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Strong order book with robust bid pipeline

Our view

PSP Projects Ltd (PSPPL) Q3 performance was subdued with marginalrevenue growth of 2.4% YoY (on account of higher base) to Rs5bn however margins were in line with the consensus. Company has bagged highest ever order inflow of Rs32.9bn till date surpassing FY23E guidance. The entire orderbook of Rs50.8bn as on 3Q (excl. Bhiwandi and Pandharpurforming 16% of OB) is under execution. Current bid pipeline stands at Rs45bn, of which 70% orders are from Gujarat and 60% are private. FY24E revenue guidance stands at Rs26?27bn, with margin of 12?12.5% and an order inflow of Rs30bn. Key positives in PSP are its execution ability with stable cash flow, consistent order win in the building construction segment and lean balance sheet for growth

We had put the stock under review post recent run up in the stock and disappointing execution in 1H. However, with the recent interaction it has been coming across that the execution is now streamlined thereby providing revenue visibility and hence we have revised our revenue and EBITDA estimates by 4% each and PAT by 6% for FY25E With strong order book, timely project execution and prudent management pedigree, we expect PSPPL to post a revenue / EBITDA CAGR of 12%/15% over FY22/FY25E. We have revised our rating to “NEUTRAL” with a revised TP of Rs764 valuing the EPC business at 12x FY25E EPS, implying an upside potential of 9% from the current levels.

Result Highlights

* For Q3FY23, PSPPL’s net revenues grew by 2.4% YoY to Rs5bn (our estimate of Rs5.4bn and below consensus estimate of Rs6.2bn) with pickup in execution.  

* EBITDA came in at Rs616mn, down 16.8% YoY (below our and street estimate of Rs709mn / Rs768mn) and EBITDA margins contracted by 286bps to 12.4% (below Ysec estimate of 13.1%). The margins were impacted mainly due to higher raw material cost. ? On bottom?line front, Adj PAT came in at Rs353mn (below our estimate of Rs451mn) mainly attributed to lower operating margins.  

* In Q3, the company bagged robust order worth Rs4.4bn from institutional, industrial and residential segments

* At the CMP, the stock trades at a P/BV of 3.1x FY23E and 2.6x FY24E, and at an EV of 9.9x FY23E EBITDA

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