Fundamental Analysis PSP Project – Financial and Other

Basic analysis of the PSP project: India’s real estate sector is booming due to population growth, urbanization and business interest from across the world. This growth presents a promising investment opportunity. This increased focus has brought companies like PSP Projects Limited into the spotlight. In this article, we will perform a fundamental analysis of PSP Projects Ltd and analyze the company’s potential prospects.

Basic analysis of PSP projects

We will begin our fundamental analysis of PSP Projects Ltd by getting to know the company’s operations and products. Next, let’s look at equity finances. The article concludes with highlights and a summary of future plans.

Industry Overview

India’s construction industry contributes significantly to the country’s economy, with various sectors including commercial, residential, and industrial construction driving growth. Infrastructure development, including power, bridges, dams, highways and urban infrastructure, is also an important driver of the industry.

Despite facing short-term challenges in certain construction sectors, the mid- to long-term growth potential of the Indian industry remains promising. In fact, the industry is expected to grow by 12.8% and reach 1.3 trillion won. 40 Lakh Cr in 2022. The growth momentum is expected to continue at a CAGR of 10.8% during 2022-2026, with domestic construction output expected to reach Rs. 60 Lakh Cr by 2026.

Additionally, the Indian construction industry will receive support for investments in the renewable energy sector. The government aims to increase renewable energy capacity from 145.2GW in 2021 to 175GW in 2022 and 500GW in 2030, so the industry’s growth prospects are expected to further increase.

Company Overview

Established in 2008, PSP Projects Limited is a full-service Engineering Procurement and Construction (EPC) company providing a diverse range of construction and related services. We deliver projects across industrial, institutional, government and residential projects in India.

The company provides comprehensive end-to-end solutions comprising design, civil construction, mechanical electrical and planning services. PSP has been involved in a variety of projects, including the construction of manufacturing and processing facilities, hospitals, government buildings, and religious landmarks.

The company has completed more than 205 projects for more than 133 clients across the public and private sectors. As of FY23, there are 47 projects under construction with an order value of Rs. 5052 Cr. This year also saw the completion of the world’s largest office complex (Surat Diamond Bourse) with a built-up area of ​​66 Lakh sq ft with a contract value of Rs. 1575Cr.

Apart from this, the company has also completed development projects at Kashi Vishwanath Dham, BSE Brokers Forum at GIFT City, Phoenix Mall at Ahmedabad and Reliance Rehab & Rescue building at Jamnagar.

The company pioneered the use of precast concrete and also set up a precast manufacturing facility at Sanand in Gujarat. We also use a low-code platform to help design precast structures. This allows the company to increase efficiency and significantly reduce construction time.

PSP Project – Finance

Let us now perform a fundamental analysis of PSP Projects Ltd. using the annual reports published by the company.

Increased sales and net profit

According to the profit and loss account, the company’s revenue has increased from ₹1,050 crores to ₹1,937 crores in the last five years. During this period, the company reported a revenue CAGR of 16.54%. Profit, on the other hand, declined from ₹166 crores in FY22 to ₹134 crores in FY23. Over the past five years, the company’s profits have grown at a CAGR of 10.77%.

The decline in profit compared to the previous year was due to higher profit margins due to large projects being finalized in FY22 and projects in FY23 being at an early or intermittent stage. The table below shows PSP Projects Ltd’s total revenue and net profit. During the five fiscal years:

Margin analysis

A look at the company’s margins indicates that the decline in profits was due to higher operating expenses in FY23. The increase in operating expenses can be attributed to many projects being in early or intermittent stages during FY23. The table below shows PSP Projects Ltd’s operating profit margin and net profit margin for five financial years.

Rate of Return: RoCE and RoE

The impact of declining profits can be seen in the company’s profitability. Until FY22, it recorded high returns except for the COVID-19 (FY21) period. During FY23, ROE and ROCE decreased to 18.10% and 24.77%, respectively.

Although returns have declined, they still suggest a good return on shareholder capital and efficient use of the company’s resources. The table below shows PSP Projects Ltd’s ROE and RoCE over five financial years.

Debt and interest coverage ratio

If we look at the company’s leverage situation, we can see that the company has reported a low debt-to-equity ratio over the last five fiscal years. During FY23, the company reported a debt to equity ratio of 0.16. This means that the company primarily uses its funds to run its business.

On the other hand, the company’s interest coverage ratio also fell, likely due to declining profits. During FY23, the company reported an interest coverage ratio of 6.73. This means the company has earned enough profits to pay an additional six times the interest. The table below shows PSP Projects Ltd’s leverage ratio over five financial years.

PSP Project – Key Indicators

We are almost done with our fundamental analysis of PSP Projects Ltd. Let’s take a quick look at some important stock indicators.

Future plans for PSP Projects Ltd.

So far, we have looked at data from previous fiscal years for a fundamental analysis of PSP Projects Ltd. In this section, we will try to understand what the future holds for the company and its investors.

1. The company plans to focus on attracting more EPC projects and contracts that require precast manufacturing.
2. The company plans to strengthen its project execution capabilities in line with the latest technologies. We are already using fixed boom deployers and automatic climbing system formwork.
3. The company plans to strengthen its geographical presence beyond Gujarat. Currently, 26% of projects are underway in Uttar Pradesh. It also has branches in Rajasthan, Karnataka, New Delhi and Maharashtra.
4. Building on its proven track record of completing the world’s largest office complex, the company plans to bid for even higher ticket size transactions.

Finishing

Concluding our fundamental analysis of PSP Projects Ltd, we can say that the company has grown its revenue strongly at a CAGR of 16.5% over the past five years, but its earnings have declined in FY23 due to early-stage projects.

The company plans to strengthen its execution capabilities, expand its geographic reach and bid for large-scale projects. This appears to be well-positioned for growth in India’s burgeoning construction sector. What do you think about the future of PSP Projects Ltd? Please share in the comments section.

Written by Aaron Barth

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