PSP Projects - Construction Company

Good news for shareholders of PSP Projects, company emerge as L1 bidder for project of 357 crore in gujarat.

b5f0363b-550a-4164-855c-4e1681519c58.pdf (422.9 KB)

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con call-November
Order Book and Order Inflow:

  • PSP Projects Limited was awarded 9 projects in Q2FY24 and 14 projects in H1FY24.
  • The outstanding order book as of September 30, 2023, was Rs.4,898 crore, with private projects comprising 48% and government projects comprising 52%.
  • The company received an order inflow of Rs.175 crore during the quarter and Rs.934 crore during H1FY24.
  • The company expects an order inflow of nearly Rs.3,000 crore in FY24.
  • The company has a bid book of approximately Rs.6,500 crore.

Projects and Awards:

  • The company completed 2 projects during the quarter, including a Surat Smart City Development Command Center and Adani Group’s school in Ahmedabad.
  • PSP Projects Limited received awards for “Contractor of the year” and “Excellence in Construction Sector” during the quarter.
  • Major projects in the bid book include AIIMS at Rewari, a museum project in Madhya Pradesh, and a commercial building in Delhi.
  • The UP projects are expected to be completed by March 2024.
  • The company aims to diversify its projects beyond Gujarat and has opportunities in states like Delhi and UP.

Financial Performance:

  • The financial performance during Q2FY24 showed a 70% increase in revenue from operations, a 91% increase in EBITDA, and a 71% increase in net profit compared to the same period last year.
  • The company expects to maintain a margin of 11% to 13%.
  • The company has invested approximately Rs.165 crore in the precast facility.
  • The cash and bank balance, including FDs, is approximately Rs.285 crore.

Closing Order Book:

  • The order inflow for FY24 is expected to be Rs.3,000 crore.
  • The closing order book is estimated to be around Rs.5,500 crore to Rs.6,000 crore.
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And revenue guidance is 2600 cr for FY23-24.

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Order book:

Company currently has an order book of ~ Rs. 1000 cr (secured in FY24 so far). To achieve their target of Rs. 3000 cr, they need additional Rs. 2000 cr order book.

From the existing pipeline, with success rate of 15%-20%, they can expect orders of ~ Rs. 1200 cr.

For the balance order of Rs. 800 cr, they need to bid for Rs. 4000 cr worth of projects.

If they win Delhi station development (a very BIG “IF”), they would surpass their own targets. Otherwise, the asking rate is huge given that we are entering election mode where the focus of government will be more on completion of existing projects and less on awarding new projects. But they can get projects from private sector too.

Revenue:

Rs. 2600 cr for FY24 seems realistic. Lets assume they are able to deliver it. So, for FY25, they would be targeting ~ Rs. 3100 cr.

Existing order book: Rs. 4900 cr

Expected orders H2 FY24: Rs. 2000 cr (Rs. 3000 cr target – Rs. 1000 cr already booked)

Revenue for H2 FY24: Rs. 1500 cr (Rs. 2600 cr full year – Rs. 1100 cr H1 FY24 actuals)

Carry forward of orders to FY25: Rs. 5400 cr.

(assuming unbilled amount is maintained at current level)

For FY25 revenue target of Rs. 3100 cr, they would need orders worth Rs. 15500 cr, i.e. additional orders worth Rs. 10000 cr. That is a big ask. So either the market has to open up big time, or the company will need to get aggressive in bidding (may impact margin).

Valuation:

Assuming they are able to deliver revenue of Rs. 3100 cr for FY25 and assuming average EBIDTA of 12% (they are guiding 11-13% range), FY25 EBIDTA would be Rs. 372 Cr.

Last 10 yr avg. EV / EBIDTA valuation is 9. If I apply the same here, their EV for FY25 is Rs. 3348 Cr.

Reducing debt of Rs. 300 cr (likely debt level as highlighted by management), Mcap comes to Rs. 3048 cr. This gives us 6% upside from existing level of Rs. 2880 cr Mcap. So the business seems fairly valued at existing level with limited upside.

Any opposing viewpoint is desirable.

Disc: Holding for more than a year. No transaction in last 30 days.

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Very nice observation and evaluation Santosh Ji. One thing, have you worked out the industry level EV / EBIDTA ratio?

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Q2 FY24 Concall Notes

Project Awards:

  • 9 projects in Q2FY24; 14 in H1FY24.
  • Notable projects:
    • Commercial building in Gift City
    • Astral Corporate House Phase III
    • Expansion of a Chocolate Plant for a Multi-National Company
    • Institutional and Industrial precast orders totaling Rs.42 crore.

Project Completion:

  • Surat Smart City Development Command Center and Adani Group’s school completed.

Order Book & Projects:

  • Order book: Rs.4,898 crore (as of Sept 30, 2023).
  • Private projects: 48%, Government projects: 52%.
  • 54 ongoing projects (83% in Gujarat, 17% in UP).
  • 212 projects completed since inception (84% private, rest government).

Order Inflow:

  • Q2: Rs.175 crore; H1: Rs.934 crore (excluding GST).
  • Expected order inflow for FY24: nearly Rs.3,000 crore.

Recognitions:

  • “Contractor of the year” for 500 Crore+ projects.
  • “Excellence in Construction Sector” for “Development of Shri Kashi Vishwanath Dham”.

Financials (Q2FY24):

  • Revenue from operations for the quarter is at Rs.607 crore vs Rs. 357 crore,
    increased by 70 % YoY basis
  • EBITDA for the quarter is at Rs. 74 crore vs Rs. 39 crore, higher by 91% YoY
    basis.
  • EBIDTA Margin is at 12.15% vs 10.83%.
  • Net profit for the quarter is at Rs. 39 cr vs Rs.23 crore, higher by 71% YoY basis.
  • PAT Margin is at 6.4% vs 6.3%.

Revenue Guidance and Projected Closure:

  • Revenue guidance for FY24: Rs. 2,600 crores.
  • On track to meet the guidance, with H2 historically heavier on revenue.

Project Level Updates:

  • UP Projects: Revenue - Rs.268 crore in Q2; Rs.1,183 crore as of now.
  • SMC administrative building: Revenue - Rs.122 crore.
  • Dispute with Pandharpur: Arbitral Tribunal formed; preliminary hearing upcoming.

Future Prospects:

  • Indian economy set to double in the next seven years.
  • Infrastructure spend expected to double by 2030.
  • PM Modi’s announcement for projects worth Rs.6,909 crore in Gujarat.

Bid Pipeline Overview:

  • Bid Book: Rs.6,500 crores. (Excluding Delhi Railway Station)
  • Notable Projects:
    • AIIMS at Rewari: Rs.1,000 crore
    • Museum Project, Madhya Pradesh: Rs.1,000 crore
    • University Projects in Vadodara and Lucknow: Rs.775 crore and Rs.525 crore, respectively
    • Dharoi Dam Pkg-2: Rs.421 crore
    • Commercial Building in Delhi: Rs.350 crore
    • Museum Project in Ahmedabad: Rs.400 crore
    • Delhi Railway Station: Rs.4,800 crores (bid submission by month-end).

Project Timelines and Completion:

  • UP Projects: Expected completion by March 2024.
  • SMC Surat: Revenue in the second half similar to current quarter, progressing with structural work.

Capital Expenditure (CAPEX):

  • CAPEX for the year: Already Rs.79 crores, with an additional requirement of around Rs.10-12 crores for SMC site.

Debt Reduction and Finance Costs:

  • End of March 2024 Debt: Expected reduction, but not specified.

  • Combined Long-term and Short-term Debt: Currently Rs.377 crores.

  • Finance Cost: Anticipated to remain Rs.10-11 crores on a quarterly basis.

  • Fixed Price Contracts Percentage:

    • UP Projects: Mainly fixed price contracts.
    • Other Projects: Most private projects have escalation clauses for cement, steel, finishing materials, and pass-on mechanisms.
    • Projects like Surat follow escalation through RBI index.

Other Expenses and Run Rate:

  • Recent Changes:
    • Other expenses reduced in the quarter, with some reductions in consultancy expenses.
  • Run Rate Expectation:
    • Anticipated to be in the same run rate.
    • Historical data indicates stability; last year’s other expenses were Rs.26 crores, and half-yearly it is Rs.13 crores.

Promoter Stake:

  • Stake Changes:
    • Promoter stake decreased from 70% to 66% on a year-on-year basis.
  • Future Stake Plans:
    • No further reduction in promoter stake expected as of now.

Precast Revenue:

  • FY24 Guidance:
    • Last year’s precast revenue: Approximately Rs.75-80 crores.
    • FY24 Guidance: Estimated around Rs.225 crores.

UP Project Receivables:

  • Total Receivables (as of September):
    • Unbilled revenue for UP project: Around Rs.100 crores.
    • Additional outstanding of Rs.50 crores from the previous month.

SMC Project Execution for FY24:

  • Execution Outlook:
    • SMC project currently in the structure stage.
    • Anticipated pace: Similar to the current stage until March 2024.
    • Expected revenue for FY24: Around Rs.140 - Rs.150 crores.

Investment in Precast Facility:

  • Recent Expenses:

    • Expansion at the mould level incurred expenses of Rs.14-Rs.15 crores.
    • Investment primarily related to fulfilling requirements for the bullet train project from L&T.
    • Additional shed constructed for infrastructure.
  • Future Investment:

    • No significant future investment expected in the precast facility.
    • Current investments have addressed both mould and infrastructure requirements.
  • Total Investment: Rs. 160 crores – Rs. 165 crores

    • Initial Phase: Rs. 110 crores
    • Subsequent Phases: Rs. 51 crores
  • Phases Commissioned:

    • All three phases confirmed operational.

Production Capacity Expansion:

  • Increased Capacity:
    • Initial: 1 million sq. ft.
    • Current: 3 million sq. ft.
  • Clarification on Measurement:
    • Challenge in converting to sq. ft. due to mold variations.
    • Presently focused on cubic meters of concrete daily.
  • Future Clarity:
    • Square feet clarity expected in residential or commercial building projects.

Debt and Working Capital Analysis:

  • Gross Debt Projection:
    • Expected to remain over Rs. 300 crores.
  • Cash Conversion Days:
    • Current: 42-43 days.
    • Anticipated Reduction: Less than 40 days, nearing 30-35 days.

Order Inflow and Diversification:

  • Order Book Overview:
    • Rs. 6,500 crores without Delhi project.
    • Includes substantial projects: Rs. 1,000 crores AIIMS Hospital, Rs. 1,000 crores Museum project, Rs. 775 crores University Project in Vadodara.
  • Diversification Efforts:
    • Confidence in reaching Rs. 3,000 crores order inflow.
    • Ongoing bids exceeding Rs. 2,500 crores.
    • Geographical Expansion: Emphasis on bidding outside Gujarat.
  • Revenue Growth and Order Inflow:
    • Annual revenue growth targeted at 15%-20%.
    • Corresponding order inflow growth projection: 20%-25%.
    • Confidence in maintaining revenue versus order inflow alignment.
  • Success Rate Estimate:
    • Anticipated success rate: 15% to 20%.
    • Potential conversion from the present order bid book (Rs. 6,500 crores): Approximately Rs. 1,200 crores.

Bidding Strategy and Election Year:

  • Thoughts on Bidding Strategy:
    • Current bid pipeline: Rs. 6,500 crores plus Rs. 4,800 crores for Delhi project.
    • Confidence in sustained bidding activity despite the upcoming election.
    • No significant slowdown expected in bids from government or private sectors.
  • Order Book Preparation:
    • Present bid pipeline and Delhi project size total approximately Rs. 10,000 crores.
    • Average bid pipeline consistently exceeding Rs. 6,000 crores.
    • Anticipation of bids converting into the projected Rs. 3,000 crores despite potential election-related disturbances.
  • Partnership for Delhi Project:
    • Delhi project size surpasses our maximum bid capability of Rs. 2,500 crores.
    • Likely partnership for the Delhi project due to the necessity of bridge-building expertise.
    • Confirmation of a joint venture for the Delhi project.
  • Ahmedabad Railway Station Project:
    • Tender already opened and awarded to DRA.
    • Our bid stood 3rd or 4th among 6.
    • Not part of the current bid pipeline.

Precast Mould Utilization:

  • Rail Project Mould Expenses:
    • Expenses incurred on moulds for the rail project.
    • Inquiry about the fungibility of these moulds after the rail project’s completion.
  • Fungibility and Utilization:
    • Materials produced for the bullet train project, such as ducts, can be repurposed.
    • Ducts suitable for data, electrical, and drainage applications in road infrastructure.

Bidding Discipline and Market Competition:

  • Bidding Scenario:
    • Discussion on bidding discipline and competition intensity.
    • Not always the L1 bidder, ranking 4th or 5th in some cases.
    • Commitment to maintaining 11% to 13% margins despite competition.
  • Market Dynamics:
    • Acknowledgment of industry competition.
    • Intent to avoid aggressive bidding and focus on maintaining margins.
    • Capacity to handle multiple projects concurrently, avoiding unnecessary aggression.

Litigation and Arbitration:

  • Litigation Update:
    • Inquiry about the visibility of finalizing matters under litigation.
  • Arbitration Process:
    • Confirmation of arbitration process adherence to government norms.
    • Anticipation of completion within 12 months for both ongoing arbitrations.
    • Expectation of conversion into finalization within the specified timeframe.
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Thank You. No, I haven’t done industry level analysis. Also, its a very fragmented industry. Only other listed company in similar business I know of is J Kumar (from Maharashtra). Their avg. EV / EBIDTA is 4.5.

EPC business works on order books. So long as business has orders, they will make money (subject to margins) irrespective of the competition (they compete to secure order, after that there is no competition). Its basically discounting future cash flows based on orders they have in hand + likely orders they can win.

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lowest bidder for a 296 core project

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Whats latest update on PSP Projects? Stock has been underperforming since 1.5 years and giving negative returns?

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Recieved 3 Government project worth of 935.41 Crore (excluding tax)

  1. River Edge Development of Dharoi Dam
  2. Development of Street at Gandhinagar
  3. Development of Sabarmati Riverfront
    Total order inflow during FY23-24 is 1995.7Cr

Order inflow guidline by management is about 3000 Cr during FY23-24

352c81f3-464a-4fa8-aff7-87ce2cfca8e0 (1).pdf (1.5 MB)

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Anyone know why the profitability got hit in the latest quarter? Sales growth is continuing though.

Net profit of PSP Projects declined 12.10% to Rs 31.08 crore in the quarter ended December 2023 as against Rs 35.36 crore during the previous quarter ended December 2022.

Sales rose 40.90% to Rs 704.75 crore in the quarter ended December 2023 as against Rs 500.16 crore during the previous quarter ended December 2022

Per concall, they said this was because of 1 time expense on UP project of c.5 Cr. UP project is expected to end next quarter and they do not foresee incurring this again. Overall margin guidance is at 11-12% in FY24 and going forward.

Another reason for dip is interest which is attributable to Surat diamond dispute receivable + UP receivable. If Surat diamond does not reconcile by March 24, then arbitration is reqd which might take an year. To curtail high interest cost, Co has passed QIP resolution recently. If its gets resolved, they expect to get debt to normal levels. Capex guidance stays at 4% of revenue. Precast facility is currently operating at 50% utilization though at a lower margins [EBITDA positive] which they expect would ramp if opportunity strikes (i.e; if someone is willing to pay a premium for early completion).

No provisions are made in books for Surat diamond dispute. Monitorable on bad debts.

Rev guidance for FY25 is 3000 Cr with margins of 11-12%. Mgmt did say in EPC project 1-1.5% fluctuations are normal.

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However, to our surprise, major issues related to our several claims were not initiated by
the PMC as instructed by Surat Diamond Bourse Committee which totals to Rs. 538.59
crores (Rs. 430.30 Crores as additional claim, Rs. 65.72 Crores against approved but not
certified work done and Rs. 42.57 crores against retention). After that, we had several round
of meetings with the committee members, but they discussed and negotiated to a negligible
amount against our additional claim of Rs. 430.30 Crores, which is purely as per the contract
terms and related to rate validity & force majeure

20231207_CourtCase_64.pdf (pspprojects.com)

In the November call, they only cited ~100Cr of receivables for booked, unbooked, and retention money. Even in a recent call, I heard a similar figure; what is the 400Cr amount? According to my understanding, it is using a price increase provision following a force majeure to negotiate 100+ crore. I see the focus is largely on recovering ~100 crore.

Disclosure - invested.

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PSP PROJECTS got project worth of 630.29 Crores (excluding taxes) for Construction of Gati Shakti Vishwavidhyalaya at Vadodara for Rail Vikas Nigam Limited in Govt. Category. The project is to be completed within 30 months.

0cbe4da5-8e68-4c51-b247-aa0821485c09 (1).pdf (1.5 MB)

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