Fundamental Analysis Of PSP Projects: India’s real estate sector is booming due to an increasing population, urbanization, and business interest from around the world. This growth presents a promising investment opportunity. This increased focus has put companies like PSP Projects Limited in the focus. In this article, we shall conduct a Fundamental Analysis Of PSP Projects Ltd and try to analyse the potential outlook of the company

Fundamental Analysis Of PSP Projects

We’ll begin our Fundamental Analysis Of PSP Projects Ltd by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.

Industry Overview

The construction industry in India is a significant contributor to the country’s economy, with various segments such as commercial, residential, and industrial construction driving growth. Infrastructure development, including power, bridges, dams, highways, and urban infrastructure, is also a crucial driver of the industry.

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Despite facing some near-term challenges in certain construction sectors, the medium to long-term growth potential for the industry in India remains promising. In fact, the industry is expected to grow by 12.8%, reaching Rs. 40 Lakh Cr in 2022. The growth momentum is expected to continue, with a CAGR of 10.8% during 2022-2026, and the construction output in the country is projected to reach Rs. 60 Lakh Cr by 2026.

Furthermore, the Indian construction industry will receive support from investments in the renewable energy sector. The government aims to enhance renewable energy capacity from 145.2GW in 2021 to 175GW in 2022 and 500GW by 2030, which will further boost the industry’s growth prospects.

Company Overview

Established in 2008, PSP Projects Limited is a multidisciplinary Engineering Procurement & Construction (EPC) Company that offers a diversified range of construction and allied services. It takes up projects across industrial, institutional, government, and residential projects in India.

The Company provides comprehensive end-to-end solutions, which constitute of design, civil construction, Mechanical Electrical & Planning services. PSP has worked on multiple projects such as constructing manufacturing & processing facilities, hospitals, government buildings, religious landmarks & a lot more.

The Company has completed over 205 projects for over 133 customers across public & private sectors. As of FY23, it has 47 projects under construction, with an order book of Rs. 5052 Cr. The year also marked the completion of the World’s largest office complex (Surat Diamond Bourse) with a 66 Lakh sq ft built-up area for a contract value of Rs. 1575 Cr. 

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

The Company has pioneered the use of precast concrete and has also set up a precast manufacturing facility at Sanand in Gujarat. It also uses a low-code platform to aid in designing its precast structure. This allows the Company to be more efficient & reduce construction times greatly.

PSP Projects – Financials

Using the annual reports declared by the company, we will now conduct a fundamental Analysis Of PSP Projects Ltd.

Revenue and Net Profit Growth

The profit and loss account indicates that the company has increased its revenue from ₹1,050 crores to ₹1,937 crores in the last 5 financial years. During this period, the company has reported a revenue CAGR of 16.54%. On the other hand, the profits have declined from ₹166 crores in FY22 to ₹134 crores in FY23. During the last 5 financial years, the profits of the company has increased at a CAGR of 10.77%

The YoY decline in profits is attributed to higher profit margins on account of the finishing stage of large projects in FY22 and the projects being at the initial stage or intermittent stage in FY23.The table below shows the total income and net profit of PSP Projects Ltd for 5 financial years:

YearRevenue from operations(₹ In crores)Profit after tax (₹ In crores)
20231,937134
20221,748166
20211,24083
20201,499128
20191,05089
4-year CAGR growth16.54%10.77%

Margin Analysis

Looking at the margins of the company indicates that, the decline in the profits is the result of an increase in operating expenses in FY23. The increase in operational expenses can be attributed to many projects being at the initial stage or intermittent stage during FY23. The table below shows the operating profit margins and net profit margins of PSP Projects Ltd for 5 financial years:

YearOperating Profit MarginNet Profit Margin
202312.99 %6.86 %
202215.83 %9.4 %
202112.06 %6.63 %
202014.11 %8.42 %
201915.96 %8.3 %

Return Ratios: RoCE and RoE

The impact of the declined profits can be noticed in the return ratios of the company. Until FY22, the company reported high return ratios except for the time of COVID-19 (FY21). During FY23, the ROE and ROCE had declined to 18.10% and 24.77%, respectively.

Though the return ratios have reduced, they still suggest a good return to the shareholder’s capital and an efficient use of company resources. The table below shows the ROE and RoCE of PSP Projects Ltd for 5 financial years:

YearROEROCE
202318.10%24.77%
202227.19%35.22%
202116.84%21.81%
202031.41%40.29%
201926.57%40.16%

Debt & Interest Coverage Ratio

If we look at the company’s leverage situation, we can notice that the company has reported a low debt-to-equity ratio over the last 5 financial years. During FY23, the company reported a debt-to-equity ratio of 0.16. This suggests that the company majorly uses its funds to run its business.

On the other hand, the interest coverage ratio of the company has also declined which can be attributed to declining profits. During FY23, the company reported an interest coverage ratio of 6.73. This means the company has earned enough profits to cover its interest payments 6 times additionally.  The table below shows the leverage ratios of PSP Projects Ltd for 5 financial years:

YearDebt to EquityInterest Coverage Ratios
20230.166.73
20220.159.37
20210.178.39
20200.1312.5
20190.0915.21

PSP Projects – Key Metrics

We are almost at the end of our fundamental analysis of PSP Projects Ltd. Let’s take a quick look at the stock’s important metrics.

ParticularsFiguresParticularsFigures
CMP ₹ 710.15Market Cap (Cr.)₹ 2,656.98 Cr
EPS₹ 42.62Stock P/E17.32
RoCE (%)20.33%RoE(%)18.16%
Promoters Holding66.22%Debt to Equity0.16
Net Profit Margin(%)6.86 %Operating Profit Margin(%)12.99 %

Future Plans Of PSP Projects Ltd.

So far we looked at the previous fiscals’ data for our fundamental analysis of PSP Projects Ltd. In this section, we’ll try to make sense of what lies ahead for the company and its investors.

  1. The Company intends to focus on taking up more EPC projects and contracts requiring precast manufacturing. 
  2. The company will look to enhance its project execution capabilities keeping in sync with the latest technology. It already uses a Stationary Boom Placer and automatic Climbing System Formwork.
  3. The company will look to deepen its geographical presence beyond Gujarat. It currently has 26% of projects ongoing in the state of Uttar Pradesh. It also has a presence in Rajasthan, Karnataka, New Delhi & Maharashtra.
  4. With the proven performance of the completion of the world’s largest office complex, the company will look to bid for deals of a much higher ticket size.

In Closing

As we conclude our fundamental analysis of PSP Projects Ltd, we can say that the company has had a strong revenue growth of 16.5% CAGR over the last 5 years, but profits declined in FY23 due to early-stage projects. 

The company plans to enhance its execution capabilities, expand its geographical reach, and bid for larger projects. It appears well-positioned for growth in the booming Indian construction sector. What are your thoughts on the future of PSP Projects Ltd? Please share in the comments section.

Written by Aaron Vas

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