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Moving up the curve

Our view

PSP Projects Ltd (PSPPL) 4Q performance was healthy with revenues and margins coming above our estimates. With Surat Diamond Bourse being on the verge of completion and expected to be done in 1QFY23; the company would be eligible to focus on single large ticket size project worth Rs20‐25bn. On the back of strong awarding momentum and robust order book of Rs43bn, the management gave guidance of 20‐25% YoY revenue growth along with EBITDA in the range of 11‐12% in FY23.

With strong order book, timely project execution and prudent management pedigree, we expect PSPPL to post a revenue / EBITDA CAGR of 15%/14% over FY22/FY24E. At the CMP, the stock trades at an EV of 6.7x/ 5.1x FY23E/ FY24E EBITDA. Looking at the strong guidance we have revised our target from Rs675 to Rs716 and continue to maintain ‘BUY’ rating on the stock valuing the EPC business at 12x FY24E EPS, implying an upside potential of 38% from the current levels.

Result Highlights

* For Q4FY22, PSPPL’s net revenues grew 25% YoY to Rs4.9bn (above Ysec estimate of Rs5.4bn) with pickup in execution momentum..

* For Q4FY22, PSPPL’s net revenues grew 11% YoY to Rs5.6bn (in line with our estimate of Rs5.4bn) with pickup in execution momentum.

* EBITDA came in at ~Rs881mn, up 42% YoY (above Ysec ~Rs727mn and consensus estimate of Rs683mn) while EBITDA margins expanded by 348bps to 15.9% (above Ysec estimate of 13.5% and consensus estimate of 12.8%). The margins improved mainly *due to lower raw material cost.

* On bottom‐line front, Adj PAT came in at Rs538mn (Ysec of Rs513mn) largely attributed to better operating margins. Interest cost grew by 108% to Rs95mn

* In Q4, the company bagged robust order worth Rs7.8bn comprising of construction of sports complex in Gujarat worth Rs5.6bn and industrial project in Gujarat worth Rs1.5bn

* At the CMP, the stock trades at a P/BV of 2.4x FY23E and 2.0x FY24E, and at an EV of 6.7x FY23E EBITDA.

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