PSP Projects - On A Strong Growth Trajectory: ICICI Direct

ICICI Direct Report

Investment Rationale

Robust order book and bid pipeline ensures strong growth visibility: PSP Projects Ltd. enjoys a healthy order book of Rs 5321 crore (2.5 times bill to trailing twelve months book). The company has secured orders worth ~Rs 758 crore in Q1 FY24.

Going forward, the company has indicated towards strong order pipeline of ~Rs 6000 crore with intent towards entering station redevelopment space (looking at Ahmedabad and Delhi station).

PSP has indicated order inflow guidance to Rs 3000 plus crore in FY24. For FY24, the company expects to report revenues of ~Rs 2600 crore (implying ~35% YoY growth) given the strong revenue visibility at the current order book and margins of 11-13%.

Expect 23%/33% revenues and earnings compound annual growth rate over FY23-25E:

We note that all its projects are in the execution/ fully mobilised state, while bid pipeline conversion will boost further growth visibility. Consequently, we expect PSP Projects to report revenue compound annual growth rate of 21.3% during FY23-25E with margin likely to hover at ~12.5%. This will translate into earnings CAGR of 32.5%.

Healthy balance sheet; return ratios to expand further:

PSP Projects has a lean balance sheet backed by its asset light model (no investments in metro/ roads projects) and has a net cash positive position. Gross debt stood at Rs 282 crore in Q1 FY24 and cash and equivalent was Rs 323 crore implying net cash of Rs 41 crore. With healthy earnings growth, return on capital employed is seen expanding further from current healthy levels of ~25% in FY23 to ~29% in FY25E.

Rating and Target price

PSP Projects is well placed for healthy growth at decent margins to be driven by strong executable order book position. Healthy order inflows secured at FY23 and Q1 FY24 coupled with robust bidding pipeline brightens company’s prospects.

At the current market price, the company is trading at a valuation of ~12 times FY25E price/earnings.

We maintain 'Buy' on the company. We PSP Projects at 15 times price/earning on FY25E to arrive at target price as Rs 975/share.

This is our high conviction small cap Idea.

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