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Bigger opportunities knocking on door!

About the stock: Incorporated in 2008, PSP Projects (PSP) is one of the prominent contractors offering a diversified range of construction and allied services. Its focus remains on industrial, institutional, government, government residential and residential projects.

* PSP reported 34.3%, 31.2%, 31.3% CAGR in topline, EBITDA, PAT CAGR, respectively, during FY17-22

* Prudent management with net debt free, robust return ratios (RoCE: 25+%)

Key management meet highlights: We recently met a) Prahladbhai Patel, Chairman and Executive Director, and b) Hetal Patel, Chief Financial Officer in order to get key insights on the company’s business and performance ? PSP has secured projects worth | 1,344 crore at YTD FY23 level. With a strong order pipeline, it is aiming at overall order inflows of | 2,500+ in FY23

* Execution has picked up in most projects (except two projects in Maharashtra) with the availability of desired level of manpower and land

* PSP has reiterated its guidance of 25% YoY topline growth (to ~| 2,200 crore) for FY23 with margin in the range of 11-13% over the medium term

What should investors do? PSP’s share price has grown at 13% CAGR over the past five years (from | 350 in September 2017 to | 653 levels in September 2022).

* We maintain our BUY rating on the company

Target Price and Valuation: We value PSP at | 760/share.

Key triggers for future price performance:

* PSP’s pre-qualification for public projects has increased to | 2,300+ crore. Addition of big ticket sized project to boost its overall order book position

* Diversification in select states offers a bigger opportunity pie. Further, significant traction in the pre-cast facility to bring incremental revenue

* Expect revenue CAGR of 15.3% in FY22-24E

Alternate Stock Idea: Besides PSP, we like HG Infra in the EPC space.

* Strong execution, lean balance sheet and healthy order book

 * BUY with a target price of | 765/share

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