This is my take on the company
PSP Projects, incorporated in 2008 and led by Mr. Prahalad S. Patel, a first-generation civil engineer with 37 years of experience, has emerged as the second fastest-growing construction company in the small category in India. With its geographically diversified presence across six states, including Gujarat, Rajasthan, Karnataka, Uttar Pradesh, Maharashtra, and New Delhi.
an impressive order book of Rs. 5,052 crores as of FY23, PSP Projects has secured orders worth twice the market capitalization of the company, standing at approximately Rs. 2,700 crores. Notably, the company witnessed a record-breaking order inflow of Rs. 3,421 crores (excluding GST) in the last fiscal year, representing a phenomenal growth rate of 90% compared to FY22.
What sets PSP Projects apart from its competitors is its exceptional financial management. Despite being a working capital-intensive business, PSP Projects boasts the industry’s best working capital cycle of 41 days, ensuring efficient cash flow management. Furthermore, the company has achieved a negative net debt position, demonstrating ample cash reserves to meet short and long-term obligations—an extraordinary feat in the construction and engineering sector, where high leverage is often the norm.
PSP Projects’ client base spans diverse sectors, offering stability and resilience to its revenue streams. While a significant portion of its revenues currently comes from Gujarat, the company has taken steps to diversify its order book, mitigating regional concentration risks. Moreover, the ongoing government initiatives and infrastructure push, combined with a revival in private capital expenditure and stabilized raw material prices, are poised to further fuel PSP Projects’ growth trajectory.
As the company sets its sights on the future, it aims to achieve a robust topline of Rs. 3,000 to 4,000 crores by FY25-26, with a revenue target of Rs. 12,700 crores by March 2024. PSP Projects’ ability to pass on raw material cost inflations to customers, coupled with its efficient asset utilization, has contributed to its high Return on Capital Employed (ROCE), further enhancing its profitability and competitive advantage.
Nonetheless, as PSP Projects expands and ventures into higher-value projects, it will face intense competition from industry titans such as L&T, Shapoorji Pallonji Group, and JMC, among others. It will be fascinating to observe whether PSP Projects can surpass these giants or risk fading away. The company’s strong expertise, timely project completion, and brand recall, as evidenced by its substantial number of repeat orders, provide a solid foundation for success.
Moreover, PSP Projects’ strategic focus on asset-light operations and select high-value segments with favorable margins positions it for sustainable growth and enhanced shareholder value. This is complemented by the managing director’s recent decision to reduce his salary, demonstrating dedication and loyalty towards both shareholders and the business itself.
finally i believe the corporate governance of the company is excellent. the most important risk is that of key man risk- Mr Prahladbhai Patel. he is the one who took the company from nothing to where it is today. although there is succession planning (his daughter is actively involved in the business), this risk is what scare me majorly besides the cyclicality in the industry.
VERDICT- proxy to play the infrastructure theme in India.
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