PSP has a standalone net cash of Rs 2.2 billion. With minimal outlay towards interest costs, we expect PSP to post high 28% ROEs over FY19-20E. We have valued PSP at 18x one-year forward Mar-20E EPS.
PSP’s Q4FY18 revenue was in-line with our estimates of Rs 2.6bn. Higher than expected Ebitda margins led to Ebitda/PAT beat of 25.5/23.3%. Balance sheet continues to remain healthy with net cash/equity of 0.7x. Bid pipeline of Rs 20bn is strong with PSP targeting close to Rs 10bn of order inflows in FY19E. PSP has bid for Rs 10bn of commercial project in southern India and other projects with cumulative value of Rs 10bn projects in Gujarat. We believe inflow guidance is conservative and single large private contract can add about Rs 5-10bn of inflows incrementally. Limited competitive intensity (with about 10 players having Rs 5bn/order PQ), stable execution in SDB project and robust balance sheet lends visibility to growth.
We expect an increase in investments in office space and retail to continue to drive institutional construction along with FDI and manufacturing activity aiding industrial construction. We maintain buy on PSP with TP of Rs 639/share. Total order inflows for FY18 stood at Rs 25.6 billion. With Rs 14bn of works still pending to be executed in SDB project, we expect PSP to focus towards completing the same in the near term. We see near term consolidation rather than PSP aiming to go for aggressive bidding. PSP’s average project size has increased at a CAGR of ~40% from Rs 85mn in FY13 to Rs 1.1 billion in FY18. PSP has scaled up its execution capabilities with significant investment in state of the art plant and machinery. PSP is targeting project with average ticket size of Rs 2-2.5bn as there are limited ‘Grade A’ EPC players in this segment.
PSP has a standalone net cash of Rs 2.2 billion. With minimal outlay towards interest costs, we expect PSP to post high 28% ROEs over FY19-20E. We have valued PSP at 18x one-year forward Mar-20E EPS. This is in line with other players like Ahluwalia. Our rationale behind this is: (1) Strong growth potential led by the Diamond bourse project; (2) Robust FY18 order backlog of Rs 25.6bn (3.5x FY18 revenue); (3) Net cash company and gross debt to continue to remain low; and (4) PSP getting repeat orders from dairy and pharma clients demonstrate its execution quality.
By: HDFC Securities