For 1QFY2017, PNC Infratech (PNC) reported top-line growth of 18.6% while the
bottom-line grew by substantial 145.6% yoy. The top-line growth was driven by
strong execution across Agra-Firozabad and Varanasi-Gorakhpur road projects.
Despite strong execution, decline in raw material and other expenses led to 81bp
yoy decline in EBITDA margin to 13.0%. A 11.6% yoy EBITDA growth coupled
with tax benefits and MAT credit led PAT grow by 145.6% yoy. PAT margins stood
at 12.4%, rose significantly on a yoy basis.
PNC’s unexecuted order book as of 1QFY2017 stands at Rs6,474cr (order book
to LTM sales ratio stands at 3.1x).
All the BOT projects are now operational as of now. Management has indicated
that it does not intend to add any new BOT projects in FY2017-18. As a result,
we are of the view that PNC’s consolidated D/E ratio would peak out from
FY2017E onwards.
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 -3.3% CAGR during the same
period. Accordingly, RoEs would decline from 23.3% in FY2016 to 13.9% 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 Rs143. Given the 19% upside in stock form the
current levels, we recommend BUY rating on the stock.

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