PSP Projects Ltd Research Report By Edelweiss

New order wins lead to earning upgrades

PSP Projetcs (PSP) over the last two days announced order wins (including L1) worth ~INR 2,500 cr. With these order wins, FY21 turned out to be the best ever order addition year for the company. Currently, PSP is sitting on a historic high orderbook of ~INR 5,000 cr and now has revenue visibility of ~4 years which is again at historic high levels. We are upgrading our estimates to accommodate these new orders. We believe, Revenue of the company will grow at 23% CAGR over FY20-23E against our earlier estimte of 15%. We also upgrade our EBITDA and PAT estimates by 20%/26% and 18%/24% for FY22/23E. Due to higher earning visibility and upgarde in earnings, we upgrade our price target to INR 700 and maintain BUY.

Recent Order Announcements makes FY21 as historic best year of Order Addition

We were concerned about PSP’s muted oreder addtion as till 9MFY21 company had received orders of only INR 200 cr. However, over the last two days, PSP announced strong orders (including L1) worth ~INR 2,500 cr. With this, total order book reached to historic high levels of INR 5,000 cr and now has revenue visibility of ~4 years which is again at historic high for the compay. Also, with these wins, FY21E turns out to be the best ever order addition year for PSP with total declared order wins of INR 2,700 cr. as of today.

The recent order wins includes INR 236 cr order for an Institutional project at Gujarat, INR 590 cr project from a private developer at Ahmedabad and L1 bidder for projects totalling INR 1,670 cr for construction of medical colleges at multiple locations at Uttar Pradesh.

We are revising our Earnings Estimates by 18%/24% of FY22/23E

Based on the recent wins, we are upgrading our estimates. We believe, Revenue of the compnay will grow at 23% CAGR over FY20-23E against our earlier estimte of 15%. We upgarde our EBITDA estimaes by 20%/26% for FY22/23E. Despite hike in raw material prices, the company able reach 12% EBITDA margin in Q3FY21 and we expect the EBITDA margin to cross 13% in FY23E. We also upgrade our PAT estimates by 18%/24% for FY22/23E.

Cash conversion cycle remaines key monitarable

With the new orders, PSP’s orderbook share tilted more towards government projetcs where Cash Conversion cycle is not as good as private and industrial projetcs. PSP currently has 54% of the orderbook coming from Govt. projetcs which will structurally put upward pressure on NWC cycle and company is not expected go back to its previous NWC cycle of 10-15 days. We ramined confident on project selection capability of the company but will continue to monitor the NWC cycle going forard.

Reiterate ‘BUY’ with upgrade in target price to INR 700

At CMP of INR 460, the stock is trading at 10x / 7x of FY22E / FY23E EPS. Due to higher earning visibility and upgarde in earnings we upgrade the price target to INR 700 and maintain BUY.