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PSP PROJECTS

Market Update

Before few weeks we had already provided short market update where we had cautioned investors buying in the current market where market Is at all time high. Once again we would like to caution investors to be careful while investing in this market. Chances of anything moving up more than 10-15% are bleak but something falling 15-20% could be in a blink of an eye. Make sure you keep booking partial profits from time to time and invest In only good fundamentally strong companies. Thus market cannot always keep on going up. It is better to stay sideways or book profits when the markets are moving up rather than getting trapped at high valuations in the companies.

Current Market price-: 419 Rs

PSP Projects is multidisciplinary construction company offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India.

Incorporated in August 2008, PSP Projects in 2020, clocked the highest revenue in its history, reaching nearly Rs 1,500 Crores – an increase of 44% on a year-on-year basis. 

In 2009, PSP Projects acquired the business of BPC Projects. The company was converted into a public limited company on 30th June 2015 and consequently, the name of the company was changed to PSP Projects Ltd. In 2015, the company entered into a partnership deed with Gannon Dunkerley & Co. Ltd.

It provides its services across the construction value chain, ranging from planning and design to construction and post-construction activities, including MEP work and other interior fit outs to private and public sector enterprises. Historically, it was more focused on projects in the Gujarat region. Its execution capabilities have grown significantly with time, both in terms of the size of projects that we bid for and execute, and the number of projects that company execute simultaneously.

More recently, it has actively expanded its geographical presence to other states and diversified its portfolio of services. The company is also engaged in the real estate development of two mid-scale projects in the USA through its subsidiaries.

Company is currently constructing world’s biggest office complex (Surat Diamond Bourse) having Contract Value of Rs. 1575 Cr and 66 Lakhs Sq. Ft Built-up area.

Credentials 

Certifications ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 

Credit ratings CARE A+; Stable for our Long-term bank facilities and CARE A+; Stable/CARE A1+ for our Long-term/Short-term bank facilities

Business and Key Projects Undertaken in Past.

Industrial

These projects primarily involve the construction of industrial buildings for pharmaceutical plants, food processing units, engineering units and manufacturing and processing facilities. Company has significant experience in undertaking industrial projects that cater to the specialized needs of pharmaceutical manufacturers. Some of the significant industrial projects completed by PSP Projects in the past include constructing the manufacturing and processing facilities for customers such as Torrent Pharmaceuticals Limited, Nirma Limited, Intas Pharmaceuticals Limited, Cadila Healthcare Limited, Claris Injectables Limited, KHS Machinery Private Limited and Inductotherm (India) Private Limited.

As of March 2020 Projects completed: 55 + 53

Institutional

Company’s institutional projects protfolio typically involve the construction of buildings for hospitals and healthcare services, educational institutes, malls, hospitality services and corporate offices. Some of the major institutional projects completed by us in the past include the construction of Zydus Hospital, GCS Medical College, Hospital and Research Centre (managed by the Gujarat Cancer Society), and the CIMS Hospital.

Government

Company focuses on undertaking select government projects that it believes to be challenging and prestigious in nature. For instance, in the recent past, company has executed marquee government projects such as the construction and interior work of Swarnim Sankul 01 and 02 at Gandhinagar, various works in relation to the Sabarmati Riverfront Development project at Ahmedabad and the interior work for the ICEM Building at Ahmedabad.

As of March 2020 Projects completed: 21

Government Residential

Psp projects hain the past executed, and are also currently executing, certain prestigious government residential project, being the design-build of affordable high-rise residential buildings cum commercial units in Gujarat under the “MukhyaMantri GRUH Yojana” for a major Gujarat-based public sector customer.

As of March 2020 Projects completed: 3

Residential

In Residential projects , PSP Projects have tupically undertaken construction of buildings for group housing and townships, as well as independent residences for select private customers.

Its ongoing Surat Diamond Bourse project, is the largest single-site project company has undertaken till date, which will significantly enhance its prequalification credentials, enabling company to take up higher financial and technical bids.

As of March 2020 Projects completed: 11

Interior Business Portfolio 

While we look to increase our presence in Gujarat, we are also aggressively expanding our footprint in the states of Maharashtra, Rajasthan, and Karnataka. We have also penetrated Uttar Pradesh by securing the prestigious government project of development of Shri Kashi Vishwanath Dham and its beautification at Varanasi. 

Other Prominent Projects

Smart City Projects

Project Delays and Status Updates

Surat Diamond Bourse project is on the verge of completion, and company has already billed more than 1400 crore on the project, in fact client has also started giving possessions to end users in some of the towers for the fit out. Entire scope of work including civil, energy, and façade work is completed, and some portion of façade work is completed, only few works lie, club house, compound wall, and ground floor, lobby interiors where company is waiting for some clearances from the client side, so they have got delayed to an extent of about two months .

UP Medical College and Hospital-: about UP Projects company’s all designs are submitted and are getting approved one by one . Company also has mobilized plant, machine, and manpower at the site during the challenging times of second wave and it is expected to start work by first week of July onwards from all projects one by one as designs get approved.

As for Bhiwandi project company has submitted details on stock exchange that company is compelled to go to court as the project was got delayed too much without any fault of the company and further show cause notice has been issued against the company. Company management has clarified to that and the court has stayed it thereby grating company BG of 6.73 crore. On this project, there is a loss of about 60 crores in cement and steel and other escalation putting company practically doing the whole project without profit, so company had requested to give escalation or terminate the contract as per clause 3A which was its right as per contract as delay is not at all on the part of the company. Company is waiting for further orders from the court. This is one of the key risk associated with the company however management is very confident of the results being in favour of the company.

Key Strategies Going Forward-:

  • Focus on Building construction (commercial, residential, industrial & institutional.)
  • Leverage position as a fastgrowing construction company in India
  • Enhance project execution capabilities – In Sync with the latest Technology
  • Augment customer relationships and optimize project mix
  • Expand geographical footprint, projects in UP, Rajasthan, Karnataka and Maharashtra

Financials

From the revenue side, Company has booked revenue from operation of Rs. 1240.86 crores, which is about 17% less compared to year-on-year .

  • Revenue grew 10% YoY and 28% QoQ to INR501cr in Q4FY21.
  • With increasing prices of commodities and raw materials company managed to maintain Margins at a healthy level of 12.4% in the quarter.
  • Despite low revenue, overall working capital cycle remained at 15% of sales and cash generated from operations increased to INR74cr.
  • PSP managed to grab big projects (such as UP Medical colleges).
  • Overall order inflow stood at Rs 2,400 cr in Q4FY21. 
  • Company ended the year with record high order book of Rs 4,121cr and bid pipeline of Rs 3,000cr, 
  • Further management has given guidance of INR1,800-2,000cr revenue and INR2,000cr order inflow for FY22E. Also management has provided strong guidance of maintaining EBITDA Margins steady at 11% for the coming period.
  • Company has very low levels of debt and is almost debt free.
  • Apart from that company also has huge cash balance of 229 crores which is almost up 15% from previous year. 
  • For the year ended March 21 there has also been significant increase in cash conversion cycle which has improved to 15 days in Q4FY21 from 20 days in Q3FY21 on account of increase in the payable days.
  • Overall Management is confident of achieving healthy revenue growth and margins in the future too.
  • The company had unbilled revenue of INR77cr (less than INR116cr in FY20) and retention amount of INR90cr in Q4FY21.
  • Current borrowing stands at Rs 68 crores .

Capex 

Company has spent Rs 59 crores on precast plant which is likely to get commissioned in Jul’21 and it is expected that company will spend another Rs15-20 cr in FY22. Once commissioned, the plant would generate revenue of INR100cr in the initial years, which would increase gradually in later years.

Order Book

At the end of FY ’21 Company stands with robust and highest ever order book of 4120.97 crore,  out of these order book there is a portion of 17% that is about 730 crores is not mobilized. As the work is not progressing due to clearance issues and other hindrances, remaining 83% of the order book is fully mobilized and work has started. 

Management comments 

There has been significant delay in resuming the projects post first wave of covid 19. Company has expected to resume some slow-moving projects just at the end of August, which could not happen for projects like Bhiwandi, IIM old campus, Sabha Hall, Swaminarayan which eventually got cancelled at the later stage because of the death of the Swami. These all three projects amounting to about 900 crores which made to the revenue fall short to flat which company was expecting, but still looking at Rs. 1240 crore revenue,.

This year company had booked some losses by subsidiaries to extent of Rs. 6 crore, putting all this together total unexpected expenses was about 10 crore which has impacted the overall debt landing at 6.4% which is about 1.5% less to the previous year. 

For the coming year management is targeting for Total revenue to be in range of 1700 to 1800 crores, which company has already projected, and company is expecting that minimum 800 crore should target for this year. By its calculation it can go up to 2000 crores.

Company is also looking for a professional to be the CEO of the Company, to make company more professionally managed . Although it has been a while since company has been searching and discussing with the consultant, but as of not company has not been able to shortlist anybody.

As per the management we can expect 20%-25% growth and regularly we should add on people so that the culture remains the same so that we can achieve the target what we are expecting or what you are saying to reach up to 3000 crore or 4000 crore. 

Sectorial Outlook

In terms of building infrastructure when we talk, there are two major lines that is the airport and second is the medical facility and hospitals, the COVID has made we people learn a lot about the pandemic when it comes to India, there are so many States which are not actually equipped to face such type of disease at one go. So probably there will be huge expansion in terms of medical colleges and hospitals to come all over India. Airports also basis one infrastructure which has to come and which we have not fully equipped all over India. So presently we see this two and on the education ground such as IITs and IIMs. These are the four sectors where it is expected that significant demand could emerge in the coming period.

On the medical colleges and hospital front company has done some of the projects and at the same time we expect some of the more projects to come as Government is aggressive on to investment in Medicine, airports, and education. 

Conclusion -: Psp Projects is one of the most aggressively growing companies based in Gujarat Ahmedabad. Company has strong order book of around 4000+ crores. Additionally strong management guidance of revenue to be around 2000 crores in the coming year translates into growth of more than 60% over current year. Further management is also expecting EBITA margins to be at 11%. With debt being steady at 67 crores and Increasing Cash balance of Almost 15% over last year PSP Projects is worth exploring for long term.

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