PSP Projects Ltd. share price target

Change in estimate/TP/Reco.: Owing to price correction, we have upgraded PSP from NEU to BUY. We have cut NCCs FY20/21E EPS estimates by 4.3/13.6% to factor in delay in stuck AP projects re-start and weak order inflows. We cut our TP from Rs 127/sh to Rs 111/sh . Maintain BUY. Top Picks: LT, PNC, KNR & Capacite. Pick-up in ordering yet to play out: Subdued economic growth, tight liquidity, subpar tax collections and limited private capex has impacted projects awarding activity. Our interaction with the EPC companies/NHAI suggests that roads project awarding will pickup from Jan-20E end. We estimate Rs 550bn of NHAI awards during 4QFY20E. Private capex is still subdued with companies deferring even OPEX spends. Recent governement announcement on Rs 102tn National Infrastructure Pipeline till FY25E is a welcome step though ambitious. Silver lining lies in the hope that we are yet to reach peak ordering and average P/E peer valuation is supportive at 4x FY21E EPS.

With bids placed for orders worth ~Rs 20bn, PSP expects to replenish it order book and maintain order book-to-bill ratio at around 2.5-3x. With 48 project currently under execution and the Bhiwandi EWS project, contributing ~19% of the outstanding order book, expected to contribute to revenues from 4QFY20 onwards, the drop in expected revenue from SDB project is expected to be compensated to some exxtent by execution in other projects and we expect the company to achieve ~25% top-line growth in FY20 (in line with the guidance). We believe that diversification beyond Gujarat market may further aid re-rating. We maintain NEU with a one notch reduction in multiple to factor in the delay of up to 10 months in Surat Diamond Bourse Project. Key risks (1) Delay in diversification outside Gujarat; (2) Delays in new order conversion & (3) Further delay in SDB Project execution. PSP delivered Rev/EBIDTA/APAT beat of 14/13/29%. We maintain the stock at NEU with a TP Rs 590/sh TP vs Rs 579/sh earlier (we value EPC business at 15x FY21E EPS vs 16x earlier). We have revised our FY20E/FY21E EPS estimates by 6/9%.

PSP Projects Ltd (PSP), reported a stellar set of numbers which exceeded our expectations. Revenue in Q2FY20 grew by 49% YoY to INR 312 cr against less than 30% quarterly growth trend.

With bids placed for orders worth ~Rs 25-30bn, PSP expects to replenish it order book and maintain order book-to-bill ratio at around 2.5-3x. Opportunities in affordable housing schemes coupled with expansion into newer geographies like Maharashtra and Karnataka would enable the company to scale its operations and help grow and maintain sufficient order book backlog. We believe further re-rating is contingent on this successful transformation. We upgrade PSP to BUY. Key risks (1) Delay in diversification outside Gujrat; (2) Delays in receipt of new awards & (3) Slowdown in Private capex. PSP delivered Rev/EBIDTA/APAT beat of 12/12/15%. Owing to recent price correction we upgrade the stock to BUY from NEU with Rs 579/sh TP (we value EPC business at 16x FY21E EPS). We have maintained our FY21E Rev/EBITDA/APAT estimates.

PSP Projects Ltd (PSP), reported a strong set of numbers which were well in-line with our expectations. Although the company maintained a healthy revenue growth trend.

Cyclical business fundamentals worsened in Q1FY20 Singapore GRMs remained depressed at US$ 3.5/bbl (+8% QoQ, 43% YoY), while petrochemical cracks likely declined ~15% QoQ. We see earnings pressure for RIL and OMCs aggravated by softer light-heavy crude spreads. Higher oil prices (+8% QoQ) offer some respite to upstream PSUs. Lower spot LNG prices (27% QoQ) could lift margins and drive robust earnings for CGD companies, but raise uncertainty over GAIL and PLNG's earnings....

We attended a group meeting with Prahaladbhai Patel, CMD and CEO of PSP Projects (PSPPL). Following are the key takeaways: Targeting ~Rs 35bn near-term bid opportunity: PSPPL has identified several key projects due for award in the near term: (i) Rs 8.5bn riverfront project in Gujarat (multiple small-ticket works of Rs 500mn each); (ii) Rs 8bn unfinished residential project of Nayara Energy in Jamnagar, Gujarat (bids submitted in Mar'19; JMC, PSPPL, Capacite participated); (iii) Rs 15bn residential-cumschool building project of Vedanta in Barmer, Rajasthan; (iv) Rs 1.8bn building project for Gujarat Science City, Ahmedabad; (v) others worth Rs 3bn in Gujarat....

PSP is maxing out on execution at current order book levels of Rs 30bn. It needs to replenish its order book and increase the average size of new order wins. Tailwinds provided by the SDB project execution augurs well for meeting qualification requirements of large government/private orders. PSP needs to increase its share of order book in the Mumbai/Bengaluru regions and reduce reliance on Gujarat. We believe further re-rating is contingent on this successful transformation. We maintain BUY. Key risks (1) Delay in diversification; (2) Slow private capex recovery; and (3) High interest rates. We maintain BUY on PSP with an increased TP of Rs 579/sh (vs Rs 550 earlier). We have upgraded our FY21E Rev/EBITDA/APAT estimate by 4.4/4.4/5.2%

PSP Projects Ltd (PSP), reported a mixed set of numbers. Although the company maintained healthy growth trend; momentum slowed partially in the last quarter of previous financial year.

Maintain BUY with a TP of Rs 603/sh (18x Dec-20E EPS). With a large contribution of ~Rs 0.9bn revenue coming from SDB (~Rs 2.3bn in 9MFY19) PSP posted a strong 53/24% YoY/QoQ top line growth. Margins continued to remain at the upper end of the 12-14% guidance band. With no significant interest outgo, PAT came at Rs 215mn (+41/22% YoY/QoQ).