PSP Projects: Gati Shakti Boost

PSP Projects: Gati Shakti Boost

Market Cap– 1,900 cr

CMP– 530

Posted on twitter on Oct 28, 2021

Company Background

PSP Projects was incorporated in 2008, is a multidisciplinary construction company offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India.

They provide services across the construction value chain, ranging from planning and design to construction and post-construction activities to private and public sector enterprises. The company is a one stop shop for Civil Construction contractor, Mechanical, Engineering & Plumbing (MEP), Further Extension to Interior & O&M Services, Working with Design Firms & MEP Consultants.

The company has completed a total of 174 projects in its 12 years of existence. Some of its most recent projects completed are:

  • COMMERCIAL BUILDING AT GIFT CITY
  • ZYDUS CORPORATE HOUSE AT AHMEDABAD
  • Torrent Pharma
  • Sabarmati Riverfront
  • BANGALORE MILK UNION DAIRY PLANT AT KANAKPURA, KARNATAKA
  • Reliance
  • UP State- PWD DEPT
  • GRAND MERCURY HOTEL AT GIFT CITY FOR BRIGADE GROUP
  • MEDICAL COLLEGE AND HOSPITAL FOR DHARAMSINGH DESAI UNIVERSITY (DDU)

Apart from these on of the most famous projects of the company is the construction of the Surat Diamond Bourse with a contract value of 1,800 cr.

Investment Rationale

  1. Business of PSP Project

PSP projects works with corporates as well as the governments and its order book consist of different kinds of projects including building corporate structures, civil work, MEP work, various plants etc.

  1. Industrial Projects:

Construction of industrial buildings for Pharmaceutical, Food Processing, Engineering as well as other manufacturing facilities Constructed industrial facilities for pharmaceuticals, tyre, dairy, engineering companies etc.

Number of projects completed till date – 61

  • Institutional Projects:

Construction of buildings for hospitals and healthcare services, educational institutes, malls, hospitality services and corporate Offices constructed several hospitals across Gujarat, commercial projects at GIFT City, educational & hostel building for leading education institutes etc.

Number of projects completed till date – 71

  • Government Projects:

Focus only on prestigious government projects. Executed projects including CM’s Office, Riverfront Development project, Renovation of Vidhansabha Building.

Number of projects completed till date – 24

  • Government Residential Projects:

Execution of prestigious government affordable residential projects. Design-building of affordable high-rise residential buildings and commercial buildings under the Mukhya Mantri GRUH Yojana.

Number of projects completed till date – 3

  • Residential Projects:

Construction of buildings for group housing and townships construction of independent residences for select private customers.

Number of projects completed till date – 15

  • Strong Order book

The company has consistently received strong order inflows over the years and has a strong order book of 4,150 cr as on September, 2021 & L1 of 343 cr. PSP’s bill to book ratio is very comfortable at 2.6x.

The company’s order book has grown from 2,559 cr to 4,150 cr at a whopping CAGR of 17.2% over the past 4 years.

PSP management has informed it has a bid pipeline of 3,000 cr.

EPC projects constitutes major chunk of the order book at 53.54% in H1 FY22 & remaining 46.5% from MEP (Mechanical, Electrical & Plumbing) works & Trunkey Projects.

The iconic Surat Diamond Bourse project in on the verge of completion by Dec, 2021. SDB is the world’s largest office building on a single basement. It’s a 1,800 cr project, size of 66 lakh sq. ft.

With completion of this project, PSP will enter the big league of handling prestigious projects up to 2,500 cr.

PSP projects is making huge inroads in state of Uttar Pradesh, the scope of works is huge. The company has already done some marquee big value projects.

PSP has some interesting projects in the bid pipeline:

1,000 cr temple project in Ahmedabad, largest temple in the world.

  • Government coming up with new IIT, estimated project value 1,000 cr.
  • Adani Airport– In Navi Mumbai & Ahmedabad, civil works potential 800-1000 cr
  • Sports Complex in Gujarat- 1,200 cr
  • Latest entry in UP state to throw up big opportunities.
  • Central Vista project, Delhi (Parliament Complex). Total project cost 15,000 cr, potential bidding by PSP to be around 3,000-4,000 cr

Key projects on Hand as on 30th September 2021

  • Diversification into other geographies

The company previously did most of its projects in Gujarat and now is slowly and steadily diversifying across other states in India as well. This is a positive for the company as dependence on a single geography is always riskier.

As, on March 2017 the company had 91.34% orders coming from Gujarat, 4.01% coming from Rajasthan and 4.66% coming from Karnataka. The company was heavily dependent on orders from Gujarat.

After 8 years in operations, PSP projects expanded outside Gujarat and gained huge success. From 8% contribution from Non Gujarat states in 2017 to 65% of order book from Non-Gujarat states as on September 30th, 2021.  

                                                                                                       

Over the past 4 years the company has steadily reduced its concentration of orders from Gujarat and received more orders from other existing geographies and even added more geographies.

  • New Initiatives

The pre cast concrete facility

Enhancing capabilities & exploring newer technologies offsite modular construction technology is the future. PSP has come up with a state-of-the-art manufacturing plant of precast concrete building with production capacity of 1 mn sqft with a project cost of 97 cr.

The facility has the capacity to go upto 3 mn sq ft with an additional capex of just 25-30 cr.

The phase1 has the potential to create revenues of 120-150 cr at peak capacity.

Key benefits of Precast Manufacturing Facility

  • Reduces labour-intensive traditional building methods by way of maximum prefabrication and use of cutting-edge technology.
  • Thereby reducing turnaround time for projects.
  • Unlocks the best land potential.
  • Helps in delivering consistent quality.
  • Helps to increase operating efficiency and margins.
  • Market penetration in India is still at nascent stages, hence the potential is huge.

Experienced Management Team

Name of managementPositionExperience
Prahaladbhai PatelMD + CEOHas been in the construction business since the past 30 years. Moved PSP into civil construction in 2009.
Pooja patelED (daughter of PSP)Involved in the execution of SDB since the start
Mahesh PatelVP operationsBeen with the company since inception. 25 years of experience in the construction industry
Maulik PatelDirector procurementWith the company since inception of the company
RB ParmarGM, Tender30 years of experience in contracts + tendering

Industry Dynamics

  • In India the youth population is growing at a tremendous rate and is expected to reach 465mn by 2021. All this youth population will need affordable housing and construction of new homes and offices.
  •  There is a focus by the government for affordable housing.  The Make in India movement is driving a lot of industrial demand and a lot of companies are doing investments in India to make products domestically.
  • High-speed bullet trains and metro rail, construction of Delhi-Mumbai Industrial Corridor, concept of sustainable smart cities like GIFT City, hospitals and Greenfield industrial smart city projects are contributing to India’s dynamic transformation.  GoI announced an ambitious project of adding 100 new airports by 2024.
  • National Infrastructure Pipeline (NIP) earmarked 7,400 projects focused on building roads, housing, urban development, railways, conventional power, renewable energy, and irrigation.
  • Latest initiative by GOI is Gatishakti, where government to take serious steps to reduce red tape. Target is to execute 100 lac cr worth of infrastructure projects in next 10 years.

Financials

Consistent & profitable growth for PSP, barring FY21 which has been a COVID19 impacted year the company has managed to improve its Revenues, EBIDTA & PAT year on year.

10 & 5 years Sales CAGR is 26% & 22% while PAT CAGR is 22% & 27% respectively. 

ROE for the same period has been consistent in the range of 26-28%.

PSP has cash equivalents of 190 cr & debt of 185 cr making it a Net Debt free company.

On the other hand, PSP is consistently investing in its capacity, it has doubled its gross block in last 4 years from 77 cr to 150 cr.

The working capital days one of the most important indicators for EPC player is comfortable at 42 days.

Conclusion

Strong growth in sector+ Earnings tailwind+ Excellent Management= Deadly combination.

PSP Projects is set to get into the big league of players in its sector:

  • New Initiatives like Pre Cast Building Facility
  • Aggressive & Planned bidding for projects outside home state to reduce dependency on single state.
  • Completion of Surat Diamond Bourse, one of the biggest office buildings on a single basement.

We strongly believe PSP projects can grow at 24-25% for next 3-4 years, It has potential to double its PAT to 230-260 cr by FY25. At 1,900 cr market cap the company is attractively valued at 8x FY24-25 earnings.

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