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In-line quarter

PNC Infratech (PNC) delivered an in-line 3QFY21 financial performance. Management commentary was upbeat on (1) FY21/22E order inflows pegged at Rs 100bn, (2) revenue guidance maintained at flattish YoY, (3) NWC improvement in 3QFY21, (4) initiation of talks on BOT/HAM asset part monetisation over next few quarters, (5) healthy NHAI bid-pipeline for FY22E/FY23E, and (6) growth backed by low peak debt levels of Rs 4.5bn. Valuations are supportive at 9.2/7.7x FY22/23E (core EPC EPS). Maintain BUY on PNC, with an unchanged target price of Rs 338/sh, given a strong order book and robust balance sheet. Key risks: (1) slowdown in NHAI ordering and (2) delay in the monetisation of HAM projects. Successful diversification, away from the roads sector, could expand the multiple further.

* Results in line, execution picking up, guidance maintained: Revenues: Rs 13.2bn (+9%/+26% YoY/QoQ, in-line). EBITDA: Rs 1.79bn (+4% YoY, +26% QoQ, in-line). EBITDA margins: 13.5% (-56/+1 bps YoY/QoQ, in-line). Interest cost came in at Rs 153mn, (-62% YoY, -30% QoQ). No exceptional item during the quarter. APAT: Rs 1,032mn (+45% YoY, +49% QoQ, 11% beat). NWC improved to 67 days from 85days QoQ. Appointed Date (AD) is expected by 4QFY21E for four recently-awarded HAMs, as well as 2 Delhi- Vadodara packages. Land 3G status in these four HAMs and two Delhi Vadodara EPC packages is ~90%. AP Irrigation project will too come under execution from Mar-21. PNC has maintained FY21 revenue guidance to flattish, with decent growth in FY22E.

* Strong OB lends revenue visibility; diversification efforts on: Order book (OB) stands at 180bn (~3.7x FY20 revenue, vs Rs 158bn QoQ). While PNC has diversified into irrigation and rural water supply projects, roads will remain the focused sector and contribute ~80% to the OB. PNC expects to close FY21 with ~100bn inflows (secured Rs ~77bn FYTD21). To diversify away from the road segment, PNC is looking at water, metro and railways sector. Focus will be execution of existing non-roads orders before further diversification. Eight projects (6HAM+1Annuity+1BOT) are up for monetisation (~Rs 9.4bn equity invested). PNC has won Rs ~38bn of water- related orders in FYTD21.

* Balance sheet robust; monetisation of HAM projects key to watch: NWC improved to 67 days vs 85 days QoQ (57 days on FY20 end). PNC maintained net cash at the standalone level, with gross debt of Rs 3.65bn (D/E 0.13x) and cash of Rs 8.3bn. Consolidated gross debt stood at Rs 38.1bn (1.31x D/E) and cash of Rs 15bn. PNC would require to infuse Rs ~10bn equity in under construction and recently-won HAM projects by FY24E. While PNC could fund the equity requirement from internal accruals, we believe monetisation of HAM projects would be key to churn capital and unlock the value. Capex budgeted for FY21 is Rs 1.25bn, with no loss funding envisaged for any SPV.

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