PNC Infratech Ltd - Q2FY21 Result Update - YES Securities

Robust Outlook - Conference call takeaways

- PNC's execution during Q2 FY21 improved as compared to Q1 with better labor availability and improved supply chain. The execution now is almost near the pre-COVID levels and 2H FY21 is expected to be much better with monsoon impact going away and improved labor availability.

- Despite the challenges related to labor, the company has managed to maintain its operating margin at ~13%. Going forward, PNC expects margins to remain at 13.5-14% levels.

- Considering the current pace of execution and better labor availability, the Management now expects to close the year with marginal growth in topline during FY21. This is as against 10% decline guided earlier.

- The order book at the end of Sep'20 stood at Rs.68 bn which excludes a) Challakere-Hariyur HAM project (BPC: Rs.11.6bn), b) Unnao-Lalganj HAM project (BPC Rs.16.2bn), c) Jagdishpur-Faizabad HAM project (BPC: Rs.15.3bn), d) Aligarh-Kanpur HAM project (BPC: Rs.20.5bn), e) Meerut Nazibabad section HAM project (BPC: Rs.14.1bn) and f) Delhi - Vadodara Greenfield Alignment EPC project (2 packages having value: Rs.15.5bn) g) Irrigation/Water projects worth Rs.12 bn. Including these projects, the order book stands at ~Rs.158 bn.

- As per the management, awarding activity from NHAI side has picked up pace and 60% of projects have been awarded on EPC mode till date. NHAI is well on target to award 4500 kms of projects during FY21. The Company has already received orders worth Rs.42 bn during FY21. It is targeting to win Rs.50-60 bn worth of projects in remaining part of FY21 primarily in Roads and Irrigation segment. The Company has submitted bid for Road project worth Rs.16 bn and ~Rs.50 bn for Water projects.

- Final confirmation from NHAI is pending for Appointed date in Challakere - Hariyur HAM project. It would be effective from mid Oct'20. The AD in 4 recently won HAM projects is expected by Dec-Jan. ~80% land is currently available in most of these projects. The appointed date for the two EPC projects of Delhi Vadodara Expressway is also expected by Dec-Jan. The timely receipt of appointed dates would see sharp pickup in execution during Q4 FY21 and beyond.

- During May'19, PNC had executed SPA for divestment of its stake in Ghaziabad Aligarh Road Project with Cube Highways. The deal was subject to the fulfilment of certain closure conditions (within period of 12 months from the date of signing the agreement). However, it got lapsed with validity expiring before the closure of the deal. Currently, the company is under discussions with another prospective investor, who has evinced interest in the project asset. Accordingly, due diligence process is underway and some progress is likely in near term.

- Net Working Capital Days stood at 85 days (almost flat qoq). The WC as at end of March had reduced drastically as NHAI had cleared contractor dues on priority to ensure sufficient liquidity in hands of contractors. The Company has recently received further payments in October and WC is very much within comfort levels.

- The total equity requirement including recently won HAM projects is Rs.9.7 bn. The management has guided for Rs.2.3bn/Rs.4.0bn/Rs.1.6bn towards equity requirement during remaining period of FY21E/FY22E/FY23E respectively. Equity Invested during 1H stands at Rs.350 mn.

- As per the management, traffic level at BOT projects have moved to the pre-COVID levels and it also saw highest monthly traffic in the calendar year during September.

- Capex is likely to be Rs.1.25 bn during FY21E. Negligible capex has been done in 1H FY21. Mobilization Advance outstanding stands at Rs.1.8 bn currently.

Our view

- With Monsoon largely behind and better labor availability, execution pace is set to see sharp improvement during H2 FY21. Operating margin is expected to remain healthy at ~13.5% levels. The order book is in a comfortable position with ~ 3x FY20 revenues. Recent order inflows, continued focus on asset monetization and comfortable balance sheet position provide comfort. We retain our estimates for FY21/22 and maintain our BUY rating for target of Rs.212 (based on SOTP valuation). We believe Company would be one of the big beneficiary of strong project awarding by NHAI. Entry in water segment has also opened new business avenues which would support order book going forward.

PNC Infratech Q2 FY21 summary

- PNC Infratech reported topline de-growth of 11% yoy (to Rs.10.5 bn) on standalone basis which was in-line with our estimates. The execution improved over Q1 with better labor availability and easing of lockdown.

- Operating margin remained heathy at 13.5% vs 13.2% in Q1 FY21. Operating performance during same period last year included arbitration claims of Rs.1.09 bn. PAT during Q2 FY21 stood at Rs.693 mn.

- Order book at the end of Q2 FY21 including recently won projects stands at ~Rs.152 bn.

Shares of PNC Infratech Ltd was last trading in BSE at Rs.168.75 as compared to the previous close of Rs. 165.7. The total number of shares traded during the day was 5698 in over 469 trades.

The stock hit an intraday high of Rs. 171.5 and intraday low of 163.55. The net turnover during the day was Rs. 956109.

Source : Equity Bulls

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