Company background: PNC Infratech Ltd (PNC), incorporated in 1999, is an
Agra based infra player mainly focused on Roads & Highways construction. PNC,
in FY2012, diversified into BOT-Toll & Annuity projects and in FY2014 into OMT
projects. Currently, PNC is executing 23 Engineering Procurement Construction
(EPC) projects (1 through JV route), 7 BOT projects (including 2 Annuity projects)
and 1 OMT project. 3 of the 7 BOT projects are already operational. Another
4 are likely to be operational in the next 12 months. With no more BOT projects
in the pipeline, PNC’s dependency on BOT projects for EPC works has
substantially declined from what it was two years ago. Currently, 12% of the EPC
order book comes from in-house BOT projects and this should further decline in
the next 1-2 quarters.
Positives: (1) Order book to FY2015 sales (for the standalone entity) is at 2.2x
which gives good revenue visibility, (2) Rs50,000cr of NHAI and Uttar Pradesh (UP)
PWD Roads & Highways bid-pipeline, gives visibility on the order book growth
front, (3) commencement of 4 BOT projects in the next 12 months to ease
Balance Sheet stress. Announcements on new order wins, better execution, and
commencement of BOT projects could lead to re-rating.
Risks & Concerns: (1) Prolonged delay in the UP road sector award activity, (2)
lower-than-expected traffic numbers across the 3 upcoming BOT projects (the
fourth is a Annuity project), (3) higher dependency on sub-contracting works could
impact their FY2016-17E EBITDA margins.
Valuation: PNC is poised to deliver healthy growth on the top-line as well as the
bottom-line front with improvement in order book, particularly on account of
revival in the NHAI and UP PWD award activity. On the valuation front, the
company is available at a 12% discount to its listed Road focused EPC peers on
Adj. P/E basis at the lower end of the issue price. The issue poses a good
opportunity for investors with a 12 month investment horizon as the stock has
potential to get re-rated on account of panning out of possible triggers, which
include 1) commencement of Tolling/ Annuity across 4 BOT projects, 2) news flow
pertaining to better execution and stable EBITDA margins (at ~13%) and (3)
gradual build-up in the company’s track-record as a listed entity. Accordingly, we
advise investors with a 12 months investment horizon to SUBSCRIBE to this issue
at the lower end of the price band.

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