PSP Projects – Construction Company

My notes of 2nd Aug, 2023 concall

• Completed the Surat Diamond Bourse, the world’s largest office building.

• Outstanding order book as of June 30, 2023, at Rs. 5,321 crore, with 15% YoY growth. Private projects make up 46%, government projects 55%.

• Completed 5 key projects during the quarter, including Money Plant high street and Reliance Corporate House.

• Order inflow in the quarter grew by 38% YoY to Rs. 758 crore, with significant projects such as tourist destinations and commercial complexes.

• Uttar Pradesh projects contributed significantly to revenue, reaching Rs. 915 crore.

• SMC administrative building project is progressing rapidly, with excavation completed and Rs. 90 crore revenue booked.

• Q1FY24 financials: 48% revenue growth to Rs. 510 crore, 37% EBIDTA growth to Rs. 65 crore, with a 12.7% EBIDTA margin.

• Poised for opportunities in infrastructure development, given government initiatives and historical order inflow in Gujarat.

• Well-positioned to bid for large projects, with a strong track record and eligibility criteria.

• Revenue Guidance: The company is maintaining its revenue guidance, with no upgrade. The earlier guidance was Rs. 2,600 crore.

• UP Projects: Out of the outstanding order book of Rs. 576 crore for UP projects, approximately Rs. 450 crore is expected to be completed by March 2024.

• Surat Municipal Project: Expected revenue for the year is around Rs. 300 crore, with potential growth to Rs. 450 crore to Rs. 500 crore from FY25 onwards as finishing activities start.

Geographical Concentration and Addressable Market:

• The company is not limited to Gujarat and UP but has experience in other states like Karnataka, Rajasthan, and Delhi.
• The focus on a specific state depends on project opportunities and competition.
• There is no set limit on the addressable market, and the company is open to bidding for projects in various states.

Construction Industry Landscape:

• The construction industry in India is poised for growth due to government support, infrastructure development, and corporate investments.
• Opportunities include airport construction, government redevelopment projects, educational institutions, Commonwealth Games, and Olympics bids.
• Large corporations like Adani, Reliance, Arcelor Mittal, Vedanta, and Foxconn are planning significant investments.

Precast Facility and Repeat Orders:

• The company’s precast facility has been operational for a year, with projects up to Rs. 80 crore completed.
• The target for this year is Rs. 250 crore, with the potential to reach Rs. 300 crore for the individual plant.
• Expansion into infrastructure, such as supplying ducts for the bullet train, can further boost business.
• Precast orders often lead to repeat business as clients experience the benefits of quality and time savings. Godwitt, a warehousing facility company, has already given multiple repeat orders for precast projects.
• Feasibility of using the Precast facility for this project depends on the distance, typically up to 300 kilometers. (Q. Can precast facility be used for gem and jewellery park, mumbai?)
• The company has approved a CAPEX of Rs. 20 crores for its Precast facility.
• This expansion does not significantly increase the production capacity; it is tailored to specific project requirements.
• Precast revenue is not segregated separately in financials.
• It is considered as part of the main revenue stream.
• PSP Projects utilizes Precast in various projects, treating it as backward integration.
• L&T’s Precast facility had a slow start.
• Some supply initiated last month, and the project has begun.
• The Rs. 195 crore project for L&T is expected to be completed in FY24.
• There might be some spillover into the first quarter of the fiscal year.

Debt Increase Explanation:

• Long-term debt: Rs. 97 crore.
• Short-term debt: Rs. 185 crore.
• Total debt increased to Rs. 282 crore, a significant jump from March 2023 levels of Rs. 145 crore.
• Explanation: Increased investment in UP projects, particularly in MEP (Mechanical, Electrical, Plumbing) work. Investments in inventory to meet project timelines and convert into revenue were necessary, leading to the debt increase.
• Estimated debt levels by year-end: Rs. 100 crore to Rs. 150 crore.

Competition in High-Ticket Projects:

• PSP Projects historically bid for projects with limited competition.
• Qualification for higher-ticket projects (beyond Rs. 2,500 crore) achieved after the completion of the Surat Diamond Bourse.
• Competition in this segment remains limited, typically involving 4 or 5 players.
• Higher ticket-size projects still see competition among 5 or 6 players.

EBITDA Margin and Margin Guidance:

• PSP Projects maintains its margin guidance within the range of 11% to 13%.
• Margin fluctuations may occur based on project stages and completion.
• Recent margin improvement was influenced by the completion of certain large projects.

CAPEX as a Percentage of Revenue:

• PSP Projects typically allocates 3% to 4% of its revenue to CAPEX.

Interest Costs:

• While interest costs may increase temporarily in the second or third quarter, they are expected to decrease as loans are repaid.
• Finance costs also include bank guarantee charges, which can rise with an increase in the order book.

Order Inflow Target for FY24:

• PSP Projects has set a target of more than Rs. 3,000 crores for order inflow in FY24.

Project Updates:

1. Ahmedabad Railway Station Redevelopment:

• Bidding for the Ahmedabad Railway Station project is scheduled for September 9th.
• The estimated project value is Rs. 2,600 crores.

2. Gems and Jewellery Park in Navi Mumbai:

• PSP Projects is currently the second lowest bidder for this project, which is valued at Rs. 2,500 crore.
• Finalization of the project depends on the lowest bidder.

3. Central Vista Project:

• No recent updates from the client are available.
• Progress on this project is contingent on future announcements.

4. Delhi Railway Station Project:

• The Delhi Railway Station project is estimated to be around Rs. 4,700 crore.
• PSP Projects will bid through a joint venture (JV) due to the inclusion of bridge construction, which the company lacks experience in.
• The company anticipates around a 50% share of the overall work in this project.

5. Dharoi Dam Project:

• PSP Projects has already received one order for the Dharoi Dam project, valued at Rs. 300 to 350 crores.
• Phase II of the project is expected to be around Rs. 350 crores.
• Phase III of the Dharoi Dam project is anticipated, potentially bringing the total project value to Rs. 1,200 crores.

6. Other Large Projects in the Bid Pipeline:

• PSP Projects has several other significant projects in its bid pipeline, including:
  • IT Park project worth Rs. 400 crore, primarily in Pune and Chennai.
  • Central Vista Project (prequalification stage) for the MP office with a potential value of Rs. 1,250 crore.
  • Science City project (museum) with an estimated worth of about Rs. 300 crores.