Founded in 2008, PSP Projects has started making waves recently by bidding on high-value projects in new areas, including railways. Construction and allied services company with a focus on industrial, institutional, government, and residential projects. This small Stock have risen 26% in one year, and 14% in three months.
In a report by ICICI Direct Research, the company has good potential ahead. “Prudent management, a strong execution track record, a healthy order book, and a debt-free status are its key strengths,” and this is also a good small stock to invest money.
As of the first quarter of the current financial year (FY24), PSP Projects has a total order book of 5,321 crore, which is 2.1 times the estimated fiscal year 24 revenue.
Nuvama finds comfort in Nuvama’s healthy order book, but believes it will not be easy to enter high-value projects.
Due to the uncertainty surrounding the acceptance of bids for new Central Vista projects, we expect high-ticket orders to prove challenging in the near term.
Projects worth ₹6,000 crore have been bid for by the construction company, including the redevelopment of railway stations in Ahmedabad and Delhi — with project sizes ranging from ₹2,000 to ₹5,000 each. As it lacks the pre-qualification for infrastructure projects, it must form joint ventures for the same.
As ICICI notes, all its projects are in the execution/fully mobilized stage, while bid pipeline conversion will boost further growth visibility.
Growth of double digits
Profits, EBIDTA, and revenues of the company have grown in double digits over the past five years. Between FY18 and FY23, its revenue from operations has grew at a compound annual growth rate (CAGR) of 21.4%, EBIDTA at 17%, and net profit at 15.6%. Earnings before interest, tax, depreciation, and amortization are EBIDTA.
The company is expected to report revenue CAGR of 21.3% during FY23-25E, with margins hovering around 12.5%.
With improved execution and a lean balance sheet, PSP could benefit from the pick up in construction activity.
“Despite PSP Projects’ working capital intensive nature, it has the industry’s best working capital cycle of 41 days,” the company said in its investor presentation.
According to IDBI Capital, the company expects to spend only 3-4% of revenue on capex.
This is our high conviction smallcap idea,” says ICICI, which values it at 15 times the price-to-earnings ratio (P/E) on FY25 earnings, arriving at a target price of ₹975 for the stock.
“We revise our P/E multiple to 13x from 12x due to a ramp up in execution. We revise our target price to ₹844.”
A significant rise in commodity prices and delays in executing key projects are downside risks to the stock’s earnings potential.
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