Result Update ICICI Securities Ltd | Retail Equity Research HAM projects to keep execution strong… PNC Infratech’s (PNC) revenues grew significantly by 108.0% YoY to | 558.6 crore in Q2FY19 led by strong execution. However, it was below our expectation of | 603.3 crore EBITDA margin contracted 142 bps YoY to 13.4% on account of higher raw material expenses (68.3% as percentage of revenues in Q2FY19 vs. 65.3% in Q2FY18) and in line with our estimate of 13.6% PAT grew robustly by 110.9% YoY to | 35.1 crore in Q2FY19, below our expectation of | 59.4 crore mainly on account of lower-than- expected topline growth and higher tax rate of 21.6% in Q2FY19 Strong order book provides revenue visibility… PNC’s orderbook was strong at | 6119 crore, providing strong visibility over the next two to three years. However, this does not include some projects viz. two EPC packages of Purvanchal Expressway worth | 2520 crore, Nagpur-Mumbai expressway EPC package worth | 2000 crore and three HAM projects worth | 3834 crore. Including these projects, PNC’s orderbook is strong at over | 14000 crore. The company received appointed date for both Purvanchal Expressway packages on October 10, 2018, which may start contributing to revenues from Q4FY19E. Appointed date for Nagpur-Mumbai Expressway is expected in December, 2018. Taking cues from such a sharp execution pick-up in FY19E, we expect a robust topline growth of 45.1% to | 3911.3 crore in FY18E-20E. Healthy bid pipeline ahead... NHAI has invited bids for 70 EPC & 30 HAM projects worth | 70,000 crore, with due date expected in the next two to three months. These bids include 1250 km Delhi-Mumbai Expressway (25 packages) and 1316 km Amritsar-Jamnagar Expressway (22 packages), which are the biggest of these. The major component of these projects is expected on an EPC basis. PNC expects incremental | 4000 crore of opportunities in H2FY19E from above mentioned bid pipeline. Equity requirement worth | 832 crore for HAM projects... PNC has seven HAM projects with bid project cost of | 8897 crore in its kitty. While four of these projects are under execution, three are in the process of receiving financial closure. These projects have total equity requirement of | 832 crore of which ~| 50 crore was infused in FY18. The company will infuse an aggregate of | 220 crore, | 250 crore & | 312 crore in FY19E, FY20E & FY21E, respectively, which will be met through internal accruals. Also, it has plans to monetise four of its BOT assets, of which, Ghaziabad-Aligarh BOT asset is undergoing due diligence while talks on the term sheet are underway. With a lean balance sheet, strong internal accruals & inflows from monetisation of some projects, funding this equity requirement should not be an issue for PNC. Buoyant orderbook lends comfort for strong execution; maintain BUY… PNC’s robust order book, strong execution capabilities and lean balance sheet with better WC management reinforce our confidence on the future prospects of the company. Also, we believe PNC is well poised to capture huge opportunities ahead. We expect revenues to grow at a CAGR of 45.1% in FY18-20E given the significant ramp-up in execution from FY19E onwards with receipt of appointed dates for several big-ticket projects. Hence, we maintain our BUY rating on the stock with a target price of | 190. We value its construction business at | 164/share (at 8x FY20E EV/EBITDA) and BOT & HAM projects at | 53/share (traffic growth assumption - 5% per annum). PNC Infratech (PNCINF) | 152 Rating matrix Rating : Buy Target : | 190 Target Period : 12-18 months Potential Upside : 25% What’s changed? Target Changed from | 215 to | 190 EPS FY19E Changed from | 7.4 to | 7.3 EPS FY20E Changed from | 10.4 to | 10.3 Rating Unchanged Quarterly Performance Q2FY19 Q2FY18 YoY (%) Q1FY19 QoQ (%) Revenue 558.6 268.6 108.0 735.5 -24.0 EBITDA 74.6 39.7 88.0 129.4 -42.4 EBITDA (%) 13.4 14.8 -142 bps 17.6 -424 bps PAT 35.1 16.6 110.9 102.5 -65.8 Key Financials (| crore) FY17 FY18 FY19E FY20E Net Sales 1,676.0 1,856.6 2,696.9 3,911.3 EBITDA 221.0 318.8 363.4 527.0 Net Profit 209.7 251.0 186.6 263.7 EPS (|) 8.2 9.8 7.3 10.3 Valuation summary (x) FY17 FY18 FY19E FY20E P/E 18.6 15.5 20.9 14.8 Target P/E 23.2 19.4 26.1 18.5 EV / EBITDA 18.1 12.2 11.9 8.8 P/BV 2.5 2.2 2.0 1.8 RoNW (%) 9.7 13.9 9.4 11.9 RoCE (%) 13.2 13.7 11.5 14.2 Stock data Particular Amount (| crore) Market Capitalization 3,899.4 Total Debt 335.0 Cash 58.0 EV 4,176.4 52 week H/L (|) 228 / 123 Equity capital 51.3 Face value | 2 Comparative Return Matrix (%) Return % 1M 3M 6M 12M Ashoka Buildcon 6.6 (15.4) (32.0) (15.5) Sadbhav Engg (11.4) (14.6) (17.3) (11.2) IRB Infra 5.3 (27.3) (45.0) (36.8) PNC Infratech 8.4 (11.0) (15.3) (20.8) Research Analyst Deepak Purswani, CFA deepak,[email protected]Harsh Pathak [email protected]
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Result Update
ICICI Securities Ltd | Retail Equity Research
HAM projects to keep execution strong…
PNC Infratech’s (PNC) revenues grew significantly by 108.0% YoY to
| 558.6 crore in Q2FY19 led by strong execution. However, it was
below our expectation of | 603.3 crore
EBITDA margin contracted 142 bps YoY to 13.4% on account of
higher raw material expenses (68.3% as percentage of revenues in
Q2FY19 vs. 65.3% in Q2FY18) and in line with our estimate of 13.6%
PAT grew robustly by 110.9% YoY to | 35.1 crore in Q2FY19, below
our expectation of | 59.4 crore mainly on account of lower-than-
expected topline growth and higher tax rate of 21.6% in Q2FY19
Strong order book provides revenue visibility…
PNC’s orderbook was strong at | 6119 crore, providing strong visibility
over the next two to three years. However, this does not include some
projects viz. two EPC packages of Purvanchal Expressway worth | 2520
crore, Nagpur-Mumbai expressway EPC package worth | 2000 crore and
three HAM projects worth | 3834 crore. Including these projects, PNC’s
orderbook is strong at over | 14000 crore. The company received
appointed date for both Purvanchal Expressway packages on October 10,
2018, which may start contributing to revenues from Q4FY19E. Appointed
date for Nagpur-Mumbai Expressway is expected in December, 2018.
Taking cues from such a sharp execution pick-up in FY19E, we expect a
robust topline growth of 45.1% to | 3911.3 crore in FY18E-20E.
Healthy bid pipeline ahead...
NHAI has invited bids for 70 EPC & 30 HAM projects worth | 70,000 crore,
with due date expected in the next two to three months. These bids
include 1250 km Delhi-Mumbai Expressway (25 packages) and 1316 km
Amritsar-Jamnagar Expressway (22 packages), which are the biggest of
these. The major component of these projects is expected on an EPC
basis. PNC expects incremental | 4000 crore of opportunities in H2FY19E
from above mentioned bid pipeline.
Equity requirement worth | 832 crore for HAM projects...
PNC has seven HAM projects with bid project cost of | 8897 crore in its
kitty. While four of these projects are under execution, three are in the
process of receiving financial closure. These projects have total equity
requirement of | 832 crore of which ~| 50 crore was infused in FY18. The
company will infuse an aggregate of | 220 crore, | 250 crore & | 312 crore
in FY19E, FY20E & FY21E, respectively, which will be met through internal
accruals. Also, it has plans to monetise four of its BOT assets, of which,
Ghaziabad-Aligarh BOT asset is undergoing due diligence while talks on
the term sheet are underway. With a lean balance sheet, strong internal
accruals & inflows from monetisation of some projects, funding this equity
requirement should not be an issue for PNC.
Buoyant orderbook lends comfort for strong execution; maintain BUY…
PNC’s robust order book, strong execution capabilities and lean balance
sheet with better WC management reinforce our confidence on the future
prospects of the company. Also, we believe PNC is well poised to capture
huge opportunities ahead. We expect revenues to grow at a CAGR of
45.1% in FY18-20E given the significant ramp-up in execution from FY19E
onwards with receipt of appointed dates for several big-ticket projects.
Hence, we maintain our BUY rating on the stock with a target price of |
190. We value its construction business at | 164/share (at 8x FY20E
EV/EBITDA) and BOT & HAM projects at | 53/share (traffic growth
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICI Direct Research
Key events
[
Date Event
Mar-16 PNC Infratech declared L1 bidder for 4-laning of Varanasi-Gorakhpur section of NH-29 from 12 to 88 km (Package II from Sandah to Birnon) in Uttar Pradesh under
NHDP Phase-IV . The contract is worth ~| 869 crore and is to be executed on EPC basis.
Mar-16 PNC Infratech achieves CoD of Raebareli-Jaunpur BOT project and is entitled to receive semi annual annuity of | 64.3 crores each during the remaining 15 years of
the concession period
Mar-16 Receives letter of acceptance (LoA) for the project of construction of three lane road on both sides of Sharda Sahayak Feeder Canal from Lucknow-Faizabad to
Lucknow-Sultanpur road worth | 205.7 crore in UP
Mar-16 Declared lowest bidder for project of four laning of Nagina-Kashipur section of NH-74 from 73 to 175 km in the states of Uttarakhand and UP under NHDP IV. The
contract amount for this NHAI project to be executed on EPC basis is | 1155.7 crore
Apr-16 Declared L1 (lowest) bidder for upgradation of Nanau-Dodon section in Aligarh district, UP worth | 119.9 crore
Apr-16 CARE upgrades credit ratings on long term bank facilities (senior debt) to CARE A- from CARE BBB and subordinate debt to CARE BBB+ from CARE BBB- of PNC
Raibareli Highways Pvt Ltd, a subsidiary of PNC Infratech
May-16 PNC Infratech declared L1 (lowest) bidder for extension and resurfacing of runway at Air Force Station, Bakshi Ka Talab, near
Lucknow. The bid amount for this project of Military Engineering Services, is | 140.6 crores.
Jul-16 PNC Infratech declared lowest bidder for ₹ 881 crore highway project under Hybrid annuity mode. The project entails four-laning and two-laning of the Dausa-Lalsot-
Kautham section (83.5 km) of National Highway 11A in Rajasthan.
Jul-16 PNC Infratech awarded an EPC project involving four laning of the Etah to Kasganj road in Uttar Pradesh for a contract value of | 232.9 crore
Source: Company, ICICI Direct Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
Page 12 ICICI Securities Ltd | Retail Equity Research
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