Vishnu Prakash R Punglia

Focused on Water projects

Largely undertakes EPC projects in water and is gradually diversifying to railways, irrigation and other verticals

Vishnu Prakash R Punglia (VPRPL) is an 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 ninestates and one 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 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 so far. It is one of the prominent players in the state of Rajasthan in water supply projects.

VPRPL have 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, Rajasthan (Class S), Public Works Department, Chhattisgarh (Class A), Public Works Department, Rajasthan, Public Works Department, Madhya Pradesh (Class AA), 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 alongwith a fleet of 499 construction equipment and vehicles. The company hasin-house teams todeliver 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 projects.

The company continues to focus on development and construction of WSPs as part of its growth strategy. It intend to expand into and will continue to bid for projects related to the railways sector including earthwork, construction of bridges and supply of materials and track linking, railway station platforms, administrative buildings, rail over-bridges and station quarters; projects related to road sector like construction of highways, bridges, culverts, flyovers, subways; projects related to irrigation like dams, canals, tunnels, pressured pipe system, etc.; and other sectors like sewerage, industrial effluent treatment plants on an EPC basis.

The company executes projects either independently or through project specific joint ventures.

The Issue, Object of the Issue

The Initial Public Offer comprisesan issue of fresh equity shares of up to 31200,000 of Rs 10 face value each. Of the net proceeds from the issue, about Rs 62.177 crore will be used to fund capex requirements for the purchase of equipments/machineries, Rs 150 crore for funding the working capital requirements and balance was general corporate purposes.

Strength

Track record of successful completion of more than 85 projects till date and have 51 ongoing projects as on July 15, 2023.

The order backlog of the company as of July 15, 2023, stood strong at Rs 3799.528 crore, which is 3.25 times of its FY23 revenue.

Undertakes construction and EPC projects in an integrated manner as it have the key competencies and in-house resources (engineers, equipments, ready-mix concrete, stone aggregates, and processed bitumen, in a cost effective manner) to deliver a project from conceptualization till completion. As on March 31, 2023, its equipment fleet comprised about 499 construction equipment and vehicles.

Effectively leveraging its experience in executing EPC projects, it is increasing focus or expanding into new functional areas such as Railways, Irrigation, and Industrial Effluent Treatment Plantsthat will allow it to consolidate its position in the infrastructure space.

Only about 55% of the households of the country as on December 31, 2022, have tap water supply in their homes. Under AMRUT scheme, about 6527 water projects costing Rs 129636 crore (including O&M cost) have been approved by MoHUA so far. Of these 6527 projects, so far DPR have been approved for 2058 projects (worth Rs 36481.47 crore), notice inviting tenders (NIT) issued for 1025 projects (worth Rs 19157.55 crore); 608 projects (worth Rs 5422.82 crore) were awarded and about 29 projects (worth Rs 102.99 crore) have been completed.Currently, there is a 79% (22,939 MLD) capacity gap between sewage generation and existing sewage treatment capacity in tier I/II cities/towns in the country. Even if include 1742.6 MLD of ongoing/planned capacity, there is still a sewage treatment capacity shortfall of 21,196 MLD. So GOI initiatives such as JJM Phase II and urban waste generation and treatment there are enough growth opportunities for the company in water/waste-water verticals. Similarly, the other major verticals the company focuses, such as railways, also have strong investment lined up.

Weakness

Business growth relies on contracts awarded through tenders under competitive bidding process and ability of the company to qualify independently and jointly with other partners, availability of enough projects in the tender pipeline, timely award of the contract as well as ability of the company to win it at competitive bids. The bid success ratio of the company was in the range of 16-17% in the last three fiscals.

Typically, EPC projects are exposed to various implementation and other risks, including risks of time and cost overruns, and uncertainties, which may adversely affect business, financial condition, results of operations, and prospects.

About Rs 359.536 crore of the order backlog or 9.46% of the order backlog as end of July 15, 2023, is from the state of Manipur, which is currently facing ethnic clashes/unrest that might delay project execution and bill collections impacting the operations of the company. Entire Manipur order backlog is WSPs.

High geographical/client concentration: About 61.54% of the order backlog is from Rajasthan, 16.18% from UP, 9.46% from Manipur, 5.59% from Uttarakhand, 5.54% from Assam and balance from other states. Similarly, about 80.92% of the revenue comes from the top 5 clients. Of the order backlog about 77.89% is WSPs, 10.05% is railways, 7.93% is roadways, and 4.13% is sewerage and others. The WSP order backlog is spread across the states of Rajasthan, Uttar Pradesh, Manipur, Uttarakhand, Gujarat, Assam, and Haryana.

Undertakes projects in JV or executes projects with sub-contractors and thus any execution delays,by JV partner/ client/sub-contracts, will materially impact the fortune of the company.

There are certain outstanding litigations involving the company, which, if determined adversely, may affect the business operations and reputation.

Military Engineering Services (MES) debarred the company from participating in future tenders on March 30, 2021. The company filed a CWP in Rajasthan High Court at Jodhpur to quash the order. Though the RHC by its interim order allowed it to participate in future tenders, a final order not in favour of the company would lead the company to be debarred from participating in any future tenders floated by MES. Similarly, the company has challenged the illegal termination notice of Indore Smart City Development (ISCDL) in the MP High Court and got an interim order restraining ISCDL from encashing the performance BG and from blacklisting the company until the order passed by the competent authority. Any judgment against the company may lead to debarring of the company for five years from participating in tenders floated by ISCDL and the local municipal corporation.

The company has reported negative cash flow from operation in FY22 and FY23.

Valuation

Consolidated re-stated revenue for the fiscal ended Marche 2023 stood higher by 49% to Rs 1168.40 crore. With OPM expanding by 230 bps to 13.4%, the operating profit jumped up 80% to Rs 156.58 crore. Gained further by lower interest and depreciation as % of sales, the PBT more than doubled (up 103%) to Rs 122.44 crore. Eventually, the net profit was up by 102% to Rs 90.64 crore.

The EPS for FY2023 on expanded equity (on the upper price band) was Rs 7.3. The PE on the upper price band works out to 13.6 times. WPIL, which is a pump manufacturer as well as undertakes JJM projects, quotes at a PE of 16.3 times of its consolidated FY2023 EPS. And some of other EPC companies in the space of roads and railways such as PNC Infratech, HG Infra, GPT Infra, RPP Infra, RVNL, IRCON, and ITD Cementation are quoting at a PE of 15.2 times, 25.8 times, 14.9 times, 8.3 times, 18.3 times, 17.5 times and 28.9 times. Indian Hume Pipes which is into manufacturing and marketing of concrete pipes as well as pipeline projects quotes at a PE of 34 times of its standalone FY23 EPS.