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Execution is gaining momentum...

PNC Infratech Ltd (PNC) is an Infrastructure construction, development and management company; expertise in execution of projects including highways, bridges, flyovers, airport runways, industrial areas and transmission lines.

* PNC reported a revenue growth of 8.6% YoY in Q3FY21 (in-line with estimate) due to strong execution with labour availability at 100% pre-Covid level.

* EBITDA margins marginally declined by 56bps to 13.5% due to increase in commodity prices and higher other expenses at 11% YoY.

* Order book (incl. L1) remains healthy at Rs18,000cr which is 3.7x TTM revenue, provides revenue visibility.

* PAT increased by 34% YoY, due to fall in interest costs and higher other income.

* We increase FY21E/FY22E EPS estimate by 33%/20% respectively as execution is gaining momentum.

* We maintain our Buy rating based on a P/E of 14x on FY23E EPS and BOT/HAM projects at 0.5xP/B with a TP of Rs339.

Execution to pick up... Q3FY21 revenue increased by 8.6% YoY (in-line with estimate) to Rs1,322cr supported by strong execution with labour availability at 100% pre-Covid level. The management expect execution to be strong in the coming quarters on account of strong order inflows and expectation of appointed date for balance orders in March-April 2021. The management expects FY21 revenue will be equal to last year revenue and expect FY22 revenue growth to be at 20% YoY. We expect execution will pick up in the coming quarters as most of the HAM projects are under execution stage with average ~90% land availability. PNC has already infused equity of Rs493cr for HAM projects and the balance of Rs306cr will be invested over the next two to three years.

Order book provides visibility...

Q3FY21 executable order book stood at Rs18,000 (incl. projects in L1 and waiting for approvals) which is 3.7x Trailing twelve months revenue and provides strong revenue visibility in the coming years. PNC is now entering into irrigation and water supply projects, which comprises 21% of the total order book. The margin profile of irrigation/water supply projects is at 13-14%. NHAI is expected to award 4,800 to 5,200km of roads projects in FY21E, which implies awarding activity would gain traction in Q4FY21. The management is targeting order inflows of Rs.9,000 to 10,000cr in FY21 and has secured Rs. 7,700cr of orders in 9MFY21.

EPS to grow at 15% CAGR over FY21E-FY23E…

EBITDA margins declined marginally by 56bps YoY at 13.5% due to increase in commodity prices, higher employee cost (8.2% YoY) and other expenses (11.3% YoY). While increase in other income (69% YoY) and fall in interest cost by 62% YoY due to drop in mobilization advances led earnings to grew by 33.6% YoY to Rs103cr. Strong order book and pick-up in execution, we expect EPS to grow at 15% CAGR over FY21E-FY23E.

Valuations

Strong order book of PNC is providing revenue visibility for the coming years. We expect execution to pick up in the coming quarters as most of the HAM projects are under execution stage. We value EPC business at a P/E of 14x on FY23E EPS & BOT/HAM projects at 0.5x P/B and maintain our Buy rating.

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