IPO Adda: Vishnu Prakash R Punglia
Category
🗞
NewsTranscript
00:00 BQ prime you're watching IPOda and the company in focus today is Vishnu Prakash N Punglia
00:05 which is an EPC major mainly operating out of Rajasthan and some other states. The company
00:12 is coming out with an IPO at the price band of 94 to 95 99 rupees per share. The IPO opens
00:18 on 24th August and closes on 28th. It's a fresh issue of nearly 309 crores and that
00:25 gives the company a market value of little over 1200 crores at the upper end of the price
00:29 band. And joining me is Mr. Manohar Lal Punglia who is the managing director and Sarfaroz
00:35 Ahmed who is the chief financial officer at the company. Mr. Punglia, first question to
00:42 you is that what are the states where you operate your EPC business and what kind of
00:48 projects do you do? Sir, our business is mainly in Rajasthan. Apart from Rajasthan, we have
00:57 UP, North East, Gujarat, Haryana, MP. We have a business in 9 states and one in Kandasasit
01:06 Pradesh. And our major work is water supply project. Along with this, we do railway and
01:17 road work and also do education projects. You are raising 309 crores, for what purpose
01:25 will that be? That will be used for our business. Majorly, the object we have given will be
01:33 for 62 crores equipment and plant purchase, 150 crores for working capital and remaining
01:40 for general purpose. Up to 25% of the issue. Mr. Ahmed, you are raising that amount and
01:50 mainly it is going to be used for working capital. What is the kind of debt that you
01:56 have on your balance sheet as of today and can you break it up between short term working
02:02 capital and long term debt as well? Yes, sir. We have a total gross debt of rupees
02:08 250 crores. If we segregate this debt, 190 crores are short term and 60 crores are long
02:15 term debts. I am seeing that a lot of companies, especially in the construction and EPC business
02:24 are raising a lot of fresh issues and most of them have been used for working capital.
02:30 Why is there such a big need for working capital coming in for you? Is it because the kind
02:36 of projects which are coming in have a delay in payments and that is why you need to have
02:41 that kind of working capital requirement? Basically, this industry is a working capital
02:47 intensive industry and if we see the last three years growth, we have increased our
02:56 scale of operations. As our scale of operations has increased, the requirements for working
03:02 capital has also increased. If you see the ratio of operating free cash
03:08 flow to working capital, it is negative. Do you think that the funds which you have
03:14 raised will be positive in the future? Sir, the company is in the growth phase. If
03:21 we talk about the last three years, our CAGR is 46.8% and the last two years it is 55%.
03:29 So, the company's growth phase will continue and the working capital requirement will
03:34 continue. And recently, the 51 projects which are in hand, on an average, the working capital
03:39 requirement is 15-20% for every project. So, the requirement which is being made is accurate.
03:47 Okay. Pungle ji, I was looking at your order book. You have about 3000 crore order book
04:04 and it is about 60% of the total order book is from Rajasthan. So, how will you de-risk
04:19 it in the future? How sir?
04:23 How will you de-risk it? Because it comes from the same state. So, the risk in that
04:29 state is that if the policy changes in the future, the government changes, then it will
04:35 affect the EPC contractors. So, how will you spread out your risk?
04:41 Sir, the project which is going on in Rajasthan, apart from the Rajasthan government, the railway
04:50 project is also going on in Rajasthan. It is a project of the central government. Road
04:54 project is also going on in central government. It is also of the central government. And along
04:59 with this, sir, the experience we have got of 36 years, in that, in Rajasthan, all the
05:05 governments are changing every 5 years. So, this does not affect our water supply project
05:12 at all. And along with this, the projects of our water life mission are also going on,
05:18 in which 50% is the responsibility of the central government and 50% is the responsibility
05:24 of the state government. So, there is no such problem. And this is a work related to the
05:30 public. So, there is no problem in this.
05:35 You told about the water life commission. The central government is also emphasizing
05:41 on this. How much water life do you get from your total order book?
05:48 Sir, we have got 3363 crores from the water life mission, in which we have 15 projects.
05:54 We have L1 in one more.
05:57 Ok. So, tell me sir, I was seeing that your bid success ratio is of about 17%.
06:06 Yes sir.
06:07 In 2022, you bid for more than 18000 crores. You got 16-17% of that. And in 2023, you bid
06:20 for about 4500 crores. So, this drop in bidding, is it because of the drop in government bids
06:30 or how? Why is there such a difference?
06:33 Yes sir, the major difference is that in the year 2021 and 2022, there was a covid period
06:42 and the government had given some relaxation. Like the MD was exempt. So, our bidding increased
06:49 accordingly and we got awarded tenders. And immediately when we got sufficient tenders,
06:55 we immediately slowed down the bidding and again started bidding.
07:02 Mr. Pungle, you are looking at projects in every state, at least in 8-9 states. How is
07:10 the process of bidding looking in 2023 and 2024? How many bidding tenders can come and
07:18 in which areas will they be?
07:22 Sir, the process of tenders in Rajasthan, UP, MP, North East, the focus of the government
07:30 is on infrastructure. The focus is on central government and state government. We have also
07:40 done a lot of bidding and many projects are going to be launched in the future. Because
07:48 the central government and the Prime Minister have announced that there will be a lot of
07:54 projects in the future. So, the coming time will be very good for infrastructure and there
08:00 will be a lot of projects in the future.
08:02 At present, you get 6% revenue from the railway and 6% from the roads, if my data is correct.
08:12 So, what kind of projects are you handling in the railway at present? And has the government
08:20 recently announced the redevelopment of railway stations, which is being discussed all over
08:26 the country. Will you participate in that too?
08:30 Yes, sir. We are doing the complete work of laying the track in the railway. We have also
08:38 built railway stations. And we are doing the work of the redevelopment of Udaipur railway
08:44 station. The Prime Minister came to Udaipur a month ago and he discussed that project.
08:52 We are doing that project. And there is a good chance that we will be able to work in the
09:02 railway in the future.
09:08 And how are you doing in the roads? Because we are doing only one or two projects in the
09:14 roads in Rajasthan. Will you bid in Pan India projects in the future? Because it requires
09:20 a lot of capital.
09:22 Sir, we have complete infrastructure for road work. And we will extend the road in the future
09:36 and will participate in the new projects.
09:40 Sir, tell us that your EBITDA is around 157 and EBITDA margin is 13.4%. Can you take this
09:52 EBITDA margin up? Is it permissible for that?
09:58 Sir, if you see our growth in the last three years, EBITDA margin has come from 9.7 to 13.7.
10:06 And as our scale of operations is increasing, our fixed overhead expenses are decreasing,
10:12 our material purchasing capacity and bargaining capacity is increasing. By the time we will
10:18 surely see growth.
10:20 Sir, how much EBITDA margin will be normalised in your industry and how much can you increase
10:28 it?
10:30 Sir, I can't say much about this due to restrictions. But I can assure you that we will see growth
10:38 in the company's history.
10:42 Sir, you do a lot of subcontracting and due to subcontracting, margins are also under
10:48 a lot of pressure. Will you reduce subcontracting in the future and set up your infrastructure?
10:56 Sir, majorly subcontracting is a part and parcel of this business. There are two types
11:04 of subcontracting, one is material and the other is labour. We have a major labour contract.
11:08 We subcontract critical materials and supply the rest of the key materials.
11:14 We don't have to complete the work in a time frame, we have our own external teams.
11:20 As the company grows and increases in scale, we will surely reduce their dependency.
11:28 Sir, if we look at your bill to book ratio, it is around 3. Will you maintain it in the future?
11:40 Sir, our last bill to book ratio was 3, then it was 4 and now it is 3 again. We will definitely
11:52 maintain it.
11:54 What are the factors involved in this and how can you do it? How much bidding can you
12:06 do in a year? Do you have enough capital to do bidding? In 2021-22, there was no EMD,
12:14 so you did a lot of bidding. Many EPC players did bidding. Now EMD has come back, so you
12:22 will have to reserve capital as you bid. How much balance sheet stand do you have?
12:30 Sir, if we talk about bidding capacity, it is around 400-600 crores on roads.
12:38 Our bidding capacity is on individual ways, which varies from state to state, department
12:42 to department. If we talk about railways, we have a bidding capacity of 175 crores.
12:46 On roads, we have a bidding capacity of 300 crores and on other irrigation projects, we
12:52 have a bidding capacity of 200 crores. As the work flow increases, the bidding capacity
12:58 increases. This is the industry's feature. As I keep executing, my bidding capacity will
13:02 increase.
13:03 After IPO, how much will your outstanding debt of 250 crores be reduced?
13:09 Sir, after IPO, my requirement will be completed, but as it is in the growth phase, we will
13:16 not do aggressive borrowing, but we will maintain it.
13:21 Is there a target on how you will maintain your debt?
13:26 Sir, we will maintain the same ratio as it is now, 0.8%.
13:32 If we look at your top 5 clients, they have 80-81% revenue. This is also considered a risk
13:42 because 5 clients have 81% revenue. How can you diversify that?
13:49 In which, sir?
13:53 Sir, 5 clients have 81% revenue.
14:09 By the time, we are growing the business state-wise. Like we have a major portion in Rajasthan,
14:16 then we did Gujarat, then UP, then MP. In the same way, we will move ahead.
14:21 Finally, your business model, Ponglia ji, currently, you get the most revenue from water
14:32 supplies. But how do you see yourself as an EPC player?
14:38 Will you focus more on roads or railways?
14:43 Because water supply is limited in Rajasthan. Will you diversify your business model so that
14:56 your revenue comes from all 4 business units equally or in a good amount?
15:04 Sir, we will continue our 36-year experience in water supply. Because there is a lot of scope in water supply.
15:16 Like Jal Jeevan Mission, Amrit 2, and other schemes. Water supply is our base and we will keep increasing it.
15:26 We are working in 9 states, Canada, and Swaziland. So, our maximum work is in water supply.
15:36 Along with this, we have entered the railway industry in a short span.
15:42 We will continue to grow in this field. Because the central government is also very much involved in this.
15:55 They also want the infrastructure of the railway to be improved. We will continue to grow in this field.
16:02 Along with this, we have all the equipment available for road work. So, we will continue to grow in this field.
16:10 We have a team and we will continue to grow.
16:15 Manohar Rao and Sarfaraz Ahmed, thank you for talking to BQ Prime.
16:21 Your IPO is at Rs. 94 to 99 per share. It will be open from August 24 to August 28.
16:28 You are raising Rs. 309 crores through the IPO in a fresh issue. Thank you for talking to BQ Prime.
16:35 Thank you, sir.
16:37 [Music]
16:44 [BLANK_AUDIO]