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Execution remains the key catalyst...

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 currently holds order book worth Rs 19,000cr, which is 2.7x TTM revenue and bodes well for revenue visibility in the coming quarters.

*The company is targeting a topline growth of 15% YoY in FY24, (which includes Rs2,000cr plus revenue from the water segment) with an EBITDA margin of 13 to 13.5%.

* Order inflows to pick up pace in H2FY24 as MoRTH revised the road construction target from 12,500km to 14,000km in FY24.

* The company targets an order inflow of ~Rs 10,000cr in FY24, 70% from road and 30% from non-road projects.

* In Q1FY24, PNC reported a revenue growth of 6% YoY which is below our estimate due to delay a in execution.

• With an increasing bidding pipeline and robust order book, we reiterate BUY rating on the stock with a TP of Rs 438 based on a P/E of 12x on FY25E EPS and BOT/HAM projects on P/B basis

Order book provides visibility...

The current order book remains strong at ~Rs 19,000cr (incl. L1 orders Rs 4,083cr) which is 2.7x Trailing Twelve Months revenue and provides strong revenue visibility in the coming years. We expect order inflow to grow to Rs 10,000cr in FY24 as the bidding pipeline from NHAI and MoRTH remains strong. NHAI has already floated 68 projects, including EPC and HAM, both of which are estimated to cost Rs65,000cr. The company has already submitted 11 bids, 5 HAM and 6 EPC. The road projects constitute 72% of the total order book and 28% are for water and canals. Currently, PNC is planning to monetise 12 projects (11 HAM and 1 BOT) towards the end of FY24. The total equity requirements for all the under construction HAM project over the next two to three years will be around Rs1,228cr.

Top-line to grow at 14% CAGR over FY23-FY25E...

PNC reported revenue growth of 6% YoY to Rs1,861cr in Q1FY24, which is below our estimate due to delay in execution. The company has executable JJM projects worth Rs 7,000cr. Out of these, PNC booked revenue of Rs 1,400cr till Q1FY24. Further, the management expects revenue above Rs 2,000cr in FY24 with a margin of ~15 to 17%. Going forward, we expect the execution to pick up pace as 90% of the order book is in the construction stage. The company has 22 HAM projects, comprising 6 operational, 12 under construction and 4 that have signed the concession agreement. The management has guided revenue growth of 15% for FY24

Margins to be in the range of 13.5%...

Adj. EBITDA margin (excluding the bonus of Rs 37.02cr received in Q1FY23) improved by 56bps YoY to 13.2% due to a better mix and a fall in other expenses. The company expects margins to be in the range of 13% to 13.5% in FY24, aided by strong execution. Despite fall in depreciation (7.3%) and interest expenses (-6.4%) adj. PAT declined by 6% YoY to Rs157cr, led by higher tax rate of 26% vs 24.6% in Q1FY24.

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 12x on FY25E EPS & BOT/HAM on P/B basis with a TP of Rs 438.

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