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Execution to ramp up going ahead

PNC Infratech’s (PNCL) Q4FY21 standalone EPC revenue was up 42% YoY and 24% QoQ to Rs16.4bn owing to pick up in execution across projects. PNCL’s net working capital days have remained stable in FY21 at 51 days vs. 57 days in FY20 and the company retains its comfortable standalone net cash position of Rs3.9bn as of Mar’21. With an order book of Rs166bn (3.4x FY21 EPC revenue including L1 order wins) and appointed dates expected for large orders in H1FY22, PNCL is targeting 20% EPC revenue growth in FY22E after clocking flattish FY21 EPC revenue. Overall order wins for FY22E are expected to range between Rs70-80bn (excluding L1 contracts as of Mar’21) on the back of strong NHAI order pipeline. We retain our BUY rating on PNCL with a revised SoTP based target price of Rs317/share (earlier Rs322) including Rs254 for the standalone EPC business valued on 12x Mar-23E standalone EPS of Rs21.2 and Rs63 for BOT/HAM portfolio. Key risks are slowdown in NHAI orders and delay in execution of ongoing projects.

EPC revenues up 42% YoY as execution picks up:

PNCL’s Q4FY21 standalone EPC revenue was up 42% YoY and 24% QoQ to Rs16.4bn owing to pick up in execution across projects. EBITDA margins improved 60bps on QoQ basis to 14.1% while a 53% YoY reduction in interest costs led to APAT growing 70% YoY to Rs1.3bn. Net working capital days improved to 51 days during the quarter from 67 days in Q3FY21. The company has given guidance for a 20% YoY EPC revenue growth for FY22E after meeting its guidance for flat FY21 EPC revenue of Rs49.3bn and factoring in second Covid wave related disruptions. The company expects EBITDA margins to remain in the 13.5-14% range for FY22E as well (13.7% in FY21) as recent rise in input costs have escalation clauses built into the contracts.

Liquidity position remains comfortable:

Liquidity levels at standalone level remain comfortable with PNCL being a net cash company as of Mar’21 with gross debt of Rs4.0bn (D/E of 0.1x) and cash/investments of Rs7.9bn. PNCL currently requires another Rs8.6bn of equity infusion in its under-construction and recently won HAM projects by FY24E (Rs6.0bn equity infused as of Mar’21). While estimated surplus operating cash flow of Rs12.5bn over FY22-24E would be sufficient to fund this requirement, the company’s asset monetisation plans for existing projects would enable churning of capital.

Strong order book, looking to diversify order book going ahead:

PNCL’s order book at the end of Q4FY21 stood at Rs116.5bn and including recently won road/irrigation/water projects, order book stands at Rs166.2bn (3.4x FY21 EPC revenue). With a robust NHAI bid pipeline for FY22-23E, PNCL is targeting order wins of Rs70-80bn in FY22E as well. The company continues to look to diversify its order book by foraying into metro, water and railway orders apart from roads.

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