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Healthy performance...

PNC Infratech Ltd (PNC) is an Infrastructure construction, development and management company; expertise in execution of projects including highways, bridges, flyovers, airport runways, industrial areas and transmission lines.

* PNC reported a strong top-line growth of 53% YoY in Q2FY22 led by a ramp-up in execution.

* EBITDA margin improved by 23bps to 13.7% aided favourable project mix and lower employee cost (as a % of revenue).

* PNC has not received any orders in H1FY22 however, the order book remains healthy at Rs13,178cr which is 2.3x TTM revenue and provides revenue visibility for two to three years.

* PAT grew by 95% YoY helped by lower tax rate of ~26% (vs 36% in Q2FY21) and higher other income.

* H1FY22 revenue grew by 46% YoY and the company has guided for revenue growth of 20-25% with EBITDA margin of 13.5% - 13.75% in FY22.

* Strong order book and a comfortable balance sheet we reiterate Buy rating on the stock with a TP of Rs370 based on a P/E of 15x on FY23E EPS and BOT/HAM projects at 0.5xP/B.

Execution improved...

PNC’s standalone execution was better than our estimate in Q2FY22. The company reported strong revenue growth of 53.3% YoY to Rs1,615cr led by a ramp-up in execution. In H1FY22, the revenue grew by 46% YoY and has guided for revenue growth of 20–25% in FY22. PNC expects the revenue from Jal Jeevan Mission (JJM) project will start reflecting from Q3FY22 onwards. In the first phase of JJM there were Rs10,000cr of projects and in Phase two, Rs50,000cr projects. In UP alone there is 1 trn project potential. Currently, JJM projects constitute 25% of the order book. The management expects Rs200cr to Rs250cr of revenue from the JJM project in FY22. Given strong execution, we increase FY22/FY23 revenue estimate by 5.4%/5% respectively

Robust order book...

Despite the company not bagging any order inflows in H1FY22, the order book remains strong at Rs13,178cr (2.3x TTM revenue) which provides strong revenue visibility in the coming years. Based on a strong order pipeline from NHAI the company maintained an order inflow target of Rs8,000cr for FY22. The company has already submitted their bid for Rs9,200cr (EPC 30%, HAM 70%) of projects and expects NHAI bids worth Rs25,000cr in the next three to four months. PNC has a portfolio of 11 HAM projects of which 3 projects received PCOD (Provisional Commercial Operation Date), 1 project received COD (Commercial Operation Date) and 7 are under construction. PNC is in the final stages for divestment of HAM projects and expects to monetise the asset by the end of FY22. In the Ghaziabad project, two NOCs are pending, which is expected to receive in 8 to 10 days.

Margins aided by favourable project mix…

EBITDA margin improved by 23bps YoY at 13.7% aided by favourable project mix and lower employee cost as a % of revenue. PAT grew by 95% YoY to Rs135cr, further helped by lower tax rate of ~26% (vs 36% in Q2FY21) and higher other income (~18% YoY). The company expects margins to be in the range of 13.5% to 13.75% in FY22, aided by strong execution.

Valuations

Strong order book and a lean balance sheet we reiterate our Buy rating on the stock and value EPC business at a P/E of 15x on FY23E EPS & BOT/HAM projects at 0.5x P/B with a TP of Rs 370.

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