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Hopes pinned on inflow from strategic alliance

PSP Projects (PSPPL IN), with muted operational revenue in 9M due to elections, monsoons, delayed commencement of new projects and deferred receivables from the SDB project, may face a washout in FY25 in terms of revenue and profitability. Also, multiple cost overruns in Uttar Pradesh (UP) projects at ~INR 700-800mn may hurt prospects. Hopes of revival are pinned on FY26, with incremental growth expected from receipt of orders from the Adani Group led by strong order pipeline of INR 100bn. Although momentum could pick up, we remain cautiously positive. Hence, we revise PSPPL to Accumulate from Buy, with TP lowered to INR 705 from INR 792

Overall muted Q3: PSPPL’s Q3 revenues were down 11% YoY to INR 6.2bn, 13% lower than estimates on account of a delay in execution pick-up of new projects in Gujarat. EBITDA stood at INR 354mn, down 51% YoY, with margin at 5.7% YoY as against estimates of 9.5%. A steep drop in profitability was on account of cost overruns in UP projects (incremental cost of INR 180mn) due to extra renovations undertaken by PSPPL in existing premises outside the scope of work. Excluding one-time cost, adjusted margins stood at 8.6%. PAT was down by 81% YoY to INR 61mn. Owing to subdued execution in 9MFY25, PSPPL expects revenues for FY25 to be muted at 2-3% YoY to INR 25-26bn with lower margins at 9-10%, down 50-100bps YoY.

Inflow from Adani to aid full-year guidance: YTDFY25, PSPPL has achieved only 57% (INR 19.8bn) inflow against INR 35bn guided. The management is confident of achieving targeted inflows due to large order pipeline of INR 118bn (Adani Group – INR 100bn and other projects worth 18bn). The company is expecting to finalize projects worth INR 20bn from the Adani Group before end of FY25. The current orderbook of INR 64bn provides 2.6x visibility and may be enhanced led by healthy inflows

Upbeat on Adani partnership, aggressive growth targets for FY26: Strategic partnership with Adani Infra is likely to unlock vast opportunities for PSPPL. The company, with majority of orders flowing in from the Adani Group (inflow guidance of INR 50bn for FY26), spiked its revenue guidance to INR 40bn for FY26 (from INR 25- 26bn in FY25). However, margins may be lower at 9-10% from the earlier range of 10- 11% due to a change in mix.

Revise to Accumulate; TP pared to INR 705: Despite healthy inflows in FY24 and YTDFY25, delayed commencement of new projects may subdue revenues and trim profitability due to cost overruns in FY25. The management is optimistic on outlook due to opportunities emanating post its strategic alliance with Adani Infra

We remain cautious as regards timely order conversion. We remain conservative and cut estimates for FY26E/27E by 14%/11%. So, we revise PSPPL to Accumulate from Buy and cut our TP to INR 705 (from INR 792), valuing PSPPL at P/E of 15x on FY27E (unchanged). Expect FY24-27E revenue/EBITDA/PAT CAGRs at 19%/13%/15%

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