PSP Projects Ltd
CMP: 642.15
Recommendation: Buy
Investment Horizon: 3 years
Parul Sharma – Research Analyst
Date – 30.09.2022
Outlook and view
With a cash-rich balance sheet, healthy revenue visibility, and robust financial discipline, PSP Project’s growth prospects remain positive for the future. The company has strong execution capability, thanks to its solid operational record of over a decade. Currently, the construction major has improved its eligibility for higher-ticket size projects and is witnessing significant traction for the pre-cast facility as well. The scope of geographical diversification and continuous order wins along with a growing client base will increase the revenue visibility in the long run.
The firm has a price-to-earnings (P/E) ratio of 13.9x, which is lower than its all-time median P/E ratio of 17.9x.
Key Positives
Robust Order Book & Healthy Pipeline:
As on June 30, 2022,PSP’s order book stands highest ever at Rs 4,613 crore, with 2.6x FY22 revenue. Moreover, it has guided for an incremental order inflow of Rs 2,500 crore in FY23, out of which Rs 1,802 crore of projects is secured till date. Going forward, it has a bid pipeline of approximately Rs 4,000 crore of which 41% is from private projects and around 51% from the state of Gujarat. The business also sees a bigger opportunity pie in the pre-cast facility, with revenue creation in the range of Rs 500-1,000 crore expected moving forward. With healthy order wins, the company has an edge in boosting its revenue visibility in the near term.
Surat Diamond Bourse (SDB):
Upon successful completion of the SDB project, PSP becomes eligible to bid for larger value projects with a ticket size of Rs 2,000-2,500 crore. This will increase the new avenues for the company with huge potential in the market.
Healthy Financials:
Over the past 5 years, the company has delivered impressive revenue and profit growth CAGR of 34% and 31% respectively. It has also handsomely rewarded its shareholders as it has maintained an average ROE of 26% and ROCE of 35% during the same period. The firm has stable margins in the range of 11-15%. Despite being working capital intensive, the company stood at a prudent working capital cycle of 28 days in FY22, as well as a comfortable leverage position.
Consistent Buying of Promoters:
The ownership of promoters has increased over the previous 4 quarters. In fact, they grew their holdings by 2.1% in June’22, thereby reaching 70.39%.
Additionally, during the Sep’22 quarter, promoters have also increased their stake via open market purchases. To give you a gist, the total number of equity shares acquired was 25,000, worth Rs 14,019,783 crores.
Open Market Purchases of Promoters during Sept’22 quarter
Key Risks
Limited Geographical Diversification in order book:
Out of the total order book as on June 30, 2022, 43% of the orders were from Gujarat, 41% from Uttar Pradesh, 16% from Maharashtra, and the remaining from Karnataka and Rajasthan. This places the firm at geographical concentration risk. However, it is gradually expanded its footprint to establish a pan-India presence.
High Competitive Intensity:
PSP Projects operates in the construction industry, which is dominated by mid and large-sized firms. In addition, competitive intensity for bidding on the projects is high. Nonetheless, the company’s core competencies lie in its proven track record in delivering on-time and quality projects across diverse industry segments and projects.
Inflationary Pressure on Input Costs:
A spike in key raw materials, particularly led by construction materials increases the costs for the company. PSP Projects’ ability for cost optimization programs and timely price increases will be the key monitorable in the future.
About the company
Having embarked on its journey in 2008, today PSP Projects extend a differentiated assortment of construction and allied services across diversified industry segments including Industrial, Institutional, Commercial and Residential, Hotels and Hospitality, Hospitals and high-profile Government projects. The company works with more than 100 private and public clients across the country, with the repertoire of being one of India’s top EPC companies.
Financial snapshot:
| Figures (Rs in Cr) | FY19 | FY20 | FY21 | FY22 |
| Revenue from operations | 1,044 | 1,499 | 1,241 | 1,749 |
| Other income | 23 | 25 | 17 | 21 |
| Total income | 1,067 | 1,524 | 1,258 | 1,770 |
| Total expenses | 928 | 1,350 | 1,146 | 1,551 |
| Profit/loss before tax | 139 | 174 | 109 | 219 |
| Tax % | 48 | 45 | 28 | 57 |
| Profit/Loss after Tax | 90 | 129 | 81 | 162 |
Key metrics:
| Particulars | FY19 | FY20 | FY21 | FY22 |
| Inventory Days | 66 | 66 | 82 | 60 |
| Interest Coverage Ratio | 21.89 | 18.34 | 10.89 | 12.48 |
| Current Ratio | 1.49 | 1.39 | 1.54 | 1.45 |
| Debt Equity Ratio | 0.07 | 0.16 | 0.15 | 0.15 |
| Operating Profit Margin (%) | 11.95 | 10.96 | 8.80 | 12.84 |
| Net Profit Margin (%) | 8.47 | 8.46 | 6.43 | 9.29 |
Story in charts:
Business Robustness in Numbers
Strong Order Book and Growing Pre-Qualification Credentials:
PSP transformed from a construction vendor to an EPC and turnkey personality
ROCE (construction activity, %)
Comfortable Debt Position
| Particulars | Details |
| Market Cap | Rs 2,149 crores |
| 52 week high/low | Rs 684/421 |
| CMP | Rs 642.15 |
| PE | 13.9x |
Shareholding pattern as of June 31, 2022:
| Particulars | Holding (%) |
| Public | 6.70% |
| Promoters | 63.22% |
| DIIs | 6.05% |
| FIIs | 24.03% |
Price performance V/S NIFTY50
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