Buy PSP Projects; target of Rs 688: Dolat Capital

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Dolat Capital's research report on PSP Projects

PSP reported a 30.9% YoY growth in revenue to `3.1 bn (3.4% below our estimate) in Q1FY20. Revenue was slightly impacted due to shortfall in labour during the quarter. Excluding SDB, the revenue was up 40.8% YoY to `2.1 bn. The EBITDA margin down 17 bps YoY to 13.9% (17 bps below our estimate), due to lower construction and other expense which was partially offset by higher employee cost. The PAT grew 21.1% YoY to `255 mn (in line with estimates), due to healthy operating performance. We maintain our revenue/ EBITDA margin/ PAT estimates for FY20E/ FY21E considering Q1FY20 results. We expect a 33.7%/ 31.0% revenue/ Adj. PAT CAGR over FY19-21E, with EBITDA margins of 14.0% each for FY20E/ FY21E.

Outlook

Given its conservative strategy towards leverage and an efficient capital allocation, PSP will continue to remain a net cash company, with negative Net D:E of 0.6x over FY19-21E. PSP will continue to witness superior return ratios (average RoE/ RoCE of 29.1%/ 29.8% over FY19-21E), due to a strong PAT growth, well-managed lean balance sheet and efficient working capital management. Thus, we maintain BUY, with a TP of `688 (16x FY21E EPS).

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