PSP Projects Limited (PSPPROJECT.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to PSP Projects Limited Q3 and 9 Months FY '24 Results Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shravan Shah, VP, Research and Analyst from Dolat Capital. Thank you, and over to you, sir.

Thank you, Tushar. Good afternoon, ladies and gentlemen. On behalf of Dolat Capital, I'm pleased to welcome you all on the PSP Projects Q3 FY '24 Earnings Conference Call. We have with us Mr. P. S. Patel, Chairman, MD and CEO; along with Ms. Hetal Patel, CFO of the company. We will begin with the opening remarks from the management, followed by interactive Q&A session. I will hand over the floor to Mr. Kenan Patel, Company Secretary, for disclaimer, and then the management will have opening remarks. Over to you, sir. Thank you.

Thank you, Shravan. Good evening, everyone. On behalf of the management, I'm pleased to welcome you all to the PSP Projects earnings conference call to discuss Q3 and 9 months FY '24 financial results. The presentation, which we have uploaded on stock exchange and our website today, including the discussions that we will be having in this call, contains or may contain certain forward-looking statements concerning our business prospects and profitability, which are subject to several risks and uncertainties, and actual results could materially differ from those in such forward-looking statements. Please note, a copy of our disclosures is available on the Investors section of our website as well as on the stock exchanges. Now I shall hand over the call to our Chairman sir for his opening remarks. Over to you, sir.

Thank you, Kenan. Good evening, everyone. A warm welcome to the earnings conference call of PSP Projects Limited to discuss the unaudited financial results for the third quarter and 9 months ended on 31st December 2023. We concluded the Board meeting this morning and uploaded details to investor presentation on stock exchange and website for your review. I hope you've got a chance to review the same. I would begin with sharing certain important highlights that took place during the quarter. During quarter 3 FY '24, the company completed 7 projects. The major projects completed are residential project for Adani Realty, industrial warehousing project of precast at various locations in Gujarat, precast box culverts for Reliance Jamnagar. During quarter 3 FY '24, the company was awarded 2 projects. The major projects awarded are Kalamkhush Campus at Gandhi Ashram, one of the initial projects part of the massive development government plans to do for the Gandhi Ashram. And second is Gujarat Biotechnology Research Centre at GIFT City Gandhinagar. Company has received an order inflow to the tune of INR 1,060 crores, excluding GST, and lowest bidder L1 in the total order of value of INR 1,222 crores till end of 9 months FY '24. As on today, post receipt of recent letters of acceptance, the order inflow is to the tune of INR 1,995 crores and total L1 order value of INR 928 crores. We are fairly in line with the order inflow guidance provided for this fiscal financial year. As on 9 months FY '24, the outstanding order book was to the tune of INR 4,443 crores, a decline of 12% on a year-on-year basis on account of faster execution of projects and higher number of completion of ongoing projects has completed to order inflow. Out of the outstanding order book, the private projects comprises of 49%, while government projects comprises of 51%. As on 31st December 2023, there are 49 ongoing projects, 87% of which are based in Gujarat and 13% in UP. Till date, the company has completed 219 projects in total since inception with 84% private projects and balance are the government projects. In October 2023, the company was bestowed with an award of Fastest Growing Construction Company in India below INR 2,000 crore turnover category, fourth year in a row at the 21st Construction World Global Awards 2023. Now I would like to share certain essential development that took place in the project side. Regarding Surat Diamond Bourse, as per our release dated 7 December 2023, your company has filed a commercial civil miscellaneous application seeking an interim measures under Section 9 of the Arbitration and Conciliation Act before the Honorable District Court. Your company prayed to the Honorable Court to grant an interim relief in form of injunction and to pass an order directing the respondent to deposit an amount of INR 538.59 crores along with interest thereon amongst other reliefs. The case is at the stage of arguments and pending before the honorable judge -- district judge, Surat. The matter is adjourned to February 12, 2024. Regarding UP projects, during the quarter, the revenue booked for all projects is to the tune of INR 250 crores. And on 9 months FY '24, the total revenue booked is INR 1,429 crores (sic) [ INR 1,433 crores]. Cumulatively, all the UP projects are at an advanced stage and nearing completion. Regarding SMC Administrative Building, the project is moving as per planning and schedule. The rafts are completed. During the quarter, the revenue booked is to the tune of INR 49 crores. And as on 9 months FY '24, the total revenue booked is INR 171 crores. Hetal ma'am will share the financial performance of the company in detail with you. I would like to highlight that now the company has entered into different league of building projects. We are getting prequalified and are bidding for large-sized projects across different states. Post completion of large-sized and certain marquee projects, our team at present is beaming with the confidence to enter projects and execute them with effective planning across the country. In our journey of 15 years, we have, over time, made our mark and are recognized for delivering quality projects and our planning systems is well regarded in the marketplace, which is helping us complete projects adhering to the project time lines. We endeavor to gradually move up the value chain and increase the projects of higher ticket size gradually over a period of time. Our bid book now is spread across the projects in the states of Madhya Pradesh, Odisha, Delhi, UP, et cetera. The 2024 budget unfolds a visionary road map for Viksit Bharat with INR 11 lakh crores towards infrastructure allocation consisting of 3.4% of GDP. We look forward to participating in India's growth story by playing our positive role in the development process. We are confident on the fundamentals of the Indian economy and expect them to remain solid with focus on growth, development across the state -- across all states of the country. With this, I conclude my remarks, and now I would like to hand over the call to Ms. Hetal Patel to take us through the financial in detail.

Thank you, sir. Good evening, everyone. The financial performance during the quarter ended on 31st December '23 is as below. Quarter 3 FY '24 versus quarter 3 FY '23. Revenue from operations for the quarter is INR 697 crores versus INR 497 crores, which has increased by 40% on a year-on-year basis. EBITDA for the quarter is at INR 71 crores versus INR 62 crores, which is higher by 16% on Y-o-Y basis. EBITDA margin is at 10.25% versus 12.39%. Net profit for the quarter is at INR 33 crores versus INR 35 crores, reduced by 8% on year-on-year basis. PAT margin is 4.63% versus 7.01%. The revenue generated from 7 UP projects put together was INR 250 crores during quarter 3 FY '24. Cumulative revenue till December 31, '23 is INR 1,429 crores. The other expenses increased from INR 5.2 crores in quarter 2 to INR 8.51 crores in quarter 3, which mainly includes ECL provision on trade receivables to the extent of INR 3 crores. Employee costs increased from INR 29.56 crores in quarter 2 to INR 33.75 crores in quarter 3, mainly due to appraisals processed during the quarter. The increase in finance cost from INR 12 crores in quarter 2 to INR 15 crores in quarter 3 is mainly on account of increasing short-term borrowings and bill discounting facilities used during the quarter. The increase in depreciation from INR 14 crores in quarter 2 to INR 18 crores in quarter 3 is on account of significant additions in fixed assets to the extent of INR 34 crores during the quarter. During the period of 9 months, company has incurred CapEx of INR 142 crores, out of which INR 74 crores is for precast facilities. I would like to mention a few of the important balance sheet numbers as on December '23 -- December 31, '23. Long-term borrowing, INR 75 crores, including short-term maturities of INR 50 crores; short-term borrowing, INR 403 crores, excluding short-term maturities of INR 50 crores; gross block of assets, INR 543 crores; net block, INR 325 crores. Additions during the quarter is INR 34 crores. Net unbilled revenue, INR 409 crores. Retention noncurrent, INR 58 crores; retention current, INR 101 crores; mobilization advance, INR 221 crores; inventories, INR 269 crores, which comprises of INR 122 crores of construction materials, INR 123 crores of work in progress and INR 24 crores of finished goods. Working capital days are as follows: debtor days are 63, creditor days 60, inventory days are 35 and total net working capital days are 38. Out of the total sanctioned credit facilities of INR 1,497 crores, company utilized INR 1,030 crores and INR 467 crores are available for further utilization. Fund-based utilization is INR 245 crores, and non-fund-based utilization is INR 785 crores. As on December 31, 2023, the company has total fixed deposit of INR 257 crores, out of which lien free deposits are of INR 47 crores, and FDs with lien are INR 207 crores, with bank for credit facilities. Work on hand as on 31st December is INR 4,443 crores, and detailed bifurcation is available in our uploaded presentation. That concludes the update on financials, and we are now open for the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Tushar from Kamayakya Wealth Management.

I just wanted to understand the receivable from the Diamond Bourse, and what is the update on that?

Receivables which are booked on the accounts, it is I think INR 65 crores is on the account of the billed, INR 40 crores is on the account of work in progress and INR 42 crores is under account of retention.

Yes, I'll repeat. It's INR 46 crores on receivables, INR 53 crores on unbilled and INR 42 crores as retention. So that is the outstanding, as we have already mentioned in the notes.

Okay. And there was some -- getting on the same, what's the update on that? I just wanted to...

See, update, we've -- I've already discussed in my initial call, wherein we have stated that the matter is in the court. And presently, we have initiated only Section 9. So wherein just to safeguard our money before only we go to the arbitration. The first hearing has already happened on 7th and second hearing from our side is on 12th. So probably, by end of February, the Section 9 matter should get completed, and we should be in a position to get some order from the court regarding our money.

Fair enough, sir. Sir, I could see bidding of good orders. Like I just wanted to understand your growth henceforth, like for the next 2 years, how do you see your top line growing and also the order book, sir?

See, order book, as I already said that the present order book, we are -- this year, which we envisaged, was about in the range of INR 3,000 crores. I think we are still in the line that we will be able to achieve that INR 3,000 crore order book. And next year also, when we think about the projection revenue of about INR 3,000 crores, then the order book inflow should be in the range of INR 3,500 crores. I think we both the things are -- which we have been doing till now and will be -- we are confident that next year also we'll be able to doing the same.

And sir, what sort of margins you're foreseeing on that?

The margin, as I always said, it should be in the range of 11% and 12%, and we try to maintain that as far as possible as we maintain our tender bidding criteria, and we'll be trying to remain in the same range.

And the next question is from the line of Amit Khetan from Laburnum Capital.

So a couple of questions. First, just wanted to get a better sense of institutionalization in the company. In that context, would it be possible to share how many employees in the company beyond the promoters, promoter family, get a remuneration of, say, more than INR 50 lakhs?

I think I have to come back to you, but at least I think it should be more than 10 to 15 people.

Okay. More than 10 to 15 people?

10, maybe the maximum 10 people, yes. Yes, it must be in the range of 10 people, yes.

Got it. And secondly, over the last 2 to 3 years, the promoter shareholding has come down significantly from 74% to 66%. What is the reason for this? And how should we look at the promoter shareholding going forward?

So this reduction has been done past -- before March. And I think after that also in the first quarter and the second quarter, we already said that it won't go beyond this level. Hence there was some requirement from my personal side wherein we have done that. Originally, it was 72, then we increased our share to 74. And latterly, by selling some [indiscernible], it has now been to 66.2. So probably this will remain the same as far as next 1 year is concerned.

Got it. So the reason was for some personnel requirement?

Yes, it was a personal requirement.

And the next question is from the line of Vishal Periwal from IDBI Capital.

I have 2 questions. First, in terms of margin in this quarter, we have seen a little bit of dip. So I know on a quarterly basis, things do move up and down. But is there any particular project that we have executed or started that has led to this? Or how exactly you see this going ahead?

Actually, it is not related to any one project. But yes, we can say that there has been some more expense at the UP side because it is at the verge of completion also and as we were moving a little bit fast to complete it by December, major projects; and by March, all the projects. There were some few expenses made because the labor which we were managing must be on department labor. So I think INR 4 crores or INR 5 crores must have gone there in terms of speeding up the project.

Okay. So as you are saying that probably we are on a verge of conclusion by March. So probably March quarter, we could have a similar sort of -- that will be a fair understanding?

Pardon me?

So -- no, you said like we are on the verge of completing those projects in UP, which has led to this margin. So which means like in the quarter 4, we can expect a similar sort of margin that what we have done in the December quarter?

That depends, again, because as I said that we try to maintain at 11% and 12%, but the project work which is left is about in the range of INR 60 crores to INR 63 crores. So probably there won't be any much impact, but the quarter which -- the work which we did in the last quarter was the highest, that is INR 250 crores. So that was the reason that there was some more expenses than on the labor side.

Okay. Sure. And then second is on the equity raising plan that we have put it in the BSE. So if I look at in terms of our limits and then borrowings, everything is probably quite benign and there's a lot of buffer. So what is the reason of the, I mean, Board taking an approval for the equity raising?

See, it is an enabling process, which we have initiated. So it will be decided later on because it is majorly required in terms of growth capital that present requirement of enabling up to INR 300 crores, that's what we have thought of. We have no fixed idea of what exact amount we have -- we may go ahead. And as we have been facing this working capital issue in the company since March 2022, so it's not that we are very much inclined towards going clearly, but it's an enabling process which we have done. If we get a better approach, we will go ahead.

Okay. So if I can just get the number again, sir, what is the -- I think madam did mention, I missed, what's the gross debt as on date?

Yes. See, as of 31st December, long-term borrowing is INR 75 crores and short-term borrowing is INR 403 crores, which includes fund-based facility utilization also. That is around INR 60 crores. FD/OD -- sorry, FD/OD facility utilization is INR 60 crores.

Okay. And based on the current probably like the bandwidth that we have, what is the incremental debt that we can raise and then probably we can go for equity raising? Anything that you can provide a color?

Incremental debt in terms of short-term debt you are talking about?

Yes. I think that working capital...

We have around INR 30 crores of free limits, so that we'll be utilizing some consumption limit, but we will not be going for further debt increase.

And the next question is from the line of Shravan Shah from Dolat Capital.

Sir, just to get a further clarity. So in 9 months, we have done a 15% revenue growth. So in the fourth quarter, how much are we planning? So for the full year, how much growth are we looking at? So last time, we said INR 2,600 crores revenue for this year, FY '24. So now how we are seeing that?

I think, Shravan, last time also, I said between INR 2,500 crores and INR 2,600 crores. So we'll be in the range of INR 2,500 crores plus.

Okay. And for next year, you said the INR 3,000 crores revenue that we are looking at for FY '25?

Right. Right.

Okay, okay. And in terms of the margins, previously, we used to say 11% to 13%, but now it seems that we have reduced this range to 11% to 12%. So are we seeing that going forward, our margin will not be -- there is no scope for it moving up?

See, it's an impact of 1% or 1.5% plus or minus. On the conservative side, I usually say 11% and 12%, and you people always say 11% and 13%. That's the only difference. And as I always say, it is very difficult for a contracting firm when we are working more on an EPC project to envisage the exact margin that we will have because there are so many uncertainties in an EPC project. So sometimes you get a benefit of 1%, 1.5%, and sometimes you get a loss of 1%, 1.5% because you are not able to envisage the whole project within 20, 25 days of bidding. So this is plus or minus both sides.

So for fourth quarter, this quarter, we had a lower EBITDA margin of 10.3%. So it should come back to the normal level of -- that's for 11 months also -- 9 months also, if you look at 11.5%, 11.6%, so that range will come back again in the fourth quarter.

See, I cannot assure you, but yes, the projects -- the major projects which were hit this quarter was because of UP. And now the UP projects are getting completed and only INR 65 crores -- INR 60-plus crore work is left out, I think we should be in a position to come back to the original margin what we have been expecting.

Okay. And just to get a clarity, so equity raising and the rate combined put together, so this INR 300 crores is just enabling resolution that we are taking. And if we get the opportunity, we will try to raise. But as such, we are not needing this capital right now on an urgent basis.

Yes, it is not an urgent basis. But as I have already said, that equity is required for the growth capital from here on, the order book which we are [ expecting is INR 3,000 crores ]. And most of the orders, if you would remember, are getting converted -- L1 are getting converted, 2 orders in third quarter and maybe in the last quarter. So probably, all these projects will require margins -- bank guarantees, which will require margin also. So probably this is an enabling process which we have initiated, we'll think of it as and when needed.

Okay. But sir, so how much is -- I think still we have a scope on the non-fund-based limit scope is there. So even if this INR 928 crores L1 is there, even if it gets converted, do we need the extra equity to get the bank guarantees?

Yes. Basically what I'm saying is the order book, which you see, the INR 900 crores, we have already declared INR 650 crores and the further 2 orders are going to be getting, which we'll be receiving in few days. So probably adding on this INR 1,500 crores to INR 1,600 crores from here on, that will also require a bank guarantee of INR 350 crores to INR 400 crores, which will require a margin of minimum for the 20%, if we say, then also INR 80 crores to INR 100 crores -- sorry, INR 1,500 crores x 20%, INR 300 crores.

Okay. And just a clarification, in terms of the L1 order, INR 928 crores, so if I -- does this only include Science City of INR 297 crores and Gati Shakti Vadodara order of INR 631 crores? There was a one dairy plant, Rajkot project of INR 441 crores. So is it also not part of L1 or got converted?

No, no, it is not now a part of L1 because we have deducted that from our L1 order, as such, the project is canceled because of the budget. Dairy was expecting and all the prices to come in the range of INR 400 crores to INR 450 crores, but both the bids has gone beyond INR 500 crores, which was not their budget. So now they are revising the whole budget and reducing the scope of work, and they will come up with a tender of INR 350 crores to INR 400 crores again by end of March or maybe in the 1st week of April.

Okay. And so now in terms of the bid pipeline, so what's the bid pipeline and particularly a couple of projects from there and the Delhi Railway Station, INR 4,800 crores project, so what's the status there?

I think it is already there in the news that INR 4,800 crores Delhi Railway Station tender has been canceled. But still, we have an order bid pipeline of about INR 6,000 crores, which I would give you in detail: residential building in Delhi is about INR 1,000 crores; commercial building in Delhi NCR is about INR 1,000 crores; there is one mall in Surat, which is about INR 200 crores; commercial building in GIFT City, which we are bidding, is INR 400 crores; airport at Varanasi, which we already bidded, is INR 1,000 crores; and Industrial project at Sanand is INR 350 crores; and commercial building at GIFT City is INR 150 crores. And there are a few tenders which are just coming during this last week, about 5 to 6 projects in UP Court Building, which is in the range of INR 2,000 crores. So this totals to INR 6,000 crores. So presently, we can say that the bid pipeline is in the range of INR 6,000 crores, excluding the Delhi.

Okay. Got it. And sir, if, let's say, this SDB, as you were saying, correct me if I'm wrong, that we have put a claim of INR 539-odd crores, that's what you mentioned, I think, in your remarks. And broadly, we are expecting by end of this February, the outcome. And if, let's say, we even if settling middle of this INR 300 crores, INR 400 crores also, if we receive this and plus the whatever we were supposed to get INR 141 crores, then do we think that we need to go for our equity raising?

See, first and the foremost thing, Shravan, you should understand that we are not getting the cash money out of this hearing of Section 9. Section 9 allows the provision of protecting my money. It is not that they will be paying me that money. So when -- then there is a private organization, you have to protect before go to the court. Because in private organizations, when the project is over and there is no one in the association who can bear this money or the association may not have that much money at the last -- later stage when -- you get an award of an arbitration. So by law, before going to arbitration, in private organization, you have to file in Section 9, whereby they can protect your -- in the -- suppose, we have made a claim of INR 530 crores, how can they -- after understanding the claims, if they find some truthness in the claim, they will protect our money by -- in a way of bank guarantee to be placed by the client or maybe in terms of putting lien on the sales part of the offices, which are yet to be sold. Such types of provisions, they make or they can create an escrow account also, wherein this money which is coming as a part of revenue in that organization is put in escrow. So such types of provisions are there in Section 9. Otherwise, if we -- after hearing of Section 9, if they come to a conciliation at the personal level and if there is a result before going to arbitration and we get something out of this in the range of INR 300 crores, INR 350 crores, I think then we will always think that whether we want to go for QIB or not. Then probably, let us wait for 1, 1.5 months.

Okay, got it. Got it. And the current debt level, which is going up, so INR 478 crores, combined short term and long term, so how do we see this for this year and for next year, considering if we are reaching the INR 3,000 crore revenue next year? So how one can look at this date and at the same time, the finance cost, which is going up quarter-on-quarter, so how one can look at this thing?

Yes, actually, if you clearly see the overall from March '22, this has started. The basic money which we got stuck up is majorly because of Surat Diamond Bourse. And latterly, still the projects of UP, still we have some money receivables to be received from UP projects also. So probably, this is majorly because of the money getting stuck up in these large -- 2 large projects, that's the issue related to that. But both the moneys are in place. I think there won't be any much requirement of debt going up from here. So that's the way that we are -- at least we can get INR 300 crores out of Surat within this 1 month before March, and then I think the debt level will come to less than the normal.

Okay. But if we don't get, then this INR 400 crores to INR 500 crores is a normal level that...

That was the reason for enabling this QIB. So that was the further option of going with this, case goes on for arbitration for further 1 year, then we need some money to ease out our process and getting the working capital smoothly -- smoothness. So that is the reason I'm reducing our interest cost. That was the reason to enable this query.

Okay. Got it. And last, Hetal ma'am, the unbilled revenue is how much? And the CapEx for the full year is how much? So 9-month number we have. For the full year, how much we are looking at?

Yes. I already mentioned this amount in my earlier speech, but I'll repeat it. Unbilled revenue is -- net unbilled revenue is INR 409 crores, right? And the CapEx we have incurred during the 9 months is INR 142 crores.

Yes. So for fourth quarter, how much more are we looking to do CapEx?

Okay. See, that depends on the initiation of the project, and we may require around 2% to 3% of additional CapEx for new projects.

So basically, we are in the process of starting 2 or 3 large projects. One is the Gati Shakti equity of INR 630 crores, INR 450 crores or INR 400-plus crores on Riverfront and INR 400-plus crores with Dharoi Dam. I think all these -- the 2 projects of Dharoi and Sabarmati Riverfront, that will not require much of the CapEx. But yes, at the site of Gati Shakti, initially we may require. But probably that will be also in the initial stage of foundation doing diaphragm wall and excavation and that's going to the basement. So I don't see much investment on the CapEx for these large projects.

And the next question is from the line of Parikshit from HDFC Securities.

Congratulations on a [ deeper ] number. My question is why Surat -- with holding the money payment, why are they not paying you? So what is the issue? What are they telling you on to?

Sorry, can you please repeat? Your voice is...

Your voice is very low, Parikshit.

[Foreign Language] why is that SDB not paying you money, what is their contention? Why is it blocking or withholding the money?

You are talking about SDB?

Yes, yes, yes.

See, there are -- basically to understand is we have completed the project in March 2020, we got virtual completion in June 30, '22. So probably till that time the overall, the scenario was good. They completed and also they have certified and approved some of the bills which we have already claimed in our books also. So when they saw the claim in detail and by going through some of the legal process, they must have understood that they are not eligible to pay such a large claim. So then they started putting on hold the existing money, so that we come to a conclusion very easily with them so that because my INR 150 crores will be on hold. So they are trying to push me in a way that I come to compromise easily for the INR 500 crores claim, that must be the reason. Otherwise, there is no point because in our claims also, we are very clear, and it is being approved and only the certification is not done about INR 150 crores. Rest everything is on claim side. That is the dispute that they can always say that, that is a dispute, which can go to arbitration. But again, there is a clause of price escalation after force majeure. So they understand that our point of view is very clear. But since they have initiated to fight, now they are understanding day-by-day on the hearing, when the hearing are going on in sessions court, they are able to understand that we are not able to save because we are very clear on our terms and condition of the contract.

Okay. And on the UP projects, so here in SDB, we have INR 141 crores, which we have to receive and we have claims. So what about the UP projects, like how much is the pending which is withheld there?