PSP Projects Bags Construction Order In Bengaluru: Chairman & MD Gives Insights

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00:00Let's welcome in Mr. P.S. Patel who is the chairman and MD of PSP Projects who joins us now.

00:06Welcome to the show Mr. Patel. Back to back order wins for you.

00:11You know this total order wins so far you know sum up to roughly 1400 odd crores.

00:18So my first question to you is that considering all of these order wins,

00:22what are the kind of execution timelines that you are eyeing for these projects?

00:26Basically these two orders, one is 389 and the second is 165 crores.

00:31Both the orders extends up to 24 months, 18 to 24 months.

00:35One is in Ahmedabad and one is in Bangalore.

00:38Mr. Patel, I want to get a sense of what are the kind of order inflows

00:43that we should be looking out for this financial year 2025.

00:46Apart from these two orders that are already in place, what is the order inflow guidance

00:50and also what is the kind of order book that you are projecting?

00:53How is the order book projected to grow in the next 2 to 3 years as we speak?

00:57Right from the first day of the quarter year started we have envisaged

01:01and given a guideline of going up to 3500 crore order inflow this year.

01:07Out of which we have already reached to 1500 and still we have a 6000 crore bid pipeline.

01:12So mostly we will be in better position to reach to 3500 crore easily.

01:18Mr. Patel, your Q1 order book stood at roughly 5900 crores

01:24and plus these 1400 crores are also added to that order book.

01:27So total order book is more than 7000 crores now.

01:30So I want to understand what are the execution timelines looking like for the entire order book?

01:36The total order book which today outstanding is near to 7000 crore

01:42which I have already said that it will be completed in 24 months.

01:47One year is the projected time that we are looking to execute this order book.

01:50But you have also mentioned about the bidding pipeline which stands at about 6000 crore.

01:54Want to understand what usually for a company like PSP project is the conversion ratio

01:59or rather the success ratio that we should be looking for

02:02and what are the type of projects that we are eyeing on to grow forward as we go?

02:07See usually our bid winning ratio is within the range of 15 to 20%

02:12but it depends on the size of the project which we are bidding.

02:15If we are bidding for a large size project that ratio sometimes comes down

02:18but last year our bidding ratio was 8 to 10%

02:22because when you are bidding for a large size project

02:24and if you do not win large two project then the percentage goes down.

02:29Mr. Patel, your EBITDA margins are lower as compared to your historical EBITDA margins

02:34and you have given a guidance of margins remaining within the range of roughly 10 to 11%.

02:39But when do you expect that margins will come back to the original levels as they were?

02:46See actually this year the guideline which we have given is 10 to 11%

02:51depending on the experience which we had last year because of some shortfall at Uttar Pradesh

02:58and still we are confident that we will be in position to deliver 10 to 11%.

03:03Going beyond 11 to 12% depends on the size of the project and the type of the project.

03:08So presently our guideline still remains within the range of 10 and 11%.

03:13And what is the timeline for this 10 to 11% that we are looking forward for the next 2 to 3 years?

03:18When can we expect you to scale back to the 15 to 16% of margins that you had earlier?

03:23You mentioned about the size of the projects as you speak.

03:26So what are the type of projects that you need to target towards to get those margins back in track?

03:31See now getting to 10, 15 to 16% again is a little bit miracle

03:38because last when we reached to 15 to 16% was the time when the GST was not there.

03:44If you see our last 3 years it is ranging between 11 to 12 or 11 to 13.

03:48And to our experience now looking to the competition which we have

03:52and the size of the company is growing little bit high.

03:54So the overheads are going little bit high.

03:56Last year our interest cost was little bit high.

03:59So putting all these together, reaching to 15 to 16% is now not possible for an APC contractor.

04:05So still I would say that the bids which we bid and we will try to maintain 10 and 11.

04:13Mr. Patel, from what I understand is that cost escalation is one of the major reasons why margins are under pressure.

04:19And I believe that this cost escalation you have already considered in the guidance then?

04:24Yeah, as far as these government projects are concerned,

04:27very few government projects which do not consider price escalation.

04:31The story was for UP project.

04:33In general, most of the government project carries in price escalation which is through RBI index.

04:38And we always in the bid of our projects are of 50% of corporate and 50% of government.

04:49And in corporate it is always a pass through.

04:52So there we don't have to think about too much on the cost of major materials rate going high.

04:58Only we have to consider the escalation part for the labour for two years or two and a half years for the execution time for that project.

05:06Well, Mr. Patel, that was a fair understanding on the cost structure of the business.

05:11But now I want to come back to revenue growth.

05:14Revenue growth for this year is projected about 13.7%.

05:18Now earlier guidance was about 15%.

05:21So despite the strong start to Q1 wherein you've reported about a 20% growth,

05:25why have we lowered our revenue guidance for the year?

05:28And what's the outlook for FY26 also as we move forward?

05:33We have not reduced to 13%.

05:35It is generally...

05:37See, there are two things to understand.

05:39First and the second quarter is the major quarter which impacts the total revenue.

05:43So in first quarter it is usually the timeline when there are festive season

05:47and in the various season the labour availability is little bit less.

05:52And this year because of election,

05:54first April and May was majorly hit because of the election.

05:59So availability of labour was little less.

06:01So probably we'll be in position to gear up to 15% to 20% in near future.

06:06But at least for this year we keep it at 13% to 15%.

06:10Mr. Patel, your total debt as of FY24 was roughly 450 crores and net debt was roughly 190 crores.

06:17I want to understand what is the net debt position right now?

06:22After doing this GIP in April, we have raised about 240 crores

06:27and we have also received money from Surat Diamond Booth.

06:30So putting all these together we have reduced our debt to more than 250 crores.

06:36Then what is the plan going forward with respect to debt reduction?

06:40If you've come down to 250 crores,

06:42going forward will there be more debt reduction?

06:45Is that on cards?

06:46And if yes, by when do you expect to become net debt free?

06:51Today becoming net debt free, this year it is little bit difficult.

06:55But of course we've been positioned to reduce further 50 crores of debt from here

06:59because there are few creditors payment yet to come.

07:04At least 60 to 70 crores from UP and 100 more crores to come from Surat Diamond Booth.

07:09This will help us to put our debt to little bit down level.

07:13Okay, so 50 crores of reduction that we should be looking out forward for the company in terms of debt reduction.

07:19Now coming to the other piece is the CAPEX.

07:21I want to understand what are your CAPEX plans for the next three years.

07:24Also on to this you are expecting a ramp up in your precast business.

07:28Can you expand more on exactly what this is?

07:31And how do you expect to expand your CAPEX as you move forward?

07:38Specifically there is no such plan of making a special case in case of CAPEX

07:43because it will be project specific as and when required for the project.

07:47In general what we have always been in the ratio of 3% to 4% of the revenue.

07:52I think the guideline will still remain within that range.

07:55And as far as precast is concerned, yes precast business we started off in 2021 onwards.

08:01And these last two years or the breathing period wherein now people have understood this technology.

08:06And in Nestle project we did the project little bit faster to six months ahead of the scheduled timeline

08:13just because of precast.

08:15The new order which we have got from Coca-Cola also where we have to do a precast building of 50 crore.

08:20And furthermore orders are coming from industrial side and this warehousing facility.

08:26Last year we were able to make about 12 lakh square feet of warehousing in precast only.

08:32So probably precast revenue will go up and up every year.

08:36Now the technology is being accepted universally.

08:39And we hope for the best in next few years to come.

08:44So Mr. Patel then I want to understand that in terms of revenue breakup,

08:48how much of a revenue are you expecting from precast from a long-term perspective?

08:52And then will that improve margins? Are margins better in the precast business?

08:56Yeah, it can be better in future because these two years were in a period wherein

09:01we were making the position to make people learn about the technology.

09:05And we were not trying to make out more data at that level.

09:08We were keeping at the same guideline of what the general business of the company is doing.

09:13But as and when you are able to save timelines on the project period,

09:17people are going to pay you more.

09:19So probably we are in position to earn more in terms of precast in future.

09:23And yes, this year we learned about 180 crore and next year we will expect

09:28150 or so crore to come from precast.

09:31Precast is going to help the company in terms of labor efficiency,

09:38which is being faced by most of the construction companies as of now.

09:42So for us, this will be a win-win situation wherein we will be able to get projects

09:46which are being more affected on availability of labor or remote locations

09:51where the availability of small contractors are not there

09:55or projects which requires a very stringent timeline.

09:59Such types of projects are always now going to get converted to precast.

10:03And day by day, precast plants are also being installed more and more

10:08throughout the country.

10:09The company from where we bought this precast plant, Elematic,

10:12they have already told me that they are having a huge inquiry in terms of precast

10:17because since last two years we have faced a big problem in terms of consistency

10:23of labor availability throughout the year.

10:31Okay. Mr. Patel, just one last question before I let you go.

10:36What are the kind of expansion plans in terms of geography?

10:40Are you planning to do more geographical expansion other than Gujarat projects?

10:47It's not about going more or less. It is more about the opportunity as in when we get.

10:52So lastly, when we get an opportunity to work in UP, we have worked for 8 to 9 projects in UP.

10:57We have also worked for a few projects in Bangalore.

10:59We have worked for a few projects in Rajasthan.

11:02Presently also the last order which we have got is in Bangalore.

11:05And one more large bid we have already bid for a commercial project in Delhi.

11:09So it is more about the opportunity rather than thinking that how much we should expand out of Gujarat.

11:18Alright. Mr. Patel, thank you so much for giving us those insights on PSP project.

11:23A very interesting company to watch out for definitely.

11:25And thank you so much for taking our time and speaking with us at NDTV Profit.

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