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Growth lags on poor execution

PNC Infratech’s (PNCL IN) core performance in 9MFY25 was hit despite one-time claim receipt of INR 4.3bn in Q1. Adjusted for this, core revenue decelerated 32% YoY led by multiple factors such as general elections, prolonged monsoons, and delayed receivables (leading to difficulties in execution of various road and irrigation projects). Reported margin, prima facie, looks higher for 9M at 23% but adjusted for claims, EBITDA margin compressed 140bps YoY to 11.9%. Thus, PNCL expects FY25 revenue to be lower by 25-30% and margin to sustain at 12-12.5%. It expects a pick up from FY26 (guidance of 30% growth) provided orders worth INR 110bn (of total orderbook of INR 199bn) receive appointed dates soon (by end-FY25) and execution may commence by Q1FY26. Inflows may revive as the ban on bidding has been reduced to four months from earlier twelve months but commencement of execution and receipt of appointed dates are monitorables. Maintain Buy with a lower TP of INR 354 from INR 382

Overall performance miss as execution was hit: Q3 revenues declined 33% YoY to INR 12bn, disappointing our estimates of INR 16.2bn, majorly on lower execution in irrigation and Jal Jeevan Mission (JJM) projects and delay in appointed dates of highway projects (due to difficulty in land availability). Through 9M, the contribution of the water segment declined by 54% YoY to INR 6bn and may remain muted at ~INR 8bn in FY25 versus earlier guidance of INR 12-15bn. EBITDA margin was down 120bps YoY at 12.1%, as estimated. PAT stood at INR 826mn, down 43% YoY, lower than INR 1.2bn estimated

Post removal of ban, PNCL optimistic on order inflows: YTD, PNCL has received inflows worth INR 67bn (only 50% of its guided inflows of INR 130-150bn). With reduction of ban from a year to four months, PNCL will be eligible to bid for all the projects of NHAI and MoRTH from 18 February. PNCL is confident of achieving its fullyear guidance of inflows as it expects a pick-up in awarding from NHAI in March. We remain conservative and expect lower inflows of INR 93bn/84bn/97bn in FY25/26E/27E respectively as against a guidance of INR 130-150bn in FY25 and FY26 due to slowdown in new project awarding by the NHAI and intensifying competition as regards bidding amongst players

Asset monetization on track: PNCL has executed a definitive agreement with the Highway Infrastructure Trust to divest 12 of its road assets (HAM-11 & BOT-1). The EV of the transaction is INR 90bn, with an equity value of INR 25bn on invested equity of INR 17bn. PNCL expects transaction for 11 assets to be completed by March 2025 with equity investment of INR 16bn. It expects to receive 1.6x investment value. The remaining asset is likely to be concluded by June 2025

Maintain Buy with TP pared to INR 354: We believe execution in 9MFY25 was hit by macro uncertainties. We expect a moderate growth of 15% each in FY26E and FY27E due to lower inflows and delay in commencement of execution of new projects. We trim our PAT estimates by 8%/12%/9% for FY25E/26E/27E. So, we lower our TP to INR 354 from INR 382, valuing the EPC business at 12x FY27E P/E and equity in operational and HAM projects at 1x. We maintain Buy.

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