For 4QFY2016, PNC Infratech (PNC) reported a top-line growth of 27.4% while
the bottom-line grew by a substantial 250% yoy. The top-line growth was driven
by strong execution across Agra-Firozabad and other road projects. Stronger
execution and yoy decline in employee expenses led to a 31bp yoy expansion in
the EBITDA margin to 12.5%. A 30.6% yoy EBITDA growth coupled with tax
reversals and MAT credit led the PAT to grow by 250% yoy. The PAT margin, at
19.6%, rose significantly on a yoy basis.
PNC’s unexecuted order book as of 4QFY2016 stands at Rs5,797cr (order book
to LTM sales ratio stands at 2.7x).
All the BOT projects are now operational as of FY2016-end. The Management
has indicated that it does not intend to add any new BOT projects in FY2017-18
unless a lucrative project in north India comes up within the Rs500cr ticket size. As
a result, we are of the view that PNC’s consolidated D/E ratio would peak out in
Outlook and valuation: Considering the strong uptick in roads and highways EPC
award activity especially in north India, where PNC has more comfort, and given
its past track record and recent wins, we expect the standalone entity to report
20.1% top-line CAGR over FY2015-2017E. With normal tax rate applicable from
FY2018, the bottom-line growth would be of -5.3% CAGR during the same
period. Accordingly, the RoEs would decline from 23.3% in FY2016 to 13.2% in
FY2018E. We are also now comforted that the consolidated Balance Sheet would
peak from FY2017E onwards. Using the SoTP valuation methodology we arrive
at a FY2018E based price target of Rs647. Given the 13% upside in the stock form
the current levels, we maintain our Accumulate rating on the stock.

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