Ladies and gentlemen, good day and welcome to PSP Projects Limited Investor and Analyst onference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star then zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Krishna Patel. Thank you, and over to you.
Thank you, Steve. Good morning, everyone, and a warm welcome to discuss on yesterday's corporate announcement of the share purchase agreement. Here from the management we have with us Mr. Prahaladbhai Patel, CMD and CEO, Ms. Hetal Patel, CFO. Please note that today's entire discussion will be covered by the cautionary statement. Anything said on this call which reflects the outlook for the future, or which should be construed as a forward-looking statement, must be reviewed in conjunction with the risks that the company faces. I shall now hand over the call to Mr. Prahaladbhai Patel for the initial remarks, post which we shall open the floor for Q&A. In the interest of all, we humbly request all the investor and analysts to ask a maximum of two questions in order to provide a fair chance to all the participants in the call today.
Thank you, and over to you, sir.
Thank you, Krishna. On behalf of the management and my team, I would like to thank you all for joining us today for this short notice. I warmly welcome you all to the conference call to discuss the share purchase agreement that we announced to the stock exchange yesterday. Since yesterday, there have been certain rumors taking rounds in the market and post the declaration, I found it prudent to address all the investors over a conference call and provide clarity on the transaction. Over the 15 years, PSP Projects has worked relentlessly to deliver a reasonable return on operational success. The firm has been able to make its mark in the sector as a credible contractor who's utmost focusing on delivering projects within the timeline. Company has navigated through various business cycles, adapted to changing markets, and consistently delivered on operational and financial performance over the years.
We reached a stage of being the top five construction contractors in India. With an objective to attain next stage of growth, your company has entered into a share purchase agreement with Adani Group. This decision has been taken after careful consideration and after evaluating the opportunities it presents. As per the agreement, Adani Infra will acquire a 3.07% stake from the founder promoter. Post the open offer
Just sorry to interrupt. Can you just move a bit away from the mic and speak. The voice is—
Okay.
—coming a little muffled.
Okay. Post the open offer, is it okay?
Yes, sir. Far better.
Post the open offer for 26%, both the companies will maintain equal equity of the company. Adani Infra (India) Limited is a holding firm of Adani Portfolio, which is owned 100% by Adani Family. Adani Infra will get equal rights and representation on the board. The business operations, execution, the management team, EPC, PSP Projects will continue to function as before. PSP Projects will continue to focus on public as well as private projects across the building space. With this partnership, we foresee larger visibility of our company. Currently, we are at an order book of INR 6,546 crore. We expect a multi-fold increase in the construction order book going forward as Adani Portfolio of companies are engaged in infrastructure development across ports, airports, data centers, realty, etc.
Adani Portfolio of companies is looking to invest $ 100 billion as CapEx over the course of next decade. Please note that the transaction remains subject to customary approvals and regulatory approvals, including completion of an open offer. To summarize, we strongly believe this partnership will benefit the company and provide long-term growth opportunities. We are positive on the future of the company. We intend to work with complete dedication towards execution of our projects and build more capacity. This strategic decision represents a giant leap forward in our pursuit of growth and increased shareholder value. With this, I shall propose to hand over the call to the moderator to open the floor for question and answer. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.
Hi, Prahaladbhai. Congratulations on the deal. My first question is on, if this deal had not happened, if it was status quo, and now it has happened, how will it change in terms of ordering? What is the order book right now from Adani? Since you have got into the deal and given them stakes, what kind of visibility you have, over say, next two, three years from incremental ordering coming in from the Adani Group? Will it be only building segment or are you also looking for some other segments? Because you mentioned in the press release about $100 billion CapEx from the group companies. Is it largely going to be building segment only or you will diversify into some other segments?
See, as far as PSP is concerned and as far as Adani is concerned, the whole intent to join 50% partnership is our account is majorly for building. As I said, buildings, they are into realty. They are based at Mumbai, they are based in Ahmedabad, they are based in Delhi. All these three centers, we have to select and we have to go partially and we have to handle ourselves. Second part is airport, that is also part of the building. Third part is data center, that is also part of building. There are few industrial projects which are in Kandla. See, now company is focusing more on technology, and that's the reason I think whole second agreement has been done with PSP. To be very frank, they trust us in terms of putting up more and more technology in the company.
The Precast plant, which we have been running in last three years, that has been the better example for them to understand how can we be a good partner for future. They are already installing three Precast plants, one in Mundra, one in Mumbai, and one in—
Sir, we are not able to hear you, sir. Your voice is very Operator, the voice is not clear. There's a lot of disturbance coming. Hello?
Yeah.
Sir, there is a lot of disturbance. Can you come closer to the mic because there is some hissing sound or some whistle sound coming continuously on the call. If you can come closer to the mic, it will be helpful.
Hello.
Yeah, please proceed.
Okay. My point is that they are having plenty of verticals, whether airport terms, building terms, realty terms. As far as the order book is concerned, it is a process wherein they are doing one project to the other. Presently there are three random airport tenders open. Ahmedabad Airport tender is open, air side and land side. Same at the Mumbai Airport, their development outside the airport, that footpath area is pending. I think we already bid for that. We have already had a few meetings related to Dharavi development. Dharavi, they are going in a way that first they have the buffer plan, then they will start the construction of the major EWS, where they can shift the Dharavi people. There are two or three selected locations which we will start before anything touched in Dharavi area.
Probably, I personally feel that it is not about the order book which we are going to gain from Adani Group. It is more about how we ourselves can strengthen to get more and more from the group.
But anything on the guidance side now because you have visibility with this deal coming, and do you think there is substantial scope for you to increase your guidance on order inflows and growth? I mean, qualitatively over next two, three years, do you think now the company is shifting its orbit of growth, given that now this strategic partnership is in place?
Parikshit, if you see the figure, these figures are something which we cannot even today imagine giving the thing which we have to bring in next five years. But first and the foremost thing, we have already told you, we are already bidding for about INR 1,000 crore project in Kolkata, INR 1,000 crore project at Airport Ahmedabad, INR 1,000 + crore at Mumbai Airport, and already a INR 500 crore project in Kandla. So putting all these present things I am saying, forget Dharavi, forget data center, which tenders are yet to come at the project or at the event stage. Probably, order book is what I am saying is we have to think about ourselves and how we would like to move from here.
Okay.
So that won't be an issue as far as This partnership is basically done on that basis only, that we can move little faster, and in which we can move on EPC contract. Previously, they were focusing more on only four and seven, giving to a three contractor, and later on moving towards MEP works and other works. Now they are looking at the whole project should go as an EPC to PSP. So this is a total different thought process from company side, that what is the pressure they are feeling to complete the project on time. There is company like us whom they trust in terms of capabilities also, as far as delivery also. That's how this whole transaction has been.
Okay. Just the last question, sir. Now between you and ITD Cementation, how will this thing be split? Because both have the building division, and also every time you will have to come for related party approvals now for orders from Adani.
See, there are two things to understand. I am not sure about ITD whose formal agreement is there. What I have understood, ITD is more into infrastructures of marine structures also. Maybe they will be utilizing more that company towards their port site. As far as building, as I said, there is a sufficient appetite for two or three contractors each who can deliver them on time the way they are going in next 10 years. It is not at all about who will do the rest of the thing. It is more about how can we strengthen ourselves to get into the larger construct of projects.
Related party approvals all the time, I mean, you will have to come as you get orders. So every time you will have to take approvals from the minority shareholders.
Like related party?
Like if you take orders from Adani Group, which could be significant in terms of like, because it is a promoter entity now and related party, so you will have to take approvals from the shareholders for taking those orders.
Again, I am not getting the question.
Yes, sir. If at all it is required in the future, if the transaction value is more than the threshold which has been given in LODR, we will be going ahead with it.
Okay. Sure.
As of now, no need to take this.
Okay. Sure. Thank you, sir. I wish you the best. Thank you.
Thank you. The next question is from the line of Vijay Bharani from Avendus Spark. Please go ahead.
Yeah, good morning. Am I audible?
Yeah.
Yeah. Good morning, sir. My first question is on the mechanics, how the partnership will work for future order inflow from Adani. You explained, I just want a little more color on the projects that will come from Adani Group. Will it come directly as a nominated project without any competitive bidding or any such tendering?
See, that also again, depends on their identity. It is more about the, they will be putting tenders to two or three contractors who have a competition and finding the right cost. But most probably, the agreement on which we have agreed, that will be somewhere in the next agreement where we have to clear about the cost and there will be some profit and overall cost calculation over the project, and that's how the model should be given to CA.
Actually, sir, I'm not able to hear you clearly.
Meaning I'm not able to follow what you are talking about.
Sir, I will just disconnect and reconnect you back. Is that okay?
Yeah.
Yeah. Okay.
Yeah, because I am not able to hear, sir, clearly. Yeah.
Yes. Ladies and gentlemen, the management line has been reconnected back. Yes, sir. Please go ahead.
Vijay Bharani.
Yeah, go on.
What you are saying is that every project will be negotiated and given to us. As I said, we will always go for a fair competition to get the rate from the market depending on the type of the project. But at the end of the day, the formula on which we have agreed, this is basically it will be some cost plus formula. Fixed profit and fixed overhead. Based on those formulas, we will account the cost and we will go ahead with the project. Basically, what will happen that each and every project where the tender stage process was going for two and three months, that will, it will be reduced to maximum by within one month, we will be able to sign that one project.
Again, I am not very sure I heard it properly, but if I were to summarize, you are telling there will be certain fixed margins that will be allotted to the projects that will come from Adani.
Right.
Is that the right understanding?
At the company level, we would like to maintain our EBITDA till now, whatever we have achieved. This formula will be worked out based on the same calculation. More or less, company EBITDA is not going to change, as per that group entering into our project, because they are also equal partners. The EBITDA margins will try to maintain the same.
Okay, but how will the projects come to us from Adani? It will be a nominated project. It will be direct without any competition.
See, where there is no governance from their side to have a tender, they can come directly to us also. Maybe there is a kind of governance, they have to go for competitive bid. They will go for competitive bidding, but while negotiating, they can say, "Okay, now this is our cost." Then going deep into the calculation of cost and putting the margin from our side.
Okay. My final question is basically regarding the fact that, couldn't this arrangement been done just as a JV or a partnership with the Adani Group just to take the projects instead of giving them an ownership stake? Because you have created wealth over time for the investors. You could have done it on your own in next five, 10 years also, without this stake sale to Adani. Could there have been just an operational strategic alliance with Adani for just order inflow instead of a stake sale? What is the rationale behind providing Adani the ownership in some sense?
See, there are two things to understand. Anywhere if you see the construction business and its cost and its operation and its profitability is a complex formula. To trust someone directly and to trust through books is a totally different thing. When we talk about partnership with any class firm, they will always feel like they are comfortable also by giving you an order or by giving you a portion of their billing, they are like a fixed profit. It is not about that they can trust me directly because I am from Patel or I am from Gujarat, and give me the order on X formula or Y formula. When they interest our partner, they can understand the books very properly, and any problem in those books that they can see at any point of time, that is the whole reason to enter into this partnership.
Sir, I will get back in touch with you.
Thank you.
Thank you. The next question is from the line of Shravan Shah from Dolat Capital. Please go ahead.
Yeah. Thank you. Sir, just a request, because whatever till now you have said, 50% we were not able to hear because your voice was not clear. Just a request, if you can speak at a slower pace, maybe we can hear you clearly. That's the one request. Now, just to clarify, because I couldn't hear clearly. So in terms of the first question when you were answering, if you can repeat the orders, you said INR 1,000 crore Ahmedabad, Mumbai Airport, and some other orders. Once again, if you can specify the value of each project, and immediately you are looking in next three months this order will come to PSP Projects, that's what you are trying to say?
Right. Because each and every project is now at the tender stage. Some of the projects in Ahmedabad, which are in the range of about 20 lakh sq ft that has converted from parking to Precast. We are exploring Precast on a major level at Ahmedabad. So whether it's a reality or whether it is an industry, we are trying to enter into a project to reduce the timeline to Precast technology. As far as the airport is concerned, the tenders are through, and we are in the process of bidding. Day after two or three competitive bidding, because there were three tenders parallel. One was Jaipur, one was Bangalore, and one was Ahmedabad, and the fourth was at Mumbai. So all these are currently are in the process of conclusion and some of them are in the process of bidding.
As far as Mumbai is concerned, I again say, Dharavi, where we already have one or two which we have already cleared and they we are [audio distortion].
Sir, just still trying to further dip down, trying to get the numbers. I'm not still able to get the numbers. Sir, if you can split
If you note about numbers, Shravan Shah, please don't put into the number. I'm just saying a generalized how many projects can come within next three, four months. Why are you going to each and every number? I've already said that tenders of INR 1,000 crore. Everywhere it is going on 30 figure. So it's in the range of INR 3,000-INR 4,000. Why do you want each and every project number?
Okay. Got it. Second thing is, sir, will they further also increase the stake? Are we also planning to sell further more stake apart from this 30% stake?
This whole shareholder agreement is there on the basis that never both the company identity will remain as 50/50 throughout the next 10 years. None of the person can sell or buy without permission of each other.
Okay. Got it. And other question is, in terms of at your level, as you said, you are having this business only and will like to continue. So what will be the use of the proceeds, INR 685 crore that you will be getting?
Sir, my personal money you are asking?
Yes, sir.
Why you are asking about that money today? I am not sure even that what I will do with that money.
Okay. Got it. Thank you, sir. Just a last thing, sir, recently the QIP we have done at INR 670 in April, and now this deal at INR 575. Anything you want to comment on that?
I think I should not comment on that. This is a situation where company was getting a benefit for a longer period, and we found that this is a better winning situation for futuristic order book and futuristic business. Joining hands with such a large group who is going to have a large presence for next 10 years, if we can perform in a better way, I think we are at the right place.
Okay. Thank you, and all the best.
Thank you.
Ladies and gentlemen, the line for the management has been disconnected. Please hold while we reconnect them back. Thank you. Ladies and gentlemen, the line for the management has been reconnected. The next question is from the line of Vishal Periwal from Antique Stock Broking. Please go ahead.
Yeah, sir. Thanks for the opportunity. The couple of clarification. Your initial commentary mentioned both the entities will have an equal equity in the company. But sir, I think right now it is 30/30, but after the open offer, Adani will have something, buyback or probably what they will do. So equity, eventually it will change. Or, if there is another way, one should interpret this open offer.
See, presently it is a share purchase agreement of 50/50. If they are getting 2% or 5% from the market, totaling that will get 65%, then it will be distributed 32.5/ 32.5. In that case, I will be selling only 27.5%. So it can be concluded at the closure of the open offer.
Okay. This 50/50, it is there for the next 10 years. I mean, whatever happens in the open offer.
Yeah.
Okay. Got it. Again, you did clarify no one can sell, exit without the confirmation from both the parties.
Right.
Got it. And sir, you did mention on the formula for the cost plus.
Yeah.
What is this percentage, the plus percentage? What exactly is it?
That is worked out based on the type of the project, because each project has a different level of calculation as far as investment, as far as the model of setting investment and model of the technology which we are going on, we are using, because that can be different. Basically, it will be a fixed profit margin and the exact cost, and the third party's exact overheads which are required for that cost.
Okay. Maybe, is it—
So as to maintain the company EBITDA level as per whatever guideline which we have been giving till today.
Okay, so cost plus is more like 12.5% sort of margin at a company level.
I can't comment on percentage because, as I said, that depends on and I'm saying clearly that your view should have been mostly basically the share level. Whatever the company EBITDA is coming up, we will like, try to maintain the EBITDA, even if we are doing a project for their group.
Okay, got it. Maybe last thing from my side. Adani Infra India, which has acquired this, so are they already doing EPC work, that entity? Will you have any understanding?
No, we are not doing any infra. Adani Infra is majorly presently into different types of infra projects. They are into road, they are into waste treatment plant, Namami Gange cleaning part. But this company, where we are working, we work with different segment, vertical sub-group. We are working with Adani Realty, we are working with Adani Airports, we are working with Adani Industries. We are with Kandla.
Right. No, maybe the reason why I am asking is because eventually, Adani Group has constructed lot of infra work in India, there is already an entity which is doing it, which could be a 100% owned entity. But why they will route it through a PSP wherein eventually they have to share the profit with a third person. I mean, if they can do it through an entity with a 100% already owned by them. Probably whether the order inflow will come to PSP or that is probably I just thought to check.
See, actually, if you can go back to the understanding the Adani infrastructure profile, they are into PMC management of road infrastructure and sewage infrastructure. So they again get the order from the government side or the private sector, and they give it to a large contracting firm. Presently, the road sector is being attended by two large contracting firms for roads and roading works in India. So it is not that the company personally is doing any business directly. So here, there is a point of that we as a contracting firm, we are purely into making, building infrastructure. So that is the reason that is not their expertise. So they require a partner who can deliver the project as per their vision and expertise their timelines, and that is why Adani Infra is interested in investing in PSP.
Sure. I think that is helpful on your clarification. Thank you, sir.
Thank you.
The next question is from the line of Prem from Anand Rathi Shares and Stock Brokers. Please go ahead.
Thank you for taking my question, sir. I had basically two questions. One was, when I read the scheme that you filed, it says there will be a change in the board structure as well. I mean, obviously, if they are taking up this much stake, they would nominate some directors. I understand the board part clearly, but would they nominate any people from their side who would also kind of engage in the day-to-day operation? I mean, all this while you, along with the existing team, was managing the entire show. Would they nominate any members who would come and join the management and participate in the active decision-making within the day-to-day operations? Or it would still stay with you, I mean, the decision-making would still stay with you?
You have gone through our yesterday's press release. We have clearly mentioned that the operational part 100% remains with P.S. Patel being Managing Director, Chairman, and CEO till today. As far as the management is concerned, they will have a board exit, and there will be, we have to represent in the board. There will be two members who will be coming whenever there is a board meeting, and if I have to represent anything, we have to represent through them. Otherwise, as far as the company's running is concerned, it works exactly the same way it was working till now.
Sure, sir. Second question. I understand this is a hypothetical situation. Let's say, we generally target, this year we're targeting, let's say, INR 3,000-INR 3,500 crore sort of inflows. Let's say next year we would target INR 5,000 odd crore, and you have equal amount of opportunities available outside Adani portfolio as well. I mean, how would you prioritize, and which work do you intend to take up? Would you still have an option to kind of go and refuse Adani's work and then do third-party work? Hypothetically speaking, let's say if the margins happen to be higher there.
Yeah. See, I will put it this way. Presently, there is nothing binding to me that I'm not able to work on any of the projects out of Adani Group. We have clearly mentioned that we should remain in the market because this is going to give the image to the company also. So as for a government large projects are concerned and wherever there is a large opportunity, we will go for a competitive bid, and if we get those opportunity, we'll absolutely go for projects which are to that scale. But as far as this group is concerned, if we have an assured business and assured profitability with less competition, that this will also be a priority. So it depends on the type of the project and whenever it is, but as such, it's not any binding.
I mean, we are expanding with any binding, but we are not confined to Adani only. We have large potential at Adani, so we will be focusing more on Adani. But opportunities which are also large and the competition is niche, we will obviously go for the project.
Sure. No, sir, it was not about whether it's a binding arrangement or not. It was more from, we understand in this business, you generally tend to have capacity constraints, right? I mean—
Yeah.
—you suddenly won't go to INR 10,000 crore.
Adani also. Presently, Adani is having INR 10,000 crore orders in market. I'm not able to bid on to all the types of projects.
Sure.
So that concern we have to also think, as and when we grow and we increase our bandwidth in terms of strength to do the projects on time, this will grow sequentially. So maybe the first level, we'll go for slowly getting that project, and once we are through, out of some of the projects getting completed of the existing order book, we can add larger projects for their group also.
Sure.
So it's the user score which I have to take as and when my bandwidth is there.
Okay. And just one small clarification. When I was reading this press release that you have given out, I thought the lock-in is for five years, and I am not sure if I heard you correct or not. I heard 10 years on the call.
No, sir. Lock-in is absolutely for five years.
Five years.
Till time is not controlled. But the shareholding agreement is done for 10 years, wherein me or my family can continue till 10 years.
Sure, sir. That clarifies it. Thank you and all the very best.
Thank you. The next question is from the line of Vaibhav Shah from JM Financial. Please go ahead.
Thanks for the opportunity. Sir, given this partnership has shaped up, will you be revising our order inflow guidance for FY 2025? What could be our guidance for FY 2026 as well, on order inflows?
See, again, I would say the present guideline still remains at INR 3,500-INR 4,000, but that depends on next two to three months, how we are getting the queries from them. Because there are several projects which we are discussing last month and last month. That is at Shantigram, that is at Ahmedabad, that is at Delhi also. But after getting this clarity as a group yesterday, that how we are joining hands, there will be different scenario from tomorrow. Let us hope that we at least reach to our order guideline of INR 4,000, whatever we have anticipated for this year. That's the bandwidth which we have today.
Okay. And sir, secondly, last time we had mentioned the pipeline was around INR 7,000 crores.
Yeah.
What would it stand right now?
I think it is still in the same range. Probably those bits are also in process. Let us see how that order pipeline goes and how the value pipeline goes.
Okay. And sir, lastly, how are you working on increasing the bandwidth? What kind of say, order book or say, annual revenue can we reach at peak with the current bandwidth?
See, presently what is happening, the whole idea for joining hands with Adani Group was majorly because of technology, the way we have grown in last three years. We are trying to adopt more and more technology, I mean to say, Precast technology. There, the bandwidth is not required from the management side of it. It is bandwidth required at the plant side. Probably, it will be remaining situation that we can add on INR 1,000 crore, particularly for the Precast plant separately, and then maybe INR 3,000 crore- INR 4,000 crore, wherein we have to execute the project in casting because of the type of the project. We are presently exploring two to three buildings in Precast, which are already designed for casting people. That I can get assured once I get through with one or two projects going on fast-track on Precast.
Then I would be able to answer your questions properly after three to four months, once we are through in execution of Precast also.
Okay. Thank you, sir. Those are my questions.
Thank you.
The next question is from the line of Ashish Shah from HDFC Asset Management. Please go ahead.
Yeah. Thank you for the opportunity. Sir, a couple of questions again on the structure. Just for the clarity, when you say there is a lock-in for five years, in this five-year period, there is no option also that the remaining stake can be acquired by Adani. I mean, this shareholding in that sense will remain frozen. Only after five years, the question of right of first refusal, et cetera, arises if anybody wants to sell. Is that understanding correct, sir?
Right.
Okay. Second, sir, in a case where, let's say, there is an infusion of capital required from the promoters. Let's say if Adani want to infuse X amount of capital, does it mean that you will also have to match the remaining stake, match the similar amount to maintain equal stake or in that case, you may get diluted.
There also we have explored that first it will be debt part and then it will be equity part. When it comes to equity part, at that stage, it can be decided how it should be worked out. But the priority will be debt first because one can have the balance sheet strength to have more debt. So first is debt and then is equity. But that is something which can be mutually decided at that time.
Okay. This current understanding is more from selling of the existing shares. For any primary infusion from the promoters, that is something that we will work out as and when the situation arises.
Actually, sorry, I got your question. What was it?
No, sir. What I am trying to say is that the current understanding on having equal shareholding is for the current shareholding that we have.
Yeah.
For any primary infusion of capital, let us say if Adani wanted to infuse INR 1,000 crores in, I am just hypothetically giving a number. If they want to infuse X amount of capital into the company for whatever reason, at that time, you will have to probably come to a decision on how to manage your stakes, right? Because that always cannot be maintained in equal proportion, because you may not be able to maybe get the same amount of capital that they may want to infuse.
But there I said that the first priority as per the agreement is debt, and if the debt is not permitting the company balance sheet, then we have to think about it.
Right. Very much. I got your point. Just last thing, I couldn't hear clearly on that 10-year part. The five-year part is clear. You said something about that 10-year shareholder agreement. Can you just repeat that, sir?
I think some of the conditions, I am not there, so now I've got little bit confused, but I'll come back to you. I think the basic stock of the shareholding is to be considered is five years. But me and my affiliates, if I am responsible for five years and my affiliates are responsible for 10 years in terms of doing such types of business later on at that time. So I will come back to you exactly what is the condition, but basically it is five and 10, so I got little bit confused on that. And Krishna Patel will mail you exactly what is there in the shareholder agreement.
All right, sir. Thank you. That helps. Thank you.
Yes.
The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good morning, sir, and congratulations on the transaction. Sir, first question is, I could not understand this equal stake because now the open offer is for 26%. Now we stand at 30/30. Suppose they get the entire 26% stake in the open offer, then will you be selling only 4% to them? Or what will happen, sir?
Yeah. It will be 4% from my side, and the 26% they are getting from open offer.
Basically the total stake of Adani plus you will not cross 60% in the company. 40% will remain with the public shareholders at all time.
No. It is not like that. If today they are getting 26% and total is getting more than 75%, when keeping 75% as a threshold, it will be distributed between two.
No, sir. What I want to understand that post this open offer, suppose they get 10% in open offer, then you will be selling 20% only to them.
I am telling something that 60% is my and 10% they are getting from the market, so it will be distributed 35/35.
Okay.
I will be selling them 25%.
Understood. The total stake will remain equal after the open offer also.
Right.
Okay. Understood. And sir, on the margins, now, we saw a situation in U.P. wherein our actual versus budgeted sort of was different, right? These margins, fixed margins, which will be there for your projects with Adani Group, will that be based on actual spends or will that be based on budgeted spends?
Yes, you must be aware, whenever we are working with a private group, the basic materials are always on a base rate. Those risks which were there in the U.P., where all the materials, we have to bear the cost of the rise in the material cost. We have the base prices of the cement or steel, whatever it is, we have agreed today that will be paid off on whatever, whether it is minus or plus. What is going to be fixed is my overheads, and what is going to be fixed is my margins, and what is going to be fixed is my cost. Supposing within the cost part, if I have considered INR 1, later on if I am spending INR 1.1, the INR 1.10, then there can be a difference in the total margin. That can impact your margin.
But major material cost which are on a base rate, that is not going to impact anywhere on Q1.
We do not face the risks which manifested in our U.P. execution in these contracts.
These are the government projects. This is different. This is not only about Adani. We are working in Coca-Cola, or we are working in some other projects which are private. Everywhere, the cement, steel, sometimes the flooring material, sometimes larger electrical equipment, these are all at base rate. Whatever plus or minus the cost of procurement is, it is always being embedded or it is deducted from the bill. The risk of inflation of major materials does not remain too much in the corporate office.
Understood. Now, sir, coming on the, you mentioned that we would want to maintain the company level margins. But since we have seen some volatility around that in the last few years, would you want to restate what is that number that we are looking at? Is it 11%, 12%? Or now that if their book becomes a big part of our execution book, will it go down to 9%, 10%? Or what is that number, sir, on an EBITDA level that we will be looking at?
See, again , I would say that previously also, we have changed our projection from between 10% and 11%, from 11 %- 12%. Today also, what we have agreed and what we are anticipating for future when we are working with Adani, or whether we are working with other groups, or whether we are working at government level, we will try and seek to maintain our EBITDA at 10%+. We are putting. Yeah.
10%+ . Okay. Will you see a significant reduction in your interest cost post this transaction because of the change in the profile of the joint owners?
Definitely, the debt part is because of whatever we are having. The debt part is not going to change much. So interest cost is already whatever impact was to come, that has already come after QIP. So that will remain a little bit standard. Yes, that can be a little bit help on the working capital side, that the project which where we are working, we get the payments on time. If we are working with Adani, so that cashflow will little bit improve, and that's how we expect that any money which we are drawing from the banks, I'm not hold too much because of the receivables.
Understood. Finally, now, there can be a lot of order inflows because of the work that Adani Group is doing. But how will we be able to execute at that larger scale? Because the organization itself also needs to be able to execute or take large orders. So how are we thinking about it? What are the organizational level changes or things that we need to do in the next six months to be able to do that?
We also know our weak point, they also know our weak point. As I said, if we want to expand at both the levels, we may require to strengthen our organization also. So that we are going to sit with them at the HR level and how we can expand ourselves in terms of organization. That is not something which we are going to go through in the next one or two months. Till today, we have been discussing majorly on the project before this transaction. So once those projects are through, and how to go ahead on a larger scale projects at Mumbai or Ahmedabad or some other places where they are having projects. That will be in the course of discussion we will get to in one or two months. But yes, that is where we have to improve our management or organization side.
Okay, sir. Thank you, and all the best.
Thank you. The next question is from the line of Amit Khetan from Laburnum Capital. Please go ahead.
Hi. Thank you for the opportunity, and congratulations on the transaction. My first question was, what were the constraints earlier, either in terms of capital or pre-qualification, which now sort of goes away with the partnership with Adani, and does it allow us to compete in other segments or areas where we were not present earlier?
Yes. Where PSP is concerned, we were having almost the highest standard of pre-qualification, except some of the large projects like airports. We have started our work at airport since last two years there at Ahmedabad Airport. The size of those projects and the expansion outside the airport on the land side. Probably joining hands with such a group, we are having large projects on the airport side also. Probably they can add on to our team. Otherwise, more about the institutional building, whether the residential building or whether the industrial buildings, we were having a strong profile. That's nothing to add on pre-qualification by shaking hands with this group. But it is majorly to have an assured profitability and assured business from such a group.
Got it. And would it be a fair assumption that given how you have outlined that this is going to be a partnership between PSP and Adani, that both you and your family members who are currently involved in the business, it will continue to be the case going forward or would your kids end up doing something else?
Yes. As I said, that presently, the shareholder agreement, 100% agreement is based on 5% management and everything. Later after five years, if my son want to continue or they want to add on some people, that can be discussed later on. And how much we are able to strengthen ourselves in terms of these next five years after getting such a large opportunity, that can be discussed later on. But today it is not clear that how my family is going to continue after five years. If my both son and daughter, they grow up in a direction to strengthen what I am doing till now, or if I am still work and work for further five years more, that will be discussed later on after five years.
Got it. Thank you, and all the best.
Thank you. The next question is from the line of Devang Patel from Sameeksha Capital. Please go ahead.
Hi, sir. I wanted to understand what we are looking to strengthen in terms of technology, which you mentioned a few times earlier. Are we looking to scale up our precast capabilities or are we looking to add some more capabilities? Would this be outside of buildings, say, tunneling, for example? If you can please clarify on this.
See, presently, Adani is working at Ahmedabad. Majorly, if I talk about Ahmedabad, Gujarat, and Kandla. Also, they are working majorly on Dharavi, Mumbai Airport, and Dharavi. All these three places. Presently, we are having a plant in Gujarat, in Ahmedabad, doing work for airport and doing work for Shantigram, whatever project we can convert into precast, we already have a facility. There is one more plant which is coming. Whenever there is a requirement of a new plant, that will be an asset owned by Adani. We are entering into operational plant. Presently, there is the installation of plant is going on at Mundra, and there is one more plant which is coming at Mumbai. We will be responsible because we have the expertise of making these elements. We have the experience of operating these plants since last three years.
We will increase our operational strength to work on all these three plants so that the project elements are being casted, and later on, those types of projects where we are casting, and we can go for installation also. But if there is a large project and two or three contractors are involved, we may be involved in production only. It's something which depends on later on how the projects are converted from casting to precast and where this type of technology can be feasible and cost effective.
Okay. The Ahmedabad, the plant that we have currently of precast, would we be looking to expand that also because of this partnership?
See, as of now, we don't see that. Presently, at least if I say in one or two months or three months, maximum three months, we don't have any idea of any calculation of expanding that because there's two or three projects which we are working on, and it is at the design stage for Adani Group. This plant is sufficient to provide elements from that side. But if in future also, we add on more and more projects in reality at Shantigram, then there can be an expansion. But we have already expanded ourselves to double the facility without mold because we were doing the L&T order. The state facility is almost at double. So after that L&T order is over in June, we have that space, just we have to buy for the mold.
But as of now, we don't have any requirement that the projects which are in line, which we are going to add on in this order book in next few months, will be requiring expansion in precast.
Right, sir. Sir, in terms of pipeline, which we've mentioned in earlier quarters of INR 7,000 crores, does that immediately expand? You've mentioned a few thousand crore projects. Should we assume these were already part of our pipeline? Our pipeline remains the same because of this partnership, or does it expand immediately because of this?
See, that pipeline, there were few projects from Adani Group also, and there were few projects from government side also. So there were one or two tenders from NBCC, and there were one or two tenders from different developing groups in Ahmedabad also. So overall, that order book still remains between the INR 7,000- INR 7,000+ . But as far as Adani is concerned, about INR 700-INR 800 crores of projects we are discussing at Shantigram. About INR 800 crores project we are addressing at Adani Airport in Ahmedabad. About INR 1,000+ crores projects we are discussing at Mumbai Airport, and about, I think INR 300 + crores project we are discussing at Dharavi, which is going to be the first project of rehabilitation. Yeah.
Sir, apart from residential building orders which can be on negotiated and cost plus, can you also clarify if these airport orders we can get on a negotiated basis or these have to be on a tender basis?
See, basically everything depends on their government. Whatever identities they are having and different types of projects coming in, different verticals. So it will be always a competition between two or three people. But to work out on the minimum cost, how this project can be calculated with keeping most of the options as basis, that can be worked out later on based on my calculation of cost and overhead and profit.
Okay. For example, when you said INR 1,000 crore of Mumbai Airport order we are in discussion, this could be on a negotiated basis and need not be on a tender basis. Is that what you are saying, sir?
It is already being quoted by so many other companies also. So it's not like that we are the only person negotiating. But yes, the idea will be that how we can come to closer to the right cost at the right order, at the right profit.
All right, sir. That is all from my side. Thank you so much. Congratulations for the deal, sir.
Thank you.
Thank you. The next question is from the line of Vaibhav Shah from JM Financial. Please go ahead.
Sir, thanks for the follow-up. Sir, out of our order backlog of INR 6,500 crore, what will be the share of Adani Group projects right now?
Exactly, I do not know, but I think it should not be more than INR 500 crores.
INR 500 crores broadly?
Less than INR 500 crores. I am not as in exact figure, but it cannot be more than INR 500 crores.
Okay. Secondly, if I heard it correctly, you are guiding for EBITDA margins of 10% +, going forward in the medium term, right?
Yeah.
Okay. Thank you, sir.
Thank you. The next question is from the line of Neel Thakkar from Aero Capital. Please go ahead.
Yeah. Hi, good afternoon, everyone. My question is that how committed or how passionate the current promoter group would be to continue in this partnership for a fairly foreseeable future? Thanks.
That passion Adani Group was first seeing in me, so they joined the ship and we passed. Basically, as I said, I was passionate about running this company right on the day I had created this company. Today also, by joining hands with them, we are assuring so many things for the future. It is not at all about that our passion will go little bit down because they are at a 50% partner. The big idea to generate this partnership to assure a business a good growth from here, and it is beneficiary to both the companies.
Okay. Thank you. That answers my query.
Thank you.
The next question is from the line of Nitesh Kochar from Riverland Capital. Please go ahead.
All right. Good morning, Prahaladbhai Patel.
Good morning.
Sir, my question is, in the previous discussion, participants were asking and focused solely on PSP Projects, getting projects from Adani Group and asking numbers and this and that. But I think this is much bigger than that, much bigger than you getting projects from Adani Group and order book going up and this and that. The thing is, it is obvious that the entire opportunity landscape changes for your company.
My question, the first question here is: how ready are you to cater to those opportunities? How you are going to change the organization? See the project coming, project size, or maybe the geographies would be different from what you have been doing for the last 15, 20 years. Technical expertise would also be different, if you go into high value-added projects. So how are you ready, and how confident you are the way that you have been running this company with a very clean pristine parameters on receivable days, on balance sheet, debt profile, and not taking loss-making projects. Are you ready to do that, to continue with the same profile of PSP Projects, even if the size of the company changes dramatically? This is question number one.
See, there are two to three parameters which we have to understand. See, by performance and by our experience of last 10, 11 years after getting listed after eight years. We have learned a lot and experienced a lot from SDB also, and we have learned a lot from Uttar Pradesh also. Now going forward, what is the reason to have this partnership with Adani, it is more on technology part. Because they are also having that pressure that most of the contractors are not able to perform well throughout the season because of, not directly there is season. It is more because of the impact of the weather, it is more impact of the consistency of availability of labor. This is a pain which overall all the contractors are facing and all the owners are facing.
So we are trying to convert this joint venture into a different mode that I strengthen myself in terms of management to what I am doing till now. I am also trying to put in more and more technology and put in more and more things which are happening in the world, which we can adopt, because we have a larger order book or the larger overview of projects which we can then separate out. The whole idea is to reduce the management cost, reduce the labor cost, and increase the productivity. And we as an external or as a contractor, you must have seen, we are the pioneer in Ahmedabad to make the people learn more and more about how the things can be done in a better way and better quality. And that's the reason we have been adopting more and more technology throughout our career.
And that's what Adani is also seeing for future. So there we have a better edge that whenever there is an investment of INR 100 crore, INR 200 crore, which can solve your problem of INR 1,000 crore, we'll be easily ready. So this is a better way to understand. Of course, we have to see how I am going to strengthen. I have already strengthened myself in terms of managing the people with processes and culture. But going from here, it would be more advantage rather than learning something from the technology part and adding people on the technology part. At the same time, there will be few projects where we cannot convert projects into a technology. There we have to carry on with the same technology. But residential realty projects can be converted into technology. Large projects of institution can be converted through technology.
Projects which are at the industrial unit that can be converted into technology, because we have been doing. Lately, we are doing Coca-Cola precast. We have done about 12 lakh square feet of precast last one by one year. So probably, going from here, we have to increase our bandwidth both to make more and more people aware about this precast technology. At the same time, we have to strengthen our management top line, wherein more and more people can help to manage more and more projects from the group.
Okay. Thank you, sir. And my second question, Prahaladbhai, is, you have built this company with lot of hard work, and anyone who has tracked your company for past few years know that at INR 575 it is definitely undervalued. Now, to sell a very large chunk of your private personal shareholding to Adani, I mean 30% at INR 575, it's a very tough and hard decision, I can understand. Question here is: do you think that with the balance 30%, and given the changes that it will bring into the business, you can make up for this last 30%? I mean, the question here is for your personal wealth. You took a call that instead of owning 60% and a normal steady state growth, it is better to own half and to be on a super growth path. So how do you see that? This is my second question.
See, here it is not only about my money, or it is not only about Adani's investment. It is more about how company can grow from here.
Yeah.
See, INR 575 or INR 600, you are absolutely right, this is my money, which I can concur with that. But this company is not generated to create money out of the shareholding, what I have done till now. Even if you see we were holding 72%, I bought sometimes shares from the market also. It depends on the situation and the present situation, after going through the three years of journey, during we have failed some of the projects in U.P., we have learned so many things from Uttar Pradesh also. Now going from there, we have an assured business, assured owner, with a fixed type of technology which we can accept also. I am the person to decide upon how we should go on different types of projects, how we should manage such types of projects from their side also.
I personally don't feel that way that this is something which I am losing or that I am thinking about the company, what is company going to gain out of this. At the end of the day, I need my journey to continue with the same pace with what I have created this company. And I can strengthen this company by joining groups like this, wherein who has plenty of work to be done in next 10 years. Hopefully, if I can do about 10%- 20% of that work also, we will be the happiest person as a company and as a shareholder, I would say.
Perfect. Thank you very much, sir, and I wish you all the best. I really hope that PSP Projects become number one EPC company in India in next five years, and all the very best to entire team.
Thank you.
Okay.
The next question is from the line of Anil from SMIFS Limited. Please go ahead.
Yeah. Thank you for the opportunity. Hope I am audible.
Yeah.
Yeah. So congratulations, sir, on this deal execution. Good part is that you are still going to keep the management with yourself.
Yeah.
My only question is, if we had done this deal, maybe some time later, you had already shared with us that incrementally things are going to improve on margin front, et cetera.
Probably you could have got a better deal. My just one simple question is, how happy you are with the deal price? If any rationale you can share, sir. That's the only point.
My last answer was on the same line. It is not about my happiness, or it is not about Adani Group's happiness. It is more about both the groups where we can strengthen ourselves. They want to increase their capacity in a proper way so that they get the delivery on time. We want to grow from there in a different scale after utilizing and having an experience of Precast technology, and how this company can come out different ways wherein we are having an assured timeline for each project, and we have a more and more clients to convert from casting situ projects to Precast. This whole question is about going from where this pressure I was having since last three years. We are not having sufficient labor. We are not having good quality of people at management side.
Putting up more and more technology and decreasing on the management part, decreasing on the labor part, labor involvement, will obviously give a different edge to this company. When we are talking about such a large group like Adani, they don't have any problem in investing INR 100 or INR 200 crores. Even if it is to be invested, they can invest from their parent company. When they are doing a project at, supposing for airports, and if they have to invest INR 100 crores, they will think if this INR 100 crore we are investing, rest of the thing, management and everything, you can do from your side, so that this project of INR 1,000 or INR 2,000 crores is completed on time. I personally don't think whether for me this valuation was perfect, or for me it was a question about happiness or sorrow.
But it is more about a strategically good way of going from here, and keep ourselves going in a better way and do not fall into the same issues of failure like what we have failed in different projects, like with SDB payment related issue, U.P. where we had a loss because of the material cost and the timeline going up. So such types of risk we will be getting avoided, and it is more about the company rather than more about my side or the buyer side.
I appreciate your thoughts, sir. So shall I presume that okay, you are happy with the deal price?
100%, sir.
Okay. Thank you, sir, and all the best.
Thank you. As there are no further questions from the participants, I would like to hand the conference over to the management for their closing comments.
Hello?
Yes, sir. Please go ahead.
Thank you one and all of joining us on our conference call today. Thank you for your time, support, and trust in us. We hope that we have been able to address most of your queries. In case of further queries, you may reach out to us offline. Thank you again, and good day.
On behalf of PSP Projects Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.