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PSP Projects’ (PSP) 1QFY24 PAT at INR 367mn was in-line with estimate of INR 359mn (consensus: INR 419mn). Revenue grew by 48% YoY to INR 5.1bn and was below estimate of INR 5.5bn. EBITDA grew by 37% YoY to INR 646mn (estimate: INR 635mn). EBITDA margin declined by 90bps YoY on a high base to 12.7% but was above our estimate of 11.5%. Margin beat was on account of better revenue mix. Gross debt rose sharply from INR 1.45bn in Mar-23 to INR 2.81bn in June-23 due to rise in inventory levels at UP project. Debt levels are expected to reduce by the year end with normalization of working capital. PSP received order inflows of INR 7.6bn in 1QFY24 taking its order backlog to INR 53.2bn (2.5x TTM revenues). Bid pipeline remains healthy at INR 60bn though a large prospect was lost to competition recently. We like PSP given its strong execution track record and superior return ratios. We value PSP at 15x FY25E EPS to arrive at price target of INR 860. Maintain BUY.

* Execution missed estimates; margins better led by revenue mix: Revenue grew by 48% YoY to INR 5.1bn and was below estimate of INR 5.5bn due to weaker than expected execution in few big-ticket projects. EBITDA grew by 37% YoY to INR 646mn (estimate: INR 635mn). EBITDA margin at 12.7% (down 90bps YoY on high base) was above estimate of 11.5% led by improved revenue mix (supported by advance stage of work in UP project). Interest costs grew sharply by 62% YoY to INR 91mn (estimate: INR 100mn) due to higher debt levels. PAT grew sharply by 29% YoY to INR 367mn (in-line).

* Healthy inflows in 1Q boosts backlog; bid pipeline remains at INR 60bn: PSP received order inflows of INR 7.6bn in 1QFY24 taking its order backlog to INR 53.2bn (2.5x TTM revenues). PSP’s bid pipeline stays at INR 60bn spread across Gujarat, Mumbai, Chennai etc. PSP lost the Gems and Jewellery park project of INR 25bn in Mumbai to competition. However, the Ahmedabad railway station redevelopment project of INR 26bn in added to the prospects pipeline. Additionally, PSP is also evaluating Delhi station redevelopment project worth INR 47bn. PSP will have to bid in JV for above station redevelopment projects where its share would be c.50%.

* Maintains FY24 guidance; debt to reduce by year end: PSP has guided for revenue of INR 26bn (+35% YoY) with EBITDA margins in the range of 11-13% in FY24. It expects order inflows of INR 30bn+ (YTD inflows: INR 7.6bn). PSP’s gross debt rose sharply from INR 1.45bn in Mar-23 to INR 2.81bn in June-23 due to rise in inventory levels at UP project. PSP expects debt levels to reduce by year end with normalization of working capital.

* Expect 24% EPS CAGR over FY23-25; Maintain BUY: We like PSP for its track record of delivering robust growth while preserving its balance sheet health. Over 10 years the company has grown at an impressive Revenue/EPS CAGR of 22%/27% with operating cashflows funding commitments in capex and investments. We expect EPS CAGR of 24% over FY23-25E with potential for upside from stronger order intake. Valuations remain reasonable at 12.9x FY25E earnings. We value PSP at 15x FY25E earnings and arrive at a price target of INR 860 (unchanged). Maintain BUY.

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