Maintain BUY on PSP Projects - In-line quarter - HDFC Securities

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

PSP's 3QFY21 performance was mostly in line. While execution is back on track, order book ramp up remains key from revenue visibility standpoint. Private players are deferring Capex plans due to steep rise in cement and steel prices. Coupled with conservative bidding to maintain margins, this has led to PSP missing out on a few large projects, and hence, resulting in just Rs 2.2bn inflows in 9MFY21. Having said that, PSP expects order inflows for 4QFY21 to be at Rs 10bn, which is now a key monitorable. Long-term focus remains on Building & Factories segment with growth likely to pick up from FY22E. No change in estimates. We maintain BUY on PSP Projects with a target price of Rs 506/sh (12x Dec-22E EPS).

3QFY21 financial highlights: Revenue reported at Rs 3.9bn (-8/+61% YoY/QoQ, in-line). EBITDA reported at Rs 469mn (-13/+91% YoY/QoQ, in- line). EBITDA margin at Rs 12% (-75/+194bps YoY/QoQ, in line). Interest cost came in at Rs 30mn (-26%/-29% YoY/QoQ, vs HSIE est. of Rs 63mn). Exceptional item (net of tax) represents impairment of investment in PSP Projects & Proactive Constructions amounting to Rs 27.4mn. Rs ~20mn impairment loss was taken on US entity, with no further impairment expected (Rs 40mn cumulative). These exceptional losses, apart from additional Rs ~10mn labor mobilisation expense due to COVID, impacted EBITDA negatively by ~1.4% as per the management. RPAT/APAT reported at Rs 279/307mn (APAT -17/+113% YoY, beat of 4.5%). EBITDA margin guidance maintained at 12-13%. Of the Rs 750-800mn pre-caste plant Capex by 1QFY22, Rs 90/260mn have been incurred in 3QFY21/1HFY21.

3QFY21 operational highlights: SDB project revenue contribution for the quarter stood at Rs 1.3bn (Rs 12bn of 15.8bn recognised till 3QFY21), and is on track to be handed over by 1QFY22E. Sabha Hall (Rs 1bn) and Bhiwandi affordable housing project (Rs 6bn) remain slow moving as of now, with all clearances expected by 4QFY21. Order inflows have been disappointing at Rs 1.1/2.2bn in 3QFY21/9MFY21, as a couple of major orders could not be won and general slackness in private sector awards. Total order book including SDB (Rs 3.8bn) and the two slow moving orders stands at Rs 25.2bn. The order bid book stands at Rs 50bn. PSP expects order inflows for FY21 to be ~12-13bn, in line with its revenue guidance. Pre-cast factory will start production in the next six months, with an annual expected turnover of Rs 0.5-0.8bn for the next three years. It has won an order from L&T for HSR.

Balance sheet: Gross debt stood at Rs ~0.95bn (vs Rs 1.14bn QoQ), including Rs 0.45bn OD against FD. The cost of borrowing has come down gradually from ~8.25% to 7.25% now. However, there has been no specific reduction in LC/BG charges.

Shares of PSP Projects Ltd was last trading in BSE at Rs.410.85 as compared to the previous close of Rs. 416.45. The total number of shares traded during the day was 45127 in over 1041 trades.

The stock hit an intraday high of Rs. 419 and intraday low of 398.45. The net turnover during the day was Rs. 18571444.

Source : Equity Bulls

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