PNC Infratech (PNC) reported a top-line and bottom-line growth of 45.1% and
43.4% yoy, respectively, for 2QFY2016. Top-line growth was driven by strong
execution across Agra-Firozabad and other road projects. Higher dependency on
sub-contracting led PNC to report 50bp yoy decline in its EBITDA margin to
11.7%, for the quarter. A 38.7% yoy EBITDA growth coupled with 55.3% decline
in interest expenses led the PAT to grow by 43.4% yoy. PAT margin, at 6.6% for
the quarter, was marginally down on a yoy basis.
PNC’s unexecuted order book as of 2QFY2016 stands at Rs3,578cr (order book
to LTM sales ratio stands at 2.1x).
One more BOT is expected to commence operation in FY2016 in addition to 3
already started in YTDFY2016. Management has indicated that it does not intend
to add any new BOT projects in FY2016 unless a lucrative project in north India
comes up within the ticket size of Rs500cr. As a result, we are of the view that
PNC’s consolidated D/E ratio would peak out in FY2017E.
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 21.1% and 28.5% top-line and bottom-line CAGR, respectively, over
FY2015-2017E. This, coupled with the likelihood of 1 BOT project commencing
operation in FY2016E, leads us to estimate that the consolidated Balance Sheet
should peak from FY2017E onwards, which is comforting. Using SoTP based
valuation methodology we arrive at a FY2017E based price target of Rs558.
Given the 7% upside in the stock form the current levels, we maintain our
Accumulate rating on the stock.

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