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Result Highlights

* PSP Projects which has witnessed near normalcy in execution during the quarter posted a strong revenue growth of 9.7% yoy and 28.3% qoq. The total revenue for the quarter was in-line with our estimate and came in at Rs.5.0 bn. The total revenue for the year FY21 was Rs.12.4 bn.

* Operating margins have also improved and stood at 12.4% for the quarter, up by 133 bps yoy and 37 bps qoq.

* The company during the year has secured new orders worth around Rs. 24.4 bn and the total order book as at the end of FY21 stood at Rs.41.2 bn. The execution timeline for the order book is 24-30 months. Around Rs.7.3 bn worth of projects in the order book are slow-moving projects.

* Of the company’s total order book around 42-45% projects are at fixed cost and balance projects have escalation clause for passing on the increase in input cost.

* Due to the delay in the Bhiwandi project, the company expects a loss of around Rs. 700 mn due to increase in input costs if it decides to execute. As there is no escalation clause and the delay is because of the client, PSP Project has asked for either to revise the contract value or cancel the project. The client has threatened to invoke the performance guarantee of Rs.67.3 mn for which the company has filed for arbitration and got a stay from district court.

Our view:

The company has reached near normalized operation and posted a strong revenue growth for the quarter even with two slow moving projects. With the recent projects wins of around Rs.14.9 bn in UP, the company is now sitting on its highest ever order book with bill to book ratio of 3.3x, giving strong revenue visibility.

The margins are likely to remain stable at 11-12% levels based on the current order book and pass through clause in projects. The robust order pipeline would ensure strong order flows in the next couple of years. We have largely retained our estimates for FY22 & FY23 and retain our BUY rating on the stock for target price of Rs.547 (13x FY23E EPS).

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