Published on 16/05/2017 2:59:01 PM | Source: Angel Broking Pvt Ltd

Neutral On PSP Projects Ltd - Angel Broking

Posted in Expert Views | #IPO #Expert Views #Angel Broking Pvt Ltd


PSP Project Ltd. (PSP) is a multidisciplinary construction company offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India. PSP provides services across the construction value chain, ranging from planning and design to construction and post-construction activities to private and public sector enterprises. Historically, PSP has focused on projects in the Gujarat region. PSP has recently diversified its portfolio of services across geographies and is undertaking or has bid for projects pan India. The company’s standalone total order book as of March 31, 2017 was `729.2Cr, which comprised of 17 institutional projects, 4 industrial projects, 4 government projects and 2 government residential projects. Further, subsidiaries and JV’s have total order book of `90.9Cr and `107.4Cr respectively as of March 31, 2017.

 

Positives:

(a) Strong track record of successful project execution; (b) Long-standing relationships with customers; (c) Leveraging position as a rapidly growing construction company in Gujarat; (d) Augment customer relationships and optimize project mix; (e) Expanding geographical footprint; (f) Experienced management and promoter.

 

Investment concerns:

(a) Historically PSP has executed ~70% of its total projects in Gujarat except three which have been recently added (i.e. two in Rajasthan & one in Karnataka); (b) PSP’s aspiration of getting in the higher value projects may not capitalize as that space is highly competitive and dominated by bigger and renowned players; (c) Current strategy of bidding for project of tenure 12-18 months leaves less visibility of future order book vis-à-vis future revenue growth; (d) Margin profile may not be sustainable, as it is function of project mix; (e)Lack of experience in different geographies may escalate the cost of project and delivery.

 

Outlook and Valuation:

In terms of valuation, PSP’s P/BV multiple annualised 9MFY2017 at 7.9x, works out to be at premium to peers (Ahluwalia Contracts 5.2x, Nila Infra. 3.3x, JMC projects 1.4x, Prakash Controwell 0.4x, RPP Infra 3.7x). Moreover, PSP is aspiring to get in the higher ticket size projects, which is dominated by well reputed players. Management’s lack of experience in diverse geographies and lack of visibility of future order book may become a cause of concern for growth strategy. Hence, we recommend NEUTRAL rating on the issue.

 

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