Maintain BUY on PNC Infratech - Balanced performance - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

Whilst PNC reported 4QFY20 Rev/EBIDTA/APAT miss of 8.1/10.3/3.8% respectively, gains on Balance sheet was commendable. NWC reduced from 97days in FY19 to 60days during FY20 on back of robust collections. PNC reported net cash of Rs 4.1bn. Despite challenging FY20, PNC backed new orders worth Rs 52bn taking the order backlog to Rs 135bn (2.8x FY20 Rev). Labour activity/Execution levels have recovered to 70-80% across sites and toll collection has reached 90% of pre COVID levels. PNC remains well placed to gain from UP State Infrastructure build out and strong banking lines and balance sheet augurs well for growth recovery over FY21-22E. We have increased our FY21/22E standalone EPS by 3.9/4.3% and maintain BUY on PNC with a TP of Rs 234/sh (12x FY22E EPS, Rs 59/share for BOT/HAMs).

Balanced performance across matrix: PNC performance was a tad miss due to COVID-19 related impacted in 2nd half of Mar-20. Despite this FY20 has been the best year for PNC with (1) Lifetime high turnover, (2) Robust net cash status at Rs 4.1bn and (3) Lowest NWC days at 60. PNC bagged 3 HAM projects worth Rs 52bn during FY20 despite limited NHAI ordering. It realized arbitration claims worth Rs 3bn from Narela and NH-24 project.

HAM equity requirement to be met with internal accruals: PNC has already invested Rs 4.4bn in HAM projects and pending equity requirement is Rs 4bn for 6 under construction HAM projects and Rs 6bn for new 4 HAM projects. Equity requirement of Rs 10bn is to be met from internal cash generation of Rs 17bn over next 3yrs. PNC would be investing Rs 2.8/3.8/1.7/1.6bn over FY21/22/23/24E on these HAM projects. Aligarh-Ghaziabad asset monetization has been called off with Cube Highways due to differences in valuation and PNC is in advance stages of negotiation with new buyer. Deal expected to be closed by Sep-20.

Cautious diversification is being looked at: PNC is looking at bidding for Jal Jeevan projects in UP through JV. Railways and Metro orders are also being looked selectively for bidding. Near term focus though remains on roads and FY21E target is to get more EPC Projects. Ganga Expressway is a big UP State expressway in DPR stage with 13 packages and is expected to come for bidding in 4QFY21E.

We maintain BUY on PNC: PNC has been our top Infra pick as we had bet on improvement in balance sheet, execution recovery and strong FCF generation. Whilst our thesis played out, near term challenges remain on asset portfolio. PNC needs to find a buyer for 11 HAM assets portfolio over next 1-2yrs as Rs 16bn of equity will get invested by FY23E and unlocking will be necessary for re-rating. Key risks (1) Slowdown in NHAI ordering; (2) Delay in HAM projects monetization.

Shares of PNC Infratech Ltd was last trading in BSE at Rs.143.5 as compared to the previous close of Rs. 143.3. The total number of shares traded during the day was 24570 in over 1051 trades.

The stock hit an intraday high of Rs. 145.8 and intraday low of 142. The net turnover during the day was Rs. 3528197.

Source : Equity Bulls

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