Axis Securities Suggest Buy This Infrastructure Stock For 27% Returns, Given 25% Returns In 1 Year

Axis Securities, a leading brokerage firm, has recently published a report on the PSP projects Ltd, a construction company, for a target price of Rs 665 per share. The company expects an order inflow of Rs 2,500-3,000 Cr in FY23, out of which Rs 1,100 Crore is expected to come in Q1FY23.

Stock Overview

The Current Market Price (CMP) of this stock is Rs 526.45 per share. It has gained 0.44% from the previous close of Rs 527.70. The stock is trading 21.38% down from its 52 week high level of Rs 639. Its 52 week low level is Rs 405.10 per share. Considering the brokerage's estimated Target Price and the CMP. The stock has the potential to gain 27%.

PSP Projects Ltd equity has given positive returns over the 1 year, given 4.36%, 2.86%, and 24.27% on 1-Month, 3-Month, and 1-Year, respectively. On 3-year investment tenure, the share has given a negative return of -1.93%, however, on 5 Years, it has given a positive return of nearly 97.65%.

Order Book, Margin Outlook, and Order inflow

The current order book stands at Rs 4,400 Cr. The top 2 big projects are Uttar Pradesh EPC projects for Medical School and EWS Housing projects in Bhiwandi and Pandarpur Maharashtra. The management expects to complete major projects by the end of FY23. Competitive intensity has increased but opportunity is large and the company picks and chooses projects based on various factors which differ between Pvt and public projects.

On a conservative basis, the company expects EBITDA margins to be minimum in the range of 11-12%. On average, the EBITDA margin should range between 13-14%.

The company expects an order inflow of Rs 2,500-3,000 Cr in FY23, out of which Rs 1,100 Cr is expected to come in Q1FY23. The management expects order inflow to come from the Central Vista project, big projects coming up in Gujarat, and Brigade projects in Hyderabad. It has bid for the 2nd Nestle project worth Rs 140 Cr. The company is cautious in accepting PMAY projects after a lower-than-expected experience with the Maharashtra project.

Precast Facility

In March 2022, the management held a soft inauguration for its precast factory which received a good response and inquiries from Reliance, L&T, etc. The company has invested Rs 100 Cr in the precast facility and expects a revenue of Rs 200-250 Cr, out of which Rs 100 Cr is expected to be generated in FY23. The profitability of the Precast business would be influenced by higher steel and cement cost. Margins would be in the range of 11-12%. Precast is costlier than conventional system but saves time in construction by more than 45-50%.

Other Business Updates

Surat Diamond Bourse: A project certificate of Rs 1,575 Cr has been received as of date.

Wages: Going forward, an increment of 20% in wages cost is expected after the issuance of the Gujarat Circular but the overall impact would be in the range of 8%.

UP Project: 90% of the UP Project is done with a revenue a Revenue of Rs 1,000. The Maharashtra project case still going on in court. Going forward, the company does not plan to enter into a JV.

Buy for a target price of Rs 665/share

"With favourable attributes such as strong and diversified order book position, healthy bidding pipeline and order inflows, asset-light model, emerging opportunities in the construction space, efficient and timely execution supported by high ROE and ROCE above 20% with the majority of Capex over, we expect the company to generate healthy free cash moving ahead and deliver Revenue/EBITDA/APAT growth of 27%/37%/40% CAGR over FY21-FY24E. Currently, the stock is trading at 11x and 8x FY23E and FY24E EPS. We value the company at 10.5x FY24E EPS to arrive at the target price of Rs 665/share, implying an upside potential of 26% from the current levels," the brokerage has said.

About - PSP Projects Ltd.

PSP Projects Limited is a multidisciplinary construction company, incorporated in August 2008, offering a diversified range of construction and allied services across industrial, institutional, government, government residential and residential projects in India.

The company provides its services across the construction value chain, ranging from planning and design to construction and post-construction activities, including MEP work and other interior fit-outs to private and public sector enterprises. Historically, it was more focused on projects in the Gujarat region. More recently, it has actively expanded its geographical presence to other states and diversified its portfolio of services.

Currently, the company is constructing the world's biggest office complex -Surat Diamond Bourse- having a Contract Value of Rs. 1575 Cr and 66 Lakhs Sq. Ft Built-up area. It is also engaged in the real estate development of two mid-scale projects in the USA through its subsidiaries. The market capitalisation of the company is Rs 1,896 crore.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.