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Our view

PSP Projects Ltd (PSPPL) Q2 performance was quite disappointing with revenue reporting a de?growth of 8.7% YoY to Rs3.6bn on account of a) elongated monsoon and b) ~86% of the OB mainly in Gujarat and UP were in the initial stage of execution. EBITDA fell by 29.5% YoY to Rs386mn with EBITDA margins contracting to 10.8% primarily due to slowdown in execution. In 1HFY23, company has bagged highest ever order inflow of Rs15.1bn thereby taking OB to Rs50.8bn translating into order book? to?sales of 2.9x TTM revenues. Further with strong tender pipeline of Rs50bn already bided / planning to bid, management expects healthy order inflow of Rs25bn in FY23E. On the working capital front, the company has managed to improve it from 39days in 1QFY23 to 30days in 2QFY23 by stretching the creditor day thereby exhibiting robust financial position. For 23E, management has continued to maintain its revenue guidance of Rs20bn with EBITDAM in the range of 12?12.5%.

We have trimmed our EBITDA / PAT estimates by 8%/ 12% and 10% / 14% for FY23E/ FY24E while also introducing our FY25E estimates with revenue / PAT growth of 10% / 15% YoY owing to healthy order book. With strong order book, timely project execution and prudent management pedigree, we expect PSPPL to post a revenue / EBITDA CAGR of 15%/8% over FY22/FY24E. We have revised our rating from “BUY” to “ADD” with a revised TP of Rs629 (earlier Rs716) valuing the EPC business at 12x FY24E EPS, implying an upside potential of 10% from the current levels.

Result Highlights

For Q2FY23, PSPPL’s net revenues de?grew 8.7% YoY to Rs3.6bn (below our estimate of Rs4.8bn) with slowdown in execution.  

EBITDA came in at ~Rs386mn, down 29.5% YoY (below our and street estimate of Rs643mn / Rs596mn) and EBITDA margins contracted by 319bps to 10.8% (below Ysec estimate of 13.4% and consensus estimate of 12.5%). The margins were impacted mainly due to higher other expense and employee cost.

On bottom?line front, Adj PAT came in at Rs229mn (below Ysec of Rs396mn) mainly attributed to lower operating margins.  

In Q2, the company bagged robust order worth Rs9.6bn from institutional, industrial, precast and residential segments

 At the CMP, the stock trades at a P/BV of 2.6x FY23E and 2.1x FY24E, and at an EV of 8.1x FY23E EBITDA

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