PSP Projects has 30% upside after strategic alliance with Adani says Ankita Shah of Elara Capital

According to a research report by Elara, PSP Projects (PSPPL IN) recently signed a definitive agreement with Adani Infra (100% owned by the Adani Group) to sell ~30.07% stake (~50% of total promoter stake of ~60.14%) for INR ~6.9bn, valuing the company at INR 22.8bn. The strategic partnership augers well for both parties: it will not only help Adani Infra to strengthen its building segment along with current project management consultancy (PMC) exposure to large infrastructure areas, such as ports, roads, airports, water, data centers, power projects, cement, and T&D but also help PSPPL increase scope of new work orders within its core building sector by getting projects from the Group. With existing promoters and management team continuing with an equal stake in the partnership, this strategic alliance is likely to strengthen growth prospects and value creation in the long term. We retain our positive stance on PSPPL. We reiterate Buy with a TP of INR 792. The deal is subject to regulatory approval, including completion of the open offer (despite the open offer, 50:50 partnership would be maintained).

The Key Risks flagged are that aAny adverse news against the Adani Group will have a negative impact on the stock.

It is also stated that the Partnership will unlock large opportunities: Currently, PSPPL’s forte is timely execution of complex and unique building structures on an Engineering Procurement and Construction (EPC) basis along with precast capacity of 1.0mn sqft at Ahmedabad. Out of current orderbook of INR 65bn, ~INR 5bn (8% of total) is from the Adani Group. However, with the Group’s larger presence across the infrastructure sector, it could unlock more opportunities while still focusing on the core buildings segment. While order inflow target retained at INR 35bn for FY25 (YTD received INR 17bn), management aims to focus on large airport projects at Ahmedabad, Mumbai, and Trivandrum worth INR 30bn, the Dharavi redevelopment and the Mundra precast work in the medium-tolong term. Besides the Adani Group, the company will continue to bid for profitable third-party contracts. EBITDA margin is likely to sustain above 10%. Any additional capital requirement to be funded through debt and equity infusion will adhere to agreed shareholding proportion.