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Execution to ramp up going ahead

PNC Infratech’s (PNCL) Q3FY21 standalone EPC revenue was up 9% YoY and 26% QoQ to Rs13.2bn owing to pick up in execution across projects. PNCL’s net working capital days declined by 18 days QoQ to 67 days and company retains its comfortable standalone net cash position of Rs4.6bn as of Dec-20. With an order book of Rs180bn (3.7x FY20 EPC revenue including L1 order wins) and appointed dates expected for 6-7 large orders in Q4FY21, PNCL is targeting flattish EPC revenue in FY21E and healthy revenue growth from FY22E. Overall order wins for FY21 are expected to touch Rs100bn (Rs77bn achieved in 9MFY21) with similar order wins targeted in FY22E on the back of strong NHAI order pipeline. We resume coverage on PNCL with a BUY rating with a SoTP based target price of Rs322/share including Rs256 for the standalone EPC business valued on 12x Mar23E standalone EPS of Rs21.3 and Rs66 for BOT/HAM portfolio. Key risks to our call are slowdown in NHAI road orders and delay in execution of ongoing projects.

* EPC revenues up 26% QoQ as execution picks up: PNCL’s Q3FY21 standalone EPC revenue was up 9% YoY and 26% QoQ to Rs13.2bn owing to pick up in execution across projects. EBITDA margins remained flattish on QoQ basis at 13.5% while a 30% QoQ reduction in interest costs led to APAT growing 34% YoY to Rs1.0bn. Net working capital days improved to 67 days during the quarter from 85 days in Q2FY21 owing to reduction in debtor days from 72 days to 55 days in Q3FY21. The company has maintained its flattish EPC revenue guidance for FY21E. With the appointed date for the four recently won HAM orders, two Delhi-Vadodara packages and AP irrigation project expected by Mar-21, PNCL expects healthy revenue growth in FY22E on the back of commencement of execution of these new order wins.

* Liquidity position remains comfortable: Liquidity levels at standalone level remain comfortable with PNCL being a net cash company with gross debt of Rs3.7bn (D/E of 0.1x) and cash/investments of Rs8.3bn. PNCL currently requires another Rs10bn of equity infusion in its under-construction and recently won HAM projects by FY24E (Rs9.4bn equity infused as of Dec-20). While estimated surplus operating cash flow of Rs13.2bn 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 Q3FY21 stood at Rs98.5bn and including recently won road/irrigation/water projects, order book stands at Rs180bn (3.7x FY20 EPC revenue). PNCL is targeting total order wins of Rs100bn in FY21 (Rs77bn won in 9MFY21). With a robust NHAI bid pipeline for FY22-23E, PNCL is targeting order wins of Rs100bn 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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