Pratham EPC NSE SME IPO review (Apply)

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Review By Dilip Davda on March 5, 2024

•    PEPL is an emerging player in gas pipeline infra with major focus on cross-country projects.
•    It has renowned client list that includes Adani, GAIL, HPCL, BPCL etc.
•    The company marked growth from FY23 onward with its focused cross-country projects.
•    Based on FY24 annualized earnings, the issue appears reasonably priced. 
•    Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Pratham EPC Projects Ltd. (PEPL) is an integrated engineering, procurement, construction and commissioning company being in business of end-to end service providers to Oil & Gas distribution companies in India. The company has been executing various gas pipeline project handling all pipeline activities like, mainline welding, tie-in, coating, hydro testing, pipeline commissioning etc. PEPL specializes in oil & gas pipelines for cross country distribution and city gas distribution. It also undertakes offshore projects for water distribution specifically project bidding & project management.

PEPL is an Oil & Gas pipeline infrastructure service provider in India, focused on laying pipeline networks along with construction of associated facilities; and providing Operations & Maintenance services to the City Gas Distribution ("CGD") Companies in India. It is an integrated EPC company offering a diversified range of pipeline and allied services for oil & gas industry. It provides services for cross country pipeline projects for different applications viz. Oil, gas & water etc. and also undertake Pipeline laying work on Turnkey basis including engineering, procurement, pipeline construction for city gas distribution, horizontal direction drilling, stations including civil, electromechanical and instrumentation for clients. 

The company is ISO 10002:2018 certified for customer satisfaction and complaint management system by International Standards Registrations, ISO 14001:2015 certified for environment management system by International Standards Registrations, ISO 18001:2007 certified for Occupational Health and Safety management system by International Standards Registrations and ISO 9001:2015 certified for quality management system by ROHS Certification Private Limited. Its customer list includes renowned corporates like ONGC, BPCL, HPCL, Gujarat Gas, GAIL, Adani etc. and is currently having major focus on cross-country gas pipe line projects. 

Over the years, it has successfully executed more than 12 projects with its major completed projects quantifying to approximately Rs. 131.84 cr. Its execution capabilities have grown significantly with time, both in terms of the size of projects that it bids for and execute, and the number of projects that it executes simultaneously. As of February 23, 2024, the company had 8 major on-going projects out of which 7 projects worth approximately Rs. 296.66 cr. has been confirmed based on Letter of Allocation / Purchase Order for which Rs. 240.16 cr. worth project execution is pending and 1 project has been finalized with Purchase Order, which is worth approximately Rs. 406.67 cr., based on management estimates, suggesting strong order book. As of September 30, 2023, it had 770 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4800000 equity shares of Rs. 10 each to mobilize Rs. 36.00 cr. (at the upper cap). It has announced a price band of Rs.71- Rs.75 per share. The issue opens for subscription on March 11, 2024, and will close on March 13, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.03% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 8.84 cr. for purchase of machinery, Rs. 15.15 cr. for working capital and the rest for general corporate purposes.

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar of the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far and has also issued bonus shares in the ratio of 15 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 0.62 per share.

Post-IPO, company's current paid-up equity capital of Rs. 12.96 cr. will stand enhanced to Rs. 17.76 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 133.20 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 30.85 cr. / Rs. 1.13 cr., (FY21), Rs. 50.63 cr. / Rs. 4.41 cr. (FY22), and Rs. 51.67 cr. / Rs. 7.64 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 5.23 cr. on a total income of Rs. 35.81 cr. 

On a consolidated basis, for the last two fiscals, it posted a total income/net profit of Rs. 50.63 cr. / Rs. 4.42 cr. (FY22), and Rs. 51.69 cr. / Rs. 7.66 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 5.24 cr. on a total income of Rs. 36.30 cr. Though it marked static top lines for FY22 and FY23, it marked quantum jump in its bottom line, that raises eyebrows.  The surge continued for H1 of FY24 as well. According to the management, this is attributed to their major focus on cross-country high margin projects.

For the last three fiscals, it has reported an average EPS of Rs. 4.23, and an average RONW of 38.66%. The issue is priced at a P/BV of 4.19 based on its NAV of Rs. 17.91 as of September 30, 2023, and at a P/BV of 2.25 based on its post-IPO NAV of Rs. 33.34 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 12.71. 

For the reported periods, the company has posted PAT margins of 3.69% (FY21), 8.74% (FY22), 15.22% (FY23), 15.26% (H1-FY24), and RoCE margins of 27.40%, 61.54%, 48.40%, 24.81% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Likhitha Infra as their listed peers. It is trading at a P/E of 16.4 (as of March 05, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 32nd mandate from Beeline Capital in the last two fiscals, out of the last 10 listings, all opened at premiums ranging from 6.58% to 200.00% on the date of listing. However, the offer document is missing its year-wise tally info.

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