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Weak earnings; well placed for long term growth

PNC Infratech (PNC) reported weak earnings in 1Q26 as PAT at INR 808mn (down 15% YoY) missed JMFe of INR 1.32bn (consensus: INR 1.24bn) due to sharply lower revenue and other income. PNC has received robust inflows of INR 52bn in YTD and order backlog stands at INR 173bn (3.5x TTM revenues) as of Jun’25. Currently, 64% of current backlog is under execution and entire backlog is expected to come under execution by 3Q26. PNC has booked gain of asset monetization in SPV (in consolidated books) which has led to lower than expected cash levels leading to lower other income. Also, part equity infusion in remainder assets would happen through SPV as well reducing cash outgo from standalone books. Accordingly, we have factored lower other income and higher interest costs leading to EPS cuts of 14%/7% in FY26/27E. Having said that, we expect robust EPS CAGR of 31% over FY25-28E led by revenue growth and margin expansion. With proceeds from asset monetization, PNC remains a key beneficiary of anticipated pick-up in ordering. Valuations at 11x/9x FY27/28E EPS remain attractive. We value EPC business at 13x FY27 EPS and assets at INR 65/share to arrive at SOTP based revised price target of INR 430. Maintain Buy.

* Earnings missed JMFe due to lower revenue and other income: Revenue/EBITDA declined by 13%/11% YoY to INR 11.3bn/INR 1.4bn (JMFe: INR 15bn/INR 1.9bn) impacted by sharply lower execution in JJM vertical and muted execution in Highways. JJM revenue fell sharply by 65% YoY to INR 1bn (JMFe: INR 2.5bn) amid delayed payments. EBITDA margins expanded by 30bps YoY to 12.4% (JMFe: 12.5%). Interest cost grew sharply by 64% YoY to INR 211mn (JMFe: INR 250mn) due to higher mobilization advances.

* Lowers revenue guidance; entire backlog to be executable post 3Q26: PNC won robust inflows of INR 52bn in YTD led by its diversification in T&D and Mining verticals. Order backlog stood at INR 171bn (3.5x TTM revenue) as of Jun-25 with c.64% under execution. Entire backlog will be under execution by Dec-25. With bids worth INR 480bn already submitted, PNC expects inflows of INR 120-150bn for FY26E. PNC has guided for revenue of INR 63-65bn (earlier: INR 66bn) with EBITDA margins of 12.5-13% for FY26E.

* Mining execution to boost revenue; JJM execution to pick up gradually: In Jul-25, PNC secured a mining project with an EPC value of INR 29.6bn and expects revenue of c.INR 3–4bn in FY26E and INR 6bn+ from FY27 onwards. PNC will incur capex of INR 4-5bn for the project. JJM Execution was muted in 1Q amid delayed payments but PNC expects gradual up-tick and has guided for revenue of INR 9bn in FY26 (FY25: INR 8.2bn). JJM receivables stand at c.INR 7bn as of Jun-25.

* Maintain BUY with price target of INR 430: We like PNC for its track record of delivering robust growth while preserving balance sheet. Monetization proceeds in FY26E provide significant growth capital and places PNC as major beneficiary of expected pick-up in ordering activity. We have factored lower other income and higher interest costs leading to EPS cuts of 14%/7% in FY26/27E. Having said that, we expect robust EPS CAGR of 31% over FY25-28E led by revenue growth and margin expansion. Valuations at 11x/9x FY27/28E EPS remain attractive. We value EPC business at 13x FY27 EPS and assets at INR 65/share to arrive at SOTP based revised price target of INR 430. Maintain Buy.

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