Brokerage firm Prabhudas Lilladher has initiated a 'Buy' rating on PSP Projects, setting a price target of ₹1,061. This view is supported by the company’s record quarterly revenue and a strong order book. However, investors should monitor the company's high client concentration risk, as a significant portion of its order book is linked to a single group.
Brokerage firm Prabhudas Lilladher has initiated coverage on construction company PSP Projects, assigning a 'Buy' rating and setting a price target of ₹1,061. This outlook follows the company's performance in the second quarter of fiscal year 2027, where it reported its highest-ever standalone revenue of ₹10.1 billion, representing a 45% increase compared to the same period last year.
The brokerage highlights that this revenue growth was largely driven by a significant increase in labor deployment. The company reportedly utilized between 23,000 and 25,000 workers during the quarter, a sharp rise from 16,000 in the previous quarter. With a total order book standing at ₹128.7 billion—roughly 3.6 times its trailing twelve-month revenue—and an active bid pipeline of ₹78 billion, the firm appears well-positioned to meet its fiscal revenue targets.
While the company has shown strong output, its profit margins require attention. In the second quarter, EBITDA margins were reported at 6.7%, reflecting a contraction of 26 basis points year-over-year. Management has indicated that they expect these margins to recover to approximately 7% in the second half of the fiscal year. They anticipate further stabilization in the 7.5% to 8% range in the medium term. This improvement is expected to occur as projects transition from initial structural work to higher-margin phases, which include mechanical, electrical, and plumbing (MEP) work as well as finishing tasks.
Investors should be aware of a specific concentration risk. Approximately 72% of the company’s current order book is linked to projects for the Adani Group. This heavy reliance on a single client group means that any change in the business plans or capital spending of this client could significantly impact PSP Projects' future revenue and order flow. Diversifying this client base remains an important factor for long-term stability.
From a valuation perspective, the brokerage notes that the stock is currently trading at approximately 11 times its estimated earnings for fiscal year 2029. This valuation is being viewed by analysts as a point of entry for those looking at the company's long-term growth potential.
Looking ahead, the primary monitorables for investors will be the actual execution of the order book and whether the company can successfully meet its margin recovery targets. Investors may also track the company's ability to win new orders outside of its major client partnerships to reduce concentration risk, as well as the overall management of working capital and labor costs as the project portfolio scales.