* PNC Infratech (PNC) reported decent set of numbers during Q4 FY20 with standalone revenue growing 7.6% yoy despite COVID‐19 related shutdown impacting 10 days of execution during Mar’ 20. Its operating margin remained strong at 13.5% (down 55 bps yoy). However, higher interest and tax outgo led to a 45.6% yoy decline in net profit.
* At the end of Mar’20, PNC’s order book stood heathy at Rs.86.3 bn (excluding 5 HAM projects estimated to have EPC value of ~Rs.60 bn). Order inflow target for FY21 stood at ~Rs.70bn.
* PNC expects appointed date (AD) in Challakere ‐ Hariyur HAM project by mid‐July’20 while AD in new 4 HAM projects is expected by Nov’20. ~80% land is currently available in most of the projects.
* The company has resumed execution in most of its projects and is running at ~75% efficiency level. However, the challenges remain on labour availability.
* Commercial traffic on its BOT (toll) projects have improved to ~80‐ 90% of the pre‐COVID levels. Normalcy is expected from Q2 FY21 onwards
* We expect execution in FY21 to be flat yoy. The loss of execution during Apr‐Jun’20 would be largely covered up by the sharp pickup in execution during H2 FY21.
* Operating margin is likely to come under pressure during H1 FY21 due to sluggish execution while fixed costs continue.
* The Order book is in a comfortable position with ~ 3x FY20 revenues. The company was looking initially to enter new segments. However currently the focus would remain on roads.
* Cancellation of Ghaziabad Aligarh Project deal with Cube Highways (net inflows expected: ~Rs.3bn) to translate effectively into higher fund requirements. Monetization of HAM projects is likely to be delayed due to sharp cut in bank rate while borrowing costs haven’t fallen at same proportion.
* With COVID impact on topline and margins, we cut our estimates for FY21 and FY22. However, we believe, the company is well placed to speed up execution as COVID related impact settles.
* Continued focus on asset monetization and comfortable balance sheet position provide comfort. We maintain our BUY rating on the stock for revised target of Rs.201 (Based on SOTP valuation).
Risk to our call
* Slower than expected ramp up in execution.
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