PSP Projects : Charting Out A Robust Growth Curve

The company focuses on taking on selected government projects that it considers to be challenging and prestigious in nature and is all set to capitalise on the government’s push for infrastructure development and the creation of smart cities

Incorporated in 2008, PSP Projects Limited is an Indian construction company that provides a wide variety of construction and related services for industrial, institutional, government, government residential and residential projects. The company offers its services along the entire construction value chain from planning and design to building and post-construction operations, including MEP work and other interior fit-outs to both private and public sector enterprises. The company’s previous priorities were projects in the Gujarat region. 

It is now geographically diverse, having operations in Gujarat, Rajasthan, Karnataka, Uttar Pradesh, Maharashtra and New Delhi. In more recent times, it has actively worked to diversify the services it offers. Construction of industrial buildings is a core part of industrial projects for manufacturing and processing facilities, food processing plants, pharmaceutical plants and engineering units. Construction of buildings for hospitals, healthcare facilities, educational institutions, shopping centres, hotels and corporate offices are among the institutional projects that are most frequently undertaken. 

The company focuses on taking on selected government projects that it considers to be challenging and prestigious in nature. One of the company’s flagship projects, the Surat Diamond Bourse is the largest office complex with a contract value of ₹1,850 crore and is currently being constructed. The company’s vision is to be recognised as the leading and most preferred construction company in the areas in which it operates by putting forth effort in terms of people, performance and commitment to core values. The core values of the company are speed, passion, integrity, respect, innovation and teamwork.

Sector Overview

The Indian construction industry consists of real estate, infrastructure as well as the urban development segments. Residential, commercial, retail, hotel and recreation parks are all included in the real estate section while the urban development section is divided into smaller segments for things like water supply, sanitation, transportation, education and healthcare. As a result, there are connections between the almost 250 sub-sectors of the Indian construction industry. Construction was one of the industries that had to bear the brunt of the pandemic as it was already facing a liquidity crisis. Because of lack of funds, many projects remained unfinished. 

The pandemic caused havoc for the entire value chain system at all points and scales. The availability of construction materials and price inflation became major issues. Due to lockdowns, a lack of timely execution contributed to cost overruns, significant delays and even project cancellation. The real estate sector is one of the most recognised and crucial sectors for the growth of an economy. The growth of this sector depends on the demand for commercial spaces and residential properties. The demand has surged due to increase in household income and urbanisation

The Indian construction industry ranks third among the 13 major sectors of the economy and is the second-largest employment generator after the agricultural sector. If everything goes well, the real estate sector is expected to reach USD 1 trillion in market size by 2030 and expected to register a CAGR of nearly 15 per cent. It will contribute 12-15 per cent to the country’s GDP by the year 2025. Infrastructure in India is estimated to grow at a CAGR of approximately 7 per cent during the forecast period. The government plans to invest a whopping amount on infrastructure projects by the year 2024-25.

Financial Overview

Considering the company’s financial performance, on a consolidated basis it reported a growth of 9.68 per cent from ₹317.36 crore registered in Q1FY22, recording total revenue of ₹348.08 crore in Q1FY23. It has reported strong EBITDA growth of 21.54 per cent. Comparing the net profit for the first quarter of FY23 to the same quarter last year, it surged 17 per cent from ₹24.81 crore to ₹29.03 crore. As regards the yearly performance, the net profit soared 99.46 per cent to ₹166.28 crore as against ₹83.36 crore during the previous year.

Also, net sales rose by 40.87 per cent to ₹1,748.06 crore as against ₹1,240.86 crore during the previous year ended on March 2021. The company has a market capitalisation of ₹2,180 crore. Promoters held a 70.39 per cent stake in the company as of March 31, 2022. Institutional investors have a total stake of 6.71 per cent, out of which foreign portfolio investors (FPIs) owned 1.89 per cent. Non- institutional investors have total stake of 22.90 per cent. PSP Projects outperforms its rivals when compared to real estate companies with market capital between ₹1,500 crore and ₹3,000 crore as the company has the highest ROA, ROE and ROCE percentages of all. 

Such high ratios indicate both strong performance and effective management. The company is able to produce respectable earnings per share and its EPS is the highest of any company.The company’s price to earnings (PE) ratio is quite low when compared to the big players in the sector. Since the company has successfully reduced its debt levels and has low debt-to-equity ratios, most of its funding comes from equity as opposed to debt and the majority of the company’s assets are financed by equity

Outlook

Numerous events are taking place in India that will help the real estate and construction sector grow in the near future. The total budgetary allocation for FY 2022-23 is ₹76,549.46 crore for the Ministry of Housing and Urban Affairs and ₹67,221.12 crore for the Department of Drinking Water and Sanitation. The Indian government’s flagship initiative, the Pradhan Mantri Awas Yojana (Urban), which was launched in June 2015, aims to provide housing for all in urban areas by 2022. To make the market more accessible to small and retail investors, the Securities and Exchange Board of India has reduced the minimum application value for Real Estate Investment Trusts (REITs) from ₹50,000 to ₹10,000-15,000

As a result, home sales volume in seven major Indian cities accelerated by 113 per cent year-on-year in the third quarter of 2021. Private equity investment inflows into India’s real estate sector totalled USD 3.3 billion in the first half of FY21-22. The top three cities – Mumbai (39 per cent), Delhi (19 per cent) and Bengaluru (19 per cent) – together attracted nearly 77 per cent of the total investments. The government’s Smart City Project, which aims to build 100 smart cities, represents an excellent opportunity for real estate firms. Under the Smart City Project, 100 cities have proposed an investment of approximately ₹2 lakh crore. In addition, 11 industrial corridors, the redevelopment of 600 railway stations and the expansion of railway lines are some of the sector’s major growth drivers.

Prime Minister Narendra Modi has launched the Gati Shakti Master Plan to integrate various modes of transportation and accelerate infrastructure development in India. The prime minister stated during the Virtual Global Investor Round Table that India has an ambitious plan to invest a whopping amount through the National Infrastructure Pipeline. In light of the company’s outlook, the business now operates in six states, expanding its regional diversity. The company has excellent projects lined up, including the ₹1,850 crore Surat Diamond Bourse project. In comparison to its competitors, the company is financially sound and capable of delivering substantial profits

The shares of PSP Projects surged over 30 per cent in a single year, surpassing the BSE Realty sectoral index by a significant margin. Additionally, compared to the major players in the sector, the company's price to earnings (PE) ratio is quite low. The stock, according to this viewpoint, is undervalued, and the present share price is low compared to the company’s earnings. Therefore, this stock can be a great choice for patient investors. Given the great long-term prospects for the Indian real estate sector and the company’s potential for significant growth in the near term, we recommend HOLD.