Published on 6/06/2019 11:48:31 AM | Source: HDFC Securities Ltd

Buy PNC Infratech Ltd For The Target Rs.339 - HDFC Securities

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Ticking the right boxes

We maintain BUY on PNC with a SOTP based TP of Rs 339/sh. We have not made any major changes to our estimates.



* Strong 4QFY19 performance: Adj. for Rs 658mn tax credit, 4QFY19 Rev/EBITDA/APAT came in 16/15/6% higher than our estimate at Rs 10.8/1.5/0.7bn. FY19 revenue came in at Rs 31.7bn (10% ahead of guidance).

* On track for FY20E guidance beat: With a strong order book of Rs 131bn (~93% already under execution), we expect revenue to grow ~57% YoY in FY20E (ahead of the 40-50% growth guidance). While appointed dates have been received for Aligarh and Chakeri HAMs, Challakere HAM is expected by Sep-19 (80% land is available, tree cutting and utilities’ approval pending).

* Standalone debt reduction has been the highlight: Gross debt reduced to Rs 3.8bn from Rs 4.5bn QoQ. Net debt at Rs 1.2bn is comforting. Despite a 71% YoY increase in top line, Net D/E has remained <0.1x. This was led by NWC cycle showing massive improvement from 126 to 98days YoY. Management has guided for debt to increase to ~Rs 4.8bn by FY20E-end.

* Arbitration awards receipt/Asset monetization to support HAM equity outflow: PNC has already received ~Rs 1.5bn from DSIIDC against Narela Project annuities. Further Rs 1.4/3bn is expected from NH-24 arbitration/ Aligarh monetization. This will support the Rs 6bn of pending HAM equity requirement.



Being a strong local player, PNC is well placed to capture a large share of the upcoming NHAI and UPEIDA tendering (incl. Bundelkhand, Gorakhpur Link and Ganga Expressways). PNC has guided for ~Rs 70-80bn inflows in FY20E (~50% in HAM). Asset monetization is on track with PNC awaiting NOC from NHAI and lenders (receipt is likely by Sep-19) for Aligarh Ghaziabad project stake sale to Cube Highways. Of the total order book of Rs 131bn only ~Rs 9bn is yet to move into execution. Balance sheet is robust with FY19-end standalone net D/E of <0.1x. Our estimates for PNC are ~25% higher than consensus as we believe the management is conservatively guiding the analyst community. We maintain BUY. Key risks (1) Slowdown in NHAI ordering; (2) Delay in UP state projects awards; (3) High raw material inflation. 


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