Small Cap Buy PNC Infratech Ltd For Target Rs. 382 - Geojit Financial Services
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Margins to stabilise...
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 12% top-line growth and 37% YoY PAT growth in FY23, led by a pick-up in execution and better operating margins.
• EBITDA margin improved by 102bps to 13.5% in FY23 due to a better mix and a fall in other expenses by 30% YoY.
• The company expects the pace of construction to pick up in FY24 and has guided for 15% YoY revenue growth with a margin of 13-13.5%.
• In FY23, order inflow remains tepid at Rs 4,900cr, however, the order book remains strong at Rs20,530cr (incl. L1).
• The company targets an order inflow of ~Rs 12,000cr in FY24, 70% from road and 30% from non-road projects.
• PNC has improved the execution of water segment projects, which is expected to lead to healthy revenue growth in FY24, along with stable margins. We reiterate BUY rating on the stock with a TP of Rs 382 based on a P/E of 11x on FY25E EPS and BOT/HAM projects on P/B basis.
Execution to pick up...
PNC reported revenue growth of 10% YoY to Rs2,115cr in Q4FY23, which is inline with our estimate, aided by a pick up in water segment projects (Jal Jeevan Mission). The company has executable JJM projects worth Rs 4,500cr. Out of these, PNC booked revenue of Rs 1,033cr in FY23. Further, the management expects revenue of Rs 2,500cr in FY24 with a margin of ~15 to 17%. In FY23, revenue grew by 12% YoY to Rs 7,061cr. Going forward, we expect the execution to pick up pace as most of the HAM projects are under construction. The company has 22 HAM projects, comprising 6 operational, 12 under construction and 4 that have received letters of award. The management has guided for revenue growth of 15% for FY24 with a margin of 13% to 13.5%.
Order book provides visibility...
In FY23, the company has received only Rs 4,900cr of orders, however, the company remains confident of achieving Rs 10,000cr to Rs12,000cr of new orders in FY24. The management guided that strong bid pipeline for roads and highways in the upcoming months. The current order book remains strong at Rs 20,530cr (incl. L1 orders Rs 4,854cr) which is 3x FY23 revenue and provides strong revenue visibility in the coming years. The road projects constitute 62% of the total order book and 43% are for water and canals. Currently, PNC is eyeing to monetise 12 projects (7 are operational and 5 are to be operational in FY2).
Margins to stabilise…
EBITDA margin improved by 157bps YoY to 13.3% due to a better mix and a fall in employee costs by 4% YoY and other expenses by 38% YoY. The company expects margins to be in the range of 13% to 13.5% in FY24, aided by strong execution. Adj. PAT grew by 33% YoY to Rs184cr, led by lower interest expenses (-14% YoY) and a drop in depreciation (13% YoY).
Valuations
We expect execution to pick up pace as most of the HAM projects are under execution. The robust order book and strong execution capability will keep the outlook intact. We reiterate our Buy rating on the stock and value the EPC business at a P/E of 11x on FY25E EPS & BOT/HAM on P/B basis with a TP of Rs 382.
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