Buy PNC Infratech Ltd For Target Rs.380 - ICICI Securities
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Execution to ramp up going ahead
PNC Infratech’s (PNCL) Q1FY22 standalone EPC revenue was up 38% YoY to Rs12.5bn owing to base effect of previous year which saw a complete lockdown.
The company retains its comfortable standalone net cash position of Rs3.0bn as of Jun’21. With an order book of Rs155bn (3.2x FY21 EPC revenue including L1 order wins) and appointed dates expected for large orders in FY22, PNCL is targeting 25- 30% 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 Rs380/share (earlier Rs317) including Rs318 for the standalone EPC business valued on 15x Mar-23E (earlier 12x) standalone EPS of Rs21.2 on improving order outlook and Rs63 for BOT/HAM portfolio. Key risks are slowdown in NHAI orders and delay in execution of ongoing projects.
* EPC revenues up 38% YoY as execution picks up: PNCL’s Q1FY22 standalone EPC revenue was up 38% YoY to Rs12.5bn owing to base effect of previous year which saw a complete lockdown. EBITDA margins remained flat on QOQ basis at 14.0% while a 29% YoY reduction in interest costs led to APAT growing 55% YoY to Rs0.9bn. Net working capital days increased to 103 days during the quarter from 51 days in Q4FY21.
The company has given guidance for a 25-30% 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 Jun’21 with gross debt of Rs4.0bn (D/E of 0.1x) and cash/investments of Rs7.0bn. PNCL currently requires another Rs8.5bn of equity infusion in its under-construction and recently won HAM projects by FY24E (Rs6.2bn equity infused as of Jun’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, targeting fresh order wins of Rs70-80bn in FY22E: PNCL’s order book at the end of Q1FY22 stood at Rs121.0bn and including recently won water projects of Rs34.3bn, order book stands at Rs155.3bn (3.2x 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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