of ownership and hence it is neither EPS dilutive nor is it equity dilutive.
   
• Since there is no OFS portion in the IPO, the overall IPO portion will be equal to the fresh issue portion and will comprise of the issue of 3,12,00,000 shares (3.12 crore shares), which at the upper price band of ₹99 per share will translate into a total IPO issue size of ₹308.88 crore. The final IPO price will be discovered through the process of book building.

The proceeds of the fresh issue portion will be used to fund capex and the purchase of machinery and equipment incidental to the business. A part of the IPO proceeds will also be used to fund the working capital gap while a small portion of the IPO proceeds will be used by the company, Vishu Prakash R Punglia Ltd, for general corporate purposes.

Check Vishnu Prakash R Punglia IPO GMP

Promoter holdings and investor allocation quota

The company was promoted by Vishnu Prakash Punglia, Manohar Lal Punglia, Sanjay Kumar Punglia, Kamal Kishor Punglia, and Ajay Punglia. Currently the promoters hold 90.45% of the company, which will get diluted post the IPO to 67.81%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of Vishnu Prakash R Punglia Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the Vishnu Prakash R Punglia IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Vishnu Prakash R Punglia Ltd, the minimum lot size is 150 shares with upper band indicative value of ₹14,850. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the Vishnu Prakash R Punglia IPO.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Vishnu Prakash R Punglia IPO and how to apply?

The issue opens for subscription on 24th August 2023 and closes for subscription on 28th August 2023 (both days inclusive). The basis of allotment will be finalized on 31st August 2023 and the refunds will be initiated on 01st September 2023. In addition, the demat credits are expected to happen on 04th September 2023 and the stock will list on 05th September 2023 on the NSE and the BSE. Vishnu Prakash R Punglia Ltd offers a very unique combination. It has an established and tested business model; and is into an industry that is considered the future of Indian economic growth. It has a pedigree of execution and a track record of delivering to several government departments and agencies. Let us now turn to the more practical issue of how to apply for the IPO of Vishnu Prakash R Punglia Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Vishnu Prakash R Punglia Ltd

The table below captures the key financials of Vishnu Prakash R Punglia IPO for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Vishnu Prakash R Punglia Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been robust and has more than doubled in FY23 over FY21. This shows the business flows that domestic infrastructure companies are getting from the government of India. Purely on the strength of the prospects of the sector, the government spending on infrastructure capex and the delivery track record of the company, the pricing does look like it has left something on the table for investors, with the P/E ratio still in single digits.
    
2. The latest year profit margins and the return on equity are quite impressive. The company has sustained net margins of over 5% and ROE of over 25%, which is very competitive. However, this is a business where a lot of costs get front-ended but once these costs are defrayed, profits can actually grow in a geometric manner. That is the big bet in this case also.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 1.4X, which is a very good sign for a capital intensive business like infrastructure execution.

For the sake of argument, even if you use the weighted average EPS of the last 3 years at ₹7.35, even then the valuations are attractive at around 12-13X of P/E ratio. While pricing of the IPO does matter here, what is more critical is the eventual PAT margins and ROE margins that will sustain. It tends to compress as the field becomes more competitive. In the past, the group has shown good traction in terms of execution of large projects and that will work in their favour. The key to the future would be the ability to scale up rapidly, which is where many infrastructure companies have faltered in the past. From the perspective of the model and the track record, it is an issue worth investing. Ideally, the investor should be willing to wait for longer and be willing to digest the volatility in stock prices.