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Results in-line; SPA signed for asset monetization

PNC Infra (PNCL) reported numbers largely in-line with our estimates with 11% revenue growth and 13.3% margins. The management has maintained its FY24 guidance of 10% revenue growth and 13-13.5% margins. In Jan’2024, PNCL signed definitive agreement to sell 12 road assets to Highway Infra trust (KKR entity) for total EV of Rs90bn (Equity value Rs29bn: ~1.67x return on invested equity). Though NHAI/MoRTH tendering has been sluggish in FY24, PNCL’s healthy OB of Rs174bn (2.3x TTM Book-to-bill) provides enough headroom for growth in near term. Order prospects in other areas like drinking water (JJM) and railways, are being pursued by PNC, which should also aid in achieving its order inflow target in FY25. We maintain our Buy rating on the stock with a revised TP of Rs533 (Rs460 earlier).

3QFY24 result highlights

PNCL reported largely in-line set of numbers with Revenue/EBITDA slightly below our estimate by 1.1%/1.2%. The company reported revenue of Rs18bn which was up 10.8% YoY and 6.5% QoQ. Operating expenses at Rs15.6bn were up 10.2% YoY. EBITDA came in at Rs2.3bn, up 13.3%/5.2% YoY/QoQ. EBITDA margin at 13.3% was up 50bps YoY and in-line with our estimate. PAT at Rs1.5bn came exactly in-line with our estimate, up 16.8% YoY. Net working capital at 73 days in Dec 2023 vs 87 days in March 2023

Orderbook remains strong; inflow to improve in FY25 on strong pipeline

Dec 2023 OB stands at Rs174bn. Road EPC projects constitute 75% of total order-book. Unexecuted OB comprises 75% road and 25% water projects. Company has submitted 17 bids (6 HAM & 11 EPC) worth Rs140bn. PNCL has guided for revenue growth of 10% in FY24 and EBITDA margins of ~13-13.5% (Unchanged). Order inflow of Rs80bn/Rs120bn expected in FY24/FY25. Cumulatively, NHAI and MoRTH have floated 100 EPC projects worth Rs700bn and HAM projects worth Rs900bn. Company expects billing of more than Rs20bn from JJM in FY24.

SPA signed for divesting 12 road assets at an EV of Rs90bn; aggressive bidding for BOT not expected

Company expects the deal to be completed in 2 tranches by Dec 2024 with flexibility for the deal to be completed in 1 tranche as well. Phase 1 would comprise of 6HAM/1Bot assets with EV of Rs50.1bn (Equity- Rs17.9bn), expected to be completed by Aug 2024, whereas Phase 2 would comprise of 5 HAM assets with EV of Rs39.9bn (Equity- Rs11.1 bn). Pending equity to be invested as of Dec 2023 stands at Rs900mn. Total cash is at Rs3.7bn. The management has guided that cash utilization will be done for growth capital for HAM projects and the management will be conservative in bidding for BOT toll projects.

Maintain Buy with TP of Rs533 (earlier Rs460)

We have increased our FY25/FY26 PAT estimates by 1.3%/6.3%. We are building in 12.9%/12.3% revenue/PAT CAGR forthe company over FY23-26. We believe that higher order inflow in FY25 will likely result in higher revenue growth than expcted. We value the stock based on SOTP method wherein standalone EPC business is valued at 12x Sep 25 EPS and HAM/BOT projects are valued at 0.8x P/B. We have valued the recently monetized assets at deal valuation of Rs29bn. We maintain our Buy rating on the stock with revised TP of Rs533 (earlier 460).

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