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Partnership with Adani group to fasten PSP’s growth trajectory

Promoters of PSP Projects (PSP) have agreed to sell 30.07% stake in the company to Adani Infra (India) for INR 6.85bn at INR 575/share, at 14% discount to the CMP of INR 672. Following are the details:

* Promoters of PSP have signed an SPA with Adani Infra (India) to sell 30.07% stake in the company for INR 6.85bn.

* As of Sept-24, the promoters held a 60.14% stake in PSP. Following the stake sale, their shareholding will decrease to 30.07%.

* Promoters of PSP are selling their stake at INR 575/share, which is at a discount of 14% from the CMP of INR 672.

* Adani Infra (India) will acquire 30.07% stake in PSP, thus becoming a joint promoter. Both the promoters will share joint control and have the right to nominate two nonindependent directors to the board.

* Adani Infra (India) and current promoters are restricted from selling any shares of the company for 5 years. Post that, any sale will be subject to a right of first refusal.

* Adani Infra has also made an open offer for 26% stake at INR 642/share which is at 4% discount to CMP. PSP management indicated that depending on the subscription of open offer, both the promoters (PSP and Adani Infra) will hold equal equity in the company.

* With this arrangement, the company management will benefit from large EPC building opportunities from Adani group across building verticals like residential real estate, Industrial, data centres, airports etc.

* Also, PSP will be evaluating opportunities both from Adani group and outside Adani group and choose the project based on profitability metrics.

* PSP’s bid pipeline stands at c.INR 70bn of which Adani group accounts for c.INR 30-INR 40bn. PSP has maintained its order inflow guidance of INR 35-INR 40bn (YTD: INR 17bn) for FY25 but it indicated that inflows can improve materially over medium term based on conversion of current bid pipeline and upcoming opportunities from the Adani group.

* PSP has an order backlog of INR 65bn (2.6x TTM revenues) as of Sept-24. Of this, Adani group projects account for less than INR 5bn.

* We believe that revenue growth for the company can pick-up significantly over medium term but margins could remain capped around 10%-10.5% levels in-line with larger peers. PSP has guided for EBITDA margins of 10%+ levels.

* Partnership with Adani group to fasten PSP’s growth trajectory; Maintain BUY:

We like PSP for its track record of delivering robust growth. With Adani group coming as a copromoter with equal stake, we believe that it will open up huge opportunities for PSP across building verticals like residential real estate, Industrial, data centres, airports etc. This will help PSP fasten its growth trajectory in the medium term. Accordingly, we expect revenue/EPS CAGR of 17%/22% over FY24-27E. Valuations remain reasonable at 13.7x/10.7x FY26/27E EPS. We value PSP at 15x Sept-26 EPS and arrive at a revised price target of INR 840. Maintain BUY.

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