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Published on 17/12/2018 10:39:21 AM | Source: Emkay Global Financial Services Ltd

Buy PNC Infratech Ltd For Target Rs. 186.00 - Emkay

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Execution momentum continues

* PNCL reported standalone revenues of Rs5.6bn, up 108% yoy. Revenues were lower than our estimates, but only marginally, supported by strong execution in its key projects. Reported PAT increased 110.8% yoy to Rs351mn, lower than our and Street estimates, on higher execution, offset by higher interest costs and tax rate.

* Encouraged by the strong order book and 1HFY19 performance, PNCL has raised its revenue growth guidance from 40% to 50%. PNCL is targeting additional order inflows of Rs30-40bn in 2HFY19.

* PNCL needs to infuse ~Rs7bn in its HAM projects over the next 3 years, and management expects to fund the same via internal accruals and the monetization of existing assets.

* We expect ~45% revenue CAGR over FY18-20E, with an OPM of 13.5% and continue to maintain our Buy rating on the stock, with a revised SOTP-based TP of Rs186 (earlier 215).

Strong execution; uptrend to continue

PNCL reported standalone revenues of Rs5.6bn, up 108% yoy. Revenues were lower than our estimates, but only marginally, supported by the strong execution in its key projects (Chitradurga-Davangare, Jhansi-Khajurao, Nagina-Kashipur,etc).PNCL’s EBITDA increased 87.9% yoy to Rs746mn, while its reported EBITDA margin stood at 13.4% vs. our estimate of 15%. PNCL’s reported PAT increased 110.8% yoy to Rs351mn, lower than our and Street estimates, on higher execution, offset by higher interest costs (up 99.5% yoy), and tax rate. Taxes as a % of PBT stood at 21.6% for 2QFY19 vs. 11.3% for 2QFY18.

Robust order book; funding HAM projects would be the key

PNCL has a strong order book of ~Rs61.2bn (excl L1 of ~Rs38bn HAM projects and ~Rs45bn EPC projects) giving us revenue visibility for next 2-3 years. Driven by 1HFY19 performance, management has raised its revenue guidance from 40% to 50%. PNCL needs to infuse ~Rs7bn in its HAM projects over the next 3 years, and management expects to fund the same via internal accruals and the monetization of existing assets. Management has indicated that it is in advanced stages of closing the deal for one of its projects.

Maintain estimates and Buy rating

We believe that execution will continue to remain strong going forward; hence, we continue to maintain our estimates and expect ~45% revenue CAGR over FY18-20E, with an OPM of 13.5%. However, we see EPC target multiples potentially at risk in the wake of the current liquidity crunch, rising interest rates, and an overall contraction in broader market multiples, leading us to cut our target multiple by 20%. Consequently, we have arrived at a revised SOTP-based TP of Rs186 (down from Rs215 earlier), which includes Rs156 for the standalone EPC business based on 15x FY20E EPS of Rs10.4 and the remaining from its BOT and HAM portfolios based on P/B. At the current market price, the stock trades at a P/E of 18.1x/14.4x its FY19E/FY20E EPS.

 

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