Maintain REDUCE on PSP Projects - In-line performance - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

We maintain REDUCE on PSP Projects with a target price of Rs 370/sh (10x Mar-22E EPS). As expected, 1QFY21 was a washout with in-line revenue of Rs 1.07bn (6.1% beat). We have maintained our FY21/22E EPS. Further, sites across Gujarat, Karnataka, Rajasthan and UP remain operational. Labour availability has gradually ramped up from ~20-25% levels to ~70-75% across these states. In Maharashtra, which constitutes ~25% the order book, sites remain shut till date. At present, finishing works are progressing well, with more intensive RCC structural works on hold till labour strength returns to normalcy. No change in FY21E/22E estimates.

1QFY21 Highlights: PSP Projects posted revenue/EBIDTA/APAT of Rs 1,069/13/(22) mn vs our estimates of Rs 1007/58/19 mn. Due to revenue de-growth of 65/77% YoY/QoQ, EBITDA margin slumped by 1,268bps to 1.2%. Company does not expect monsoon to impact work on Surat Diamond Bourse project as large part of exterior work is done and is hopeful of finishing it on time with revised timeline of Apr-21 (Dec-20 pre-COVID).

Order book stands at Rs 29.6bn (including Rs 5.7bn SDB project). Bid book stands at Rs 30bn, which comprises parliament building of Rs 9bn, warehouses, Brigade Hyderabad building, Reliance Jamnagar works, etc. Equity raising plans have been shelved off for now as Central Vista project has been delayed, and in the meantime, completion of several large projects led to freeing up of BG limits. Rs 8mn loss was booked on 1 of the 2 residential units in US. Gross debt stood at Rs 0.72bn, with total fund based and non-fund based utilisation at Rs 3.8bn of the total limit of Rs 6.1bn.

Setting up a pre-cast concrete plant: PSP will invest Rs 750mn in FY21 to set up a pre-cast manufacturing facility. The company has acquired land encompassing an area of ~1.4 mn sq ft near Sanand (about Rs ~250mn outgo on land). PSP intends to cater to both captive and third-party precast demand and envisages payback period to be ~5 years. PSP believes that whilst cost of construction under pre-cast is higher by ~10% vis-à-vis conventional RCC, it leads to gains in terms of quality and shorter completion timelines. Apart from this, the capex run rate will come down as equipment is to be redeployed from projects nearing completion. We believe that private contract designs are largely consultant or client driven and, hence, projects are built in-situ. Scope of pre-cast is limited. Government contracts are standard and with limited pre-cast scope again. Hence, PSP needs to build awareness and client education for use of this technology. Few product from this plant may be used for captive purpose. Large use can be for affordable housing projects under PMAY which PSP has in Maharashtra.

Shares of PSP Projects Ltd was last trading in BSE at Rs.401.9 as compared to the previous close of Rs. 396.65. The total number of shares traded during the day was 461 in over 87 trades.

The stock hit an intraday high of Rs. 405 and intraday low of 394.35. The net turnover during the day was Rs. 184218.

Source : Equity Bulls

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