PNC Infratech: Order book, monetisation of HAM projects to unlock value

Roads and highways developer PNC Infratech posted a 46 per cent drop in consolidated net profit to Rs 95 crore as its sales in the April-June quarter declined 28 per cent to Rs 1,092 crore compared to last year.

Consolidated profit before tax slipped 46 per cent YoY to Rs 125.88 crore in Q1FY21, while total tax expense fell 47 per cent to Rs 31.09 crore in during the period under review. Consolidated EBITDA tumbled 18 per cent to Rs 287 crore in Q1FY21, EBITDA margin improved to 26.25% in Q1 June 2020 from 23% in Q1 June 2019. 

"The Company has entered into a Share Purchase Agreement (SPA) with Cube Highways and Infrastructure Pte. Ltd. for sale of 35% stake jointly held by the Company along with its wholly owned subsidiary, PNC Infra Holdings Limited in Ghaziabad Aligarh Expressway Private Limited on for closure of the deal within a total period of 12 months from the date of agreement. However, the said SPA stood lapsed, as the validity of the SPA expired before the closure of the deal and the Parties have decided not to extend the validity further May 04, 2019," it said in an investor presentation. The Company along with its' co-promoters has been in discussions with another prospective investor, who has evinced interest in the project asset. Accordingly, process of due diligence gets underway, to proceed further with the proposed divestment, it added.

Here's how brokerages interpret the result:

IDBI Capital

Target price: Rs 201 | Reco: Buy

PNC Infratech Q1FY21 execution (Revenue) was higher than our estimate by 14 per cent. Labor availability at the site has reached 90 per cent but due to monsoon, execution is at 60 per cent. In Q1FY21, company has received orders of Rs 3,000 crore and order book at Rs 7,800 crore equals to 2x TTM. Working Capital at 84 days has increased from 57 days QoQ, due to delay in the payment by UP state but PNCL expects normalization by Q2FY21.

As on Q1FY21, PNCL has net cash balance of Rs3.4bn (standalone) and consolidated net DER is one of the lowest amongst peers at 1x. Stock trades at 10x FY22 EPS (2 STD of its mean since IPO) and TP implied valuation is 12x FY22E EPS. We like PNCL for its order book visibility and lean balance sheet.

YES Securities

Target price: Rs 212 | Reco: Buy

PNC Infratech has reported better‐than‐expected performance during Q1 FY21 (considering covid‐19 related impact). Its revenue declined 31.5 per cent YoY on standalone basis, largely impacted by operational shutdown during initial 20 days of Arp’20. Also, labor issues and disrupted supply‐chain, and early onset of monsoon impacted execution pace.

Execution pace is likely to witness sharp improvement during H2 FY21 with better labour/raw material availability and more projects coming under execution. Operating margin to remain at around 13 per cent. Any significant progress on monetization of BOT projects to translate into better balance sheet position.

Phillip Capital

Target price: Rs 270 | Reco: Buy

PNC reported decent results – with headline numbers all ahead of expectations. The biggest positive was the company being able to manage the margins (yoy and qoq), with active cost controls. The orderbook, post the recent wins (4 HAMs and 2 EPCs) appears robust at 3.5x book-to-sales. The WC situation deteriorated a bit, but the company still remains net cash (only company apart from Ahluwalia in the sector) – balance sheet remains strong enough to fund the equity requirement of HAM projects, on its own. The management maintained its 10 per cent YoY revenue de-growth in FY21 – likely to be met easily. We foresee strong growth in FY22 and beyond, driven by strong balance sheet and orderbook.

We have made minor tweaks to our FY21 estimates (+8%). We now value the EPC business at 13x FY22 PE (inline with KNR and Ahluwalia, earlier 12x) and the BOT/HAM portfolio at 1.0x/0.7x P-BV. Our price target of Rs 270 (earlier Rs 260).

Sharekhan

Outlook: Positive | Target price: Rs 199-202

Management expects FY2021 standalone revenue to decline by 10% y-o-y on account of Covid, monsoons, and delay in receipt of appointed dates for HAM projects. The company expects to bag another Rs 4,000 crore order inflows for balance FY2021 to achieve Rs. 7,000 crore order inflow target for FY2021. PNC expects order of similar quantum in FY2022. 

The company’s order book remained strong at Rs. 7,761 crore, while including one HAM project awaiting appointed date, four HAM projects awaiting financial closure, and two recently bagged EPC projects, it would be Rs 15,525 crore (translating to 3.5x its TTM standalone revenue). The company would be requiring around Rs 1,000 crore equity requirement for its HAM projects over the next three years, which would be met from internal accruals.

PNC is expected to decide upon divestment of its GhaziabadAligarh in one to two months with due diligence getting completed by a prospective buyer. We have lowered our earnings estimates for FY2021E and FY2022E lowering execution led by weak execution on account of monsoon and delay in receiving appointed dates for HAM projects.  PNC’s strong order backlog (with receipt of appointed dates for HAM projects by Q4FY2021) is expected to lead to strong revenue growth in FY2022. 

HDFC Securities

Target price: Rs 234 | Reco: Buy

The company is targeting to bag Rs 7000 crore of orders, of which it has already secured Rs 30bn (1 HAM & 2 EPC) year to date. To diversify away from road segment, PNC is looking at water, metro and railways sector. In this direction, PNC has submitted bids for three water supply projects, Rs 600 crore combined value, under the Jal Jeevan Mission.

PNC would require to infuse Rs 1000 crore equity in under construction and recently won HAM projects by FY24. While PNC could fund the equity requirement from internal accruals, we believe, monetisation of HAM projects would be key to churn capital and unlock the value.

Prabhudas Lilladher

Target price: Rs 219 | Reco: Buy

PNCL remains as one of our preferred picks in road infra space given its 1) healthy order book (~Rs155bn including recently bagged projects), 2) stellar execution pace with most projects getting completed within stipulated time, 3) stable EBITDA margins (14-15%) and 4) comfortable debt-equity ratio of 0.13x. Given execution surprise in 1Q, we have revised our FY21E/FY22E earnings estimates by 6.8 per cent/7.3 per cent. At CMP, the stock trades at a P/E of 13.7x/8.3x onFY21E/FY22E EPS and is trading at an EV of 7x/4.8x FY21E/FY22E EBITDA.

Dolat Capital

Target price: Rs 271 | Reco: Buy

We expect debt to rise to Rs 450 crore each in FY21E/ FY22E vs. Rs 370 crore/ Rs 330 crore in FY19/ FY20. We factor NWC (% of revenue) of 32.4 per cent/ 23.6 per cent (FY21E/ FY22E) vs. 25.7 per cent/ 32.4 per cent (FY20/ FY19), due to a modest growth in revenue, a capex of Rs 300 crore (over FY20-22E), and an equity investment of Rs 1040 crore (over FY20-22E) in HAM projects.

PNC’s order book stands at Rs77.6 bn as on Q1FY21. PNC won the Challakere-Hariyur HAM (EPC Rs9.35 bn) and 4 HAM and 2 EPC projects (EPC value Rs68.3 bn) which are not included in order book. Considering this, order book stands at Rs155.3 bn (3.5x TTM revenue). We factor inflow of Rs112.2 bn (Rs77.6 bn received)/ Rs70 bn in FY21E/ FY22E vs. management guidance of Rs70 bn in FY21E. PNC expects to receive appointed date for remaining Challakere-Hariyur HAM by mid Oct’20/ 4 HAM projects in Jan’21 and 2 packages of Delhi Vadodara in Oct’20.