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Asset monetization plans on track

PNC Infratech’s (PNC) 1QFY24 results were in-line with our estimates. PAT declined by 6% YoY to INR 1.57bn (estimate: INR 1.55bn; consensus: INR 1.6bn). PY financials include early completion bonus of INR 370mn and revenue from toll collection contract of INR 1bn and impacts YoY revenue growth and margins. Revenue grew by 6% YoY to INR 18.6bn (15% YoY growth on adjusted base). EBITDA margin declined by 30bps YoY on adjusted base to 13.2% (estimate: 13.3%). Execution on JJM orders is on track to reach the guided level of INR 20bn+ in FY24. Order backlog stands at c.INR 184bn (2.6x TTM revenues) as on June-23. While YTD inflows are nil, PNC targets inflows of INR 100bn in FY24 backed by strong bid pipeline of INR 950bn (NHAI: INR 650bn, MSRDC: INR 300bn). It has submitted bids worth INR 110bn where results are awaited. Plans for sale of 12 assets (11 HAMs and 1 BOT) are on track and are likely to firm up in coming months. Maintain BUY with price target of INR 475.

* 1QFY24 results in-line with estimates: Revenue grew by 6% YoY to INR 18.6bn with adjusted growth at 15% YoY. It was driven by strong execution of JJM projects (revenue up 5x YoY to INR 4.2bn). EBITDA declined by 5% YoY to INR 2.45bn while EBITDA margins declined by 30bps YoY on adjusted base to 13.2%. Depreciation declined by 7.3% YoY to INR 250mn (estimate: INR 290mn). PAT declined by 6% YoY to INR 1.57bn. Gross debt increased by INR 1.9bn YoY/INR 390mn QoQ to INR 4.9bn as on June-23.

* Guides for order inflows of INR 100bn for FY24E backed by strong bid pipeline: PNC’s YTD inflows have been nil but it has guided for inflows of INR 100bn (Highways: 70%; Water, Railways, Metro: 30%) led by strong bid pipeline. PNC has submitted bids for 9 projects worth INR 110bn where results are awaited. Highways bid pipeline stands strong at INR 950bn (NHAI: INR 650bn, MSRDC: INR 300bn). In the recent bidding of JJM projects worth c.INR 140bn in UP, PNC could not win any projects due to heightened competition. PNC will continue to pursue for JJM projects in UP, MP and Rajasthan.

* Asset monetization to be completed in FY24; proceeds will help fund equity commitments: PNC is looking to monetize 12 assets (11 HAMs and 1 BOT). Asset monetization is at advance stages and is likely to be completed in FY24 with proceeds expected by Mar-24. Equity requirement for PNC’s portfolio of 22 HAM assets stands at INR 29.4bn of which INR 17.1bn has been invested till June-23. Balance proceeds of INR 12.3bn will be invested over FY24-27 and will be funded through a mix of internal accruals and monetization proceeds. PNC maintained its revenue growth guidance of 15% YoY and EBITDA margins of 13-13.5% in FY24.

* Maintain BUY with SoTP based price target of INR 475: We like PNC for its track record of delivering robust growth while preserving margins and balance sheet health. The current order backlog along with future order win prospects gives visibility over revenue/EPS CAGR of 15%/13% over FY23-25E. The stock trades at 11.7x FY25E earnings vis-à-vis 5- year average trailing PE of 15x. We value PNC on SOTP basis at INR 475/share with EPC business valued at INR 394/share based on 13x FY25E EPS of INR 30 and the HAM assets valued at P/B of 1x FY24E invested equity. Maintain BUY

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