Result Update PNC I LTD (PNC)

AUGUST 16, 2019

Result Update

PNC INFRATECH LTD (PNC)

Stock Details

Market cap (Rs mn)

:

52-wk Hi/Lo (Rs)

:

Face Value (Rs)

:

3M Avg. daily vol (Nos) :

Shares o/s (mn)

:

Source: Bloomberg

52103 219 / 122

2 254,828

257

Financial Summary

Y/E Mar (Rs mn)

FY19 FY20E FY21E

Revenue Growth (%) EBITDA EBITDA margin (%)

30,965 45,923 59,580 66.8 48.3 29.7 4,569 7,413 8,350 14.8 16.1 14.0

PAT EPS EPS Growth (%)

2,418 9.4

49.5

3,121 12.2 29.1

4,484 17.5 43.7

BV (Rs/share) Dividend/share (Rs) ROE (%) ROCE (%)

82

98 115

0.6

0.6

0.6

12.3 13.5 16.4

16.5 22.7 21.9

P/E (x) EV/EBITDA (x) P/BV (x)

21.6 16.8 11.7

11.7

7.6

6.8

2.5

2.1

1.8

Source: Company, Kotak Securities - PCG

Shareholding Pattern (%)

(%)

Jun 19 Mar 19 Dec 18

Promoters FII DII Others

56.1 56.1 56.1

6.3

6.3

6.3

22.7 22.7 22.7

15.0 15.0 15.0

Source: Bloomberg

Price Performance (%)

(%)

1M

3M

6M

PNC Infratech Nifty

6.3 32.1 45.8

(4.5) (1.7)

2.6

Source: Bloomberg

Price chart (Rs) 220 195 170 145 120

Aug-18 Dec-18 Apr-19 Aug-19

Source: Bloomberg

Pankaj Kumar pankajr.kumar@ +91 22 6218 6434

PRICE RS.204

TARGET RS.251

BUY

PNC reported strong Q1FY20 result and was ahead of our estimates led by robust execution and contribution from new projects where appointed date was received.

Key Highlights

PNC reported robust 79.7% yoy in standalone revenue driven by strong execution of its EPC and HAM projects. The company has received appointed date in six out of seven HAM projects and most of its EPC projects moved on expected lines. EBITDA margin at 13.6% was below our estimates.

PNC has robust total order book of Rs 119 bn (including HAM projects where appointed date not yet received) which is ~3.8x its FY19 revenue, and gives strong revenue growth visibility for the next 2-3 years. The company has maintained order inflows guidance of Rs 70-80 bn from NHAI and state road projects in FY20E.

The company has maintained revenue growth and margin guidance of 4550% and 13.5-14%, respectively for FY20E, despite very strong execution in Q1FY20. It may review the guidance post Q2FY20 results based on execution during monsoon.

Valuation & outlook

We have upgraded FY20E and FY21E EPS by 8-22% based on higher revenue growth estimates and arbitration award/early completion bonus received in completed projects. The EPC business (adjusted for Rs 41 per share value of BOT/HAM) is available at a PE of 13.4x and 9.3x based on FY20E and FY21E revised adjusted EPS of Rs 12.2 and Rs 17.5, respectively. We upgrade our rating on the stock to BUY (from ADD) with revised SOTP based target price of Rs 251 (Vs Rs 226 earlier).

Quarterly performance table (standalone)

Year to March (Rs Mn.)

Q1FY20

Net Revenues

13,218

Direct Expenses

9,429

Employee Expenses

591

Other Expenses

1,402

Operating Expenses

11,422

EBITDA

1,796

EBITDA margin

13.6%

Depreciation

305

Other income

135

Net finance expense

180

Profit before tax

1,446

Provision for taxes Incl tax write back 445

Reported net profit

1,001

Prior Yr Tax write back/ MAT credit

-

Adjusted PAT

1,001

Adj NPM%

7.6

Tax rate (% of PBT)

30.8

Source: Company

Q1FY19

7,355 5,002

406 653 6,061 1,294 17.6% 193 179 107 1,174 149 1,025 253 772 10.5 12.7

% Chg 79.7 88.5 45.7 114.5 88.5 38.7

58.1 (24.5)

68.8 23.2 199.7 (2.4)

29.6

Q4FY19

10,757 7,342 544 1,360 9,245 1,512 14.1% 282 123 194 1,158 (241) 1,399 658 474 4.4 (20.8)

% Chg 22.9 28.4 8.7 3.1 23.5 18.8

8.0 10.2 (7.3) 24.9 (284.7) (28.5)

111.4

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Strong execution in Q1FY20, maintained 45-50% revenue growth guidance

The standalone net revenue (EPC Business) for the quarter grew by 79.7% yoy to Rs 13.2 bn (Vs estimates of Rs 10.6 bn) driven by strong execution and contribution from new projects where appointed date was received. Most of the EPC projects moved on expected lines. Further, the company has received appointed date in six out of total seven HAM projects. The company expects strong execution to continue in Q3 and Q4 FY20 as well. But, due to heavy monsoon, execution may slow down in Q2FY20. Hence, the company has not revised its revenue growth guidance for FY20 and may review the same after Q2FY20 results. Earlier, the company had guided for 45-50% growth in FY20E revenue based on robust order book and execution timeline

EBITDA margin below estimates, Maintained margin guidance of 13.514%

Standalone EBITDA for the quarter was Rs 1.8 bn, and grew by 38.7% yoy with EBITDA margin at 13.6% (Vs estimates of 14.6%) due to project mix. The company has maintained FY20E EBITDA margin guidance of 13.5-14% which excludes any early completion bonus/claim award.

The debt in the books increased on qoq to Rs 4.5 bn (Vs Rs 3.75 bn in Q4FY19) which includes term loan related to equipment finance of Rs 3.8 bn and working capital of Rs 630 mn. The company expects debt to increase to Rs 5 bn at the end of FY20E due to some increase in working capital. The company targets net debt in the range of Rs 3.8-4 bn by FY20 end. Standalone PAT for the quarter adjusted for prior year tax write back grew at 29.6% yoy to Rs 1 bn (Vs our estimates of Rs 804 mn) on account of strong execution. The management has guided for full tax rate in FY20E.

Status of HAM projects

PNC has total 7 HAM projects costing Rs 88.97 bn, out of which six are in construction phase while in balance one (Challakere- Hariyur in Karnataka), it has achieved financial closure and is awaiting appointed date. The company expects appointed date in the project by November 2019 as against earlier expectation of September 2019. The delay in appointed date is due to land acquisition and RoW related issues. The company has infused Rs 2.8 bn in HAM projects and requires another Rs 5.5 bn in the next 2-2.5 years. The company has infused Rs 500 mn equity in Q1FY20 and balance for the year of Rs 1.9 bn would be infused in 9MFY20. Further, it will infuse Rs 2.2 bn in FY21E. The company targets to fund these through internal accruals, as it has strong cash generation. Besides this, the company is also looking to monetize its BOT and HAM projects. It had recently signed agreement with Cube Highways to monetize its BOT project Ghaziabad Aligarh project. The deal is expected to be completed in current calender year. This deal will generate Rs 3 bn of cash inflows for the company and would reduce group's exposure towards debt related to the SPV. Further, the company has received total arbitration award in favour of its SPV PNC Delhi Industrialinfra Private Limited.

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Strong order book to support future growth

The order book at the end of the quarter stood at ~Rs 119 bn which includes 1) Rs 109 bn of confirmed projects under execution, 2) one HAM project of EPC cost of Rs 9.35 bn where appointed date is awaited. The current order book gives very strong revenue growth visibility for the next two to three years. Further, the company is targeting to add new projects worth Rs 70-80 bn (50% from HAM) in FY20E based on new bids expected from NHAI and state government related to expressways. The company expects bids from NHAI in H2FY20. It will also be bidding for Rs 120 bn of projects from UP government related to Bundelkhand Expressway (~ Rs 90 bn) and Gorakhpur link road (~ Rs 30 bn), and expects bids in current month (August 2019).

Order Backlog details (as on 30 June 2019)

Details

Nagina-Kashipur Aligarh Kanpur Purvanchal Expressway Project P5 (Sansarpur Gobindpur) Purvanchal Expressway Project P6 (Gobindpur Morjarpur) Chakeri to Allahabad (HAM) Mumbai Nagpur Expressway Other projects Order backlog Challakere to Hariyur Karnataka (HAM) (Not included in OB) Consolidated OB Source: Company

Value (Rs mn)

7,500 9150 13,250 8,470 16,650 19090 35,390 1,09,500 9350 1,18,850

Other highlights

The company has reported Rs 6.1 mn per day toll revenue in Ghaziabad Aligarh BOT projects in Q1FY20. It has collected toll of Rs 2.7 mn per day in Kanpur Kabrai, Rs 1.4 mn per day in Gwalior Bhind and Rs 1.01 mn per day in Bareilly Almora BOT projects in the quarter.

PNC has received provisional completion certificate (PCC) in one of its EPC project Aligarh-Moradabad highway project on 13th May 2019 which was 73 days ahead of schedule. It is entitled to receive early completion bonus of ~ Rs 141 mn. This is expected to be booked in Q3FY20.

PNC has received Rs. 1.45 bn towards an arbitration award from NHAI for Garh Mukteshwar to Moradabad project on NH 24 in UP on 3rd August 2019. This will be booked in Q2FY19 under the head of revenue and other income.

The company has standalone debt of Rs 4.5 bn with low net debt to equity ratio of 0.2x. It has consolidated debt of Rs 22.1 bn with consolidated net debt to equity ratio of 1.3x.

The company has witnessed decline in net working capital days and debtors in Q1FY20 to 70 days and 71 days respectively. It expects net working capital to increase by the end of the year to 103-110 days with debtors at 90 days due to execution in new projects.

The company has incurred Rs 500 mn of capex in Q1FY20 and targets to do capex of Rs 1.2--1.5 bn in FY20E in order to execute its orders. Based on current gross block of ~Rs 10.7 bn, it can execute over Rs 50 bn of work on its own in a year.

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AUGUST 16, 2019

Outlook and valuation

We have upgraded FY20E EPS estimates by 8-22% based on higher revenue growth estimates and arbitration/early completion bonus to be awarded to the company in FY20E. Based on current order book of ~Rs 119 bn (including HAM & EPC projects) and execution timeline, we expect PNC to report strong growth in earnings. Further, PNC has strong pipeline of projects in road space which will support its future order book. The EPC business (adjusted for Rs 41 (vs Rs 32 earlier) per share value of BOT/HAM) is available at a PE of 13.4x and 9.3x based on FY20E and FY21E revised adjusted EPS of Rs 12.2 and Rs 17.5, respectively. We upgrade our rating on the stock to BUY (from ADD) with revised SOTP based target price of Rs 251 (Vs Rs 226 earlier).

Valuation Table (Rs mn)

Segment

Parameter

Construction Business Road BOT/HAM Consol PNC

FY21E PE BV

Source: Kotak Securities Private Client Research

Multiple P/E, P/BV 12x 1x

Rs Per Share

210 41

251

Revision in estimates

(Rs mn)

Previous

FY20E

FY21E

Revenue EBITDA EBITDA margin (%) Reported PAT Reported EPS (Rs)

44,177 6,459 14.6 3,434 13.4

54,322 7,673 14.1 4,136 16.1

Source: Kotak Securities Private Client Research

Revised

FY20E

FY21E

45,923 7,413 16.1 4,186 16.3

59,580 8,350 14.0 4,484 17.5

% Change

FY20E

FY21E

4.0 14.8 150 bps 21.9 21.9

9.7 8.8 -10 bps 8.4 8.4

Forward PE band(x) 20.0

17.0

14.0

11.0

8.0

5.0

Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19

Source: Capitaline, Kotak Securities Private Client Research

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Company Background

PNC Infratech Ltd (PNC) is present in the business of construction and infrastructure development with expertise in highways, bridges, flyovers, airport runways, development of industrial areas, etc. The company is executing most of the projects in the states like Uttar Pradesh, Madhya Pradesh, Delhi, Rajasthan, Punjab, Haryana, Uttarakhand, Bihar, etc. PNC was incorporated as a sole proprietorship firm in 1989 and was promoted by Mr. Pradeep Kumar Jain. Over the years, it executed 44 major infrastructure contracts. The company has a long history in the Indian road sector and secured a contract from the first 10 tenders of NHDP in 1999. In FY07, it forayed in BOT business and further forayed into Hybrid Annuity Projects (HAM) in FY17. PNC has executed 38 road projects on EPC contract basis and is operating 6 BOT projects, 1 OMT project and developing 7 HAM road projects. (source: Company)

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Financials: Standalone

Profit and Loss Statement (Rs mn)

(Year-end Mar)

FY18 FY19 FY20E FY21E

Revenues

18566 30965 45923

% change yoy

9.9 66.8 48.3

EBITDA

3188 4569 7413

% change yoy

44.3 43.3 62.2

Adj EBITDA

2606 4316 6183

% change yoy

17.9 65.6 43.2

Depreciation

772

922 1146

EBIT

2416 3647 6267

Other Income

230

430

590

Interest

307

641

877

Profit Before Tax

2339 3436 5980

% change yoy

20.6 46.9 74.0

Tax

332

849 1794

as % of EBT

14.2 24.7 30.0

Adj PAT

1618 2418 3121

% change yoy

6.5 49.5 29.1

PAT

2506 3245 4186

% change yoy

19.5 29.5 29.0

Shares outstanding (mn)

257

257

257

Adj EPS (Rs)

6.3

9.4 12.2

Reported EPS (Rs)

9.8 12.6 16.3

DPS (Rs)

0.6

0.6

0.6

CEPS(Rs)

9.3 13.0 16.6

BVPS(Rs)

70

82

98

Source: Company, Kotak Securities ? Private Client Research

59580 29.7 8350 12.6 8350 35.0 1267 7082 330 1007 6405 7.1 1922 30.0 4484 43.7 4484 7.1 257 17.5 17.5 0.6 22.4 115

Cash flow Statement (Rs mn)

(Year-end Mar)

FY18

Pre-Tax Profit Depreciation Change in WC Other operating activities Operating Cash Flow

1451 772 444

(645) 2022

FY19

2609 922

(1973) 369

1928

FY20E

4915 1146 (4038) (729) 1294

FY21E

6405 1267 (1995) (1922) 3756

Capex Free Cash Flow Change in Investments Investment cash flow

(1391) 631

(261) (1652)

(2963) (1036)

(75) (3039)

(1400) (106)

(2800) (4200)

(1000) 2756

(3000) (4000)

Equity Raised Debt Raised Dividend & others Other financing acitivity CF from Financing

0 (188) (150) 1338 1000

0 2451 (150)

267 2569

0 1300 (150)

0 1150

0 0 (150) 0 (150)

Change in Cash Opening Cash

1369 44

1458 (1756) 1061 2519

(394) 763

Closing Cash

1413 2519 763 368

Source: Company, Kotak Securities ? Private Client Research

Balance sheet (Rs mn)

(Year-end Mar)

Paid - Up Equity Capital Reserves Net worth Borrowings Total Liabilities

FY18

513 17553 18067

1286 19352

FY19

513 20639 21152

3737 24889

FY20E FY21E

513 24675 25188

5037 30225

513 29009 29522

5037 34559

Gross Block

7600 10612 12012

Depreciation

3535 4458 5604

Net block

4065 6155 6409

Capital work in progress

111

62

62

Total fixed assets

4176 6217 6471

Investments

6625 7739 10539

Inventories

1758 4036 6291

Sundry debtors

6900 6154 12582

Cash and equivalents

1061 2519

763

Loans and advances & Others 2451 4600 4048

Total current assets

12169 17308 23683

Sundry creditors and others 6685 8447 12528

Provisions

172

117

129

Total CL & provisions

6856 8564 12656

Net current assets

5313 8744 11026

Other Assets (net)

3,223 2,184 2,184

Net Deferred tax

15

5

5

Total Assets

19352 24889 30225

Source: Company, Kotak Securities ? Private Client Research

13012 6871 6141 62 6203

13539 8162

16323 368

4169 29023 16253

141 16395 12628 2,184

5 34559

Ratio Analysis

(Year-end Mar)

FY18 FY19 FY20E FY21E

Profitability Ratios

EBITDA margin (%)

17.2 14.8 16.1 14.0

Adj EBITDA margin (%)

14.5 14.1 13.8 14.0

EBIT margin (%)

13.0 11.8 13.6 11.9

Net profit margin (%)

15.6 11.0 11.4

7.5

Balance Sheet Ratios:

Receivables (days)

136

73

100

100

Inventory (days)

35

48

50

50

Loans & Advances (days)

48

54

32

26

Current Liabilities (days)

131

100

100

100

Cash Conversion Cycle (days) 87

75

83

76

Asset Turnover (x)

1.0

1.2

1.5

1.7

Net Debt/ Equity (x)

0.0

0.1

0.2

0.2

Return Ratios:

RoCE (%)

13.2 16.5 22.7 21.9

RoE (%)

9.6 12.3 13.5 16.4

Valuation Ratios:

P/E (x)

32.4 21.6 16.8 11.7

P/BV (x)

2.9

2.5

2.1

1.8

EV/EBITDA (x)

16.5 11.7

7.6

6.8

EV/Sales (x)

2.8

1.7

1.2

1.0

Source: Company, Kotak Securities ? Private Client Research

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RATING SCALE

Definitions of ratings

BUY

?

ADD

?

REDUCE

?

SELL

?

NR

?

SUBSCRIBE

?

RS

?

NA

?

NM

?

NOTE

?

We expect the stock to deliver more than 15% returns over the next 12 months

We expect the stock to deliver 5% - 15% returns over the next 12 months

We expect the stock to deliver -5% - +5% returns over the next 12 months

We expect the stock to deliver < -5% returns over the next 12 months

Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. We advise investor to subscribe to the IPO.

Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Not Available or Not Applicable. The information is not available for display or is not applicable

Not Meaningful. The information is not meaningful and is therefore excluded.

Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.

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Research Analyst has served as an officer, director or employee of subject company(ies): No

We or our associates may have received compensation from the subject company(ies) in the past 12 months.

We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No

We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies).

Research Analyst or his/her relative's financial interest in the subject company(ies): No

Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Nature of financial interest is holding of equity shares or derivatives of the subject company.

Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No.

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Kotak Securities ? Private Client Research

Please see the Disclosure/Disclaimer on the last page

For Private Circulation

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