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Steady performance

PNC Infratech’s (PNC) operating performance was largely in line with estimate. PAT grew 55% YoY to Rs933mn below estimate of Rs1.06bn led by write-off of MAT credit of Rs104mn on migration to the new corporate tax rate. Revenue grew 38% YoY to Rs12.5bn (estimate: Rs13.5bn) and EBITDA grew 47% YoY to Rs1.75bn (in-line), with EBITDA margin expanding 80bp YoY to 14% (estimate: 13.2%).

While working capital levels increased leverage remained comfortable with net cash of Rs3bn. Order backlog of Rs155bn (2.9x TTM revenue) remains robust. We expect strong revenue/EPS CAGR of 20%/24% over FY21-23. Monetization of Ghaziabad-Aligarh/initial HAM assets should further strengthen liquidity. Maintain BUY with a revised price target of Rs381.

Strong performance; guides for 20% revenue growth in FY22 and steady margins

Revenue growth was led by strong execution in projects like Purvanchal Pkg-5,6, ChakeriAllahabad, and Chitradurga-Davanagere. Sharp YoY decline in interest costs was due to repayment of high interest bearing (@12%) mobilization advances of Mumbai-Nagpur eway. Net working capital increased from 84 days in June-20 to 103 days in June-21 due to higher debtors in Mumbai-Nagpur/Purvanchal projects and unwinding of creditors by Rs1.85bn. The outstanding payments have been received in July. Revenue from toll/annuity assets grew 35% YoY to Rs2.4bn in Q1FY22 (down 12.5% QoQ). PNC has guided for 20% revenue growth with stable EBITDA margins of 13.5-14% in FY22.

Order backlog is robust at 2.9x TTM revenue; looking at Rs80bn order wins in FY22

PNC has a robust order backlog of Rs155bn (2.9x TTM revenues). Reported backlog is lower at Rs121bn, as it does not include water supply orders of Rs34bn awaiting start dates. PNC expects to commence execution on these orders for value of Rs6-8bn by the end of Sept-21 and on the entire scope by Mar-22. The AP canal order of Rs10bn is under execution. PNC has submitted bids of Rs110bn for 10 EPC projects and 6 HAM projects. Additionally, it has a bid pipeline of Rs300bn, comprising of 35-40 projects that are likely to open by Sept-21. PNC has guided for inflows of Rs80bn in FY22.

Internal accruals and proceeds from asset sale to support capital commitments

PNC has gross equity requirement of Rs14.7bn for its asset portfolio, of which Rs6.2bn is invested and balance Rs8.5bn is to be invested by FY24. This will be funded through internal accruals, unutilized borrowing limits, and asset monetization proceeds. PNC is targeting to monetize 6 HAMs and 1 older BOT (annuity project) involving Rs9bn equity investment and Rs47bn debt. It has already received COD/PCOD for 4 HAMs and expects to commission the remaining two HAMs by Mar-22. The sale process of GhaziabadAligarh project is in advanced stages. We expect leverage to remain low with Net Debt /EBITDA of 0.5x (including mobilization advances as debt) in FY23 (net cash otherwise).

Proven credentials and strong execution-led earnings growth; maintain BUY

We estimate a robust 20%/24% revenue/EPS CAGR over FY21-23, led by a strong OB which should become entirely executable by Mar-22. Robust cash position and cash generation should be adequate to fund the outstanding equity commitments of HAM projects. With strong growth visibility, comfortable liquidity and rerating of the sector, we value PNC’s EPC business at 15x FY23E EPS (14x earlier) and value equity invested in road assets at Rs56/share. Maintain BUY with a revised PT of Rs381.

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