Stock Update

PNC Infratech Ltd

Execution stays strong; OPM disappoints
Powered by the Sharekhan 3R Research Philosophy Infrastructure Sharekhan code: PNCINFRA

3R MATRIX + = -
Reco/View: Buy  CMP: Rs. 248 Price Target: Rs. 323 â

Result Update
Right Sector (RS) ü
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Right Quality (RQ) ü Summary

Right Valuation (RV) ü Š We retain a Buy on PNC Infratech Limited (PNC) with a revised PT of Rs. 323, lowering
our valuation multiple to factor in near-term headwinds with respect to volatility in key
+ Positive = Neutral – Negative commodity prices.
Š Standalone execution remained strong, but OPM disappointed led by impairment of road
What has changed in 3R MATRIX project and higher commodity prices. Recent order wins led to strong order backlog of over
Rs. 21,000 crore.
Old New Š Management eyes Rs. 8000-10000 crore of order intake, 15% y-o-y standalone revenue
growth and 13-13.5% OPM for FY2023.
RS  Š Asset divestment delayed on account of lower than expected valuations. Company to take
a call in FY2023.
RQ 
PNC Infratech Limited (PNC) reported better-than-expected standalone revenues (up
RV  16.6% y-o-y to Rs. 1917 crore) for Q4FY2022 which included Rs. 83 crore early completion
bonus. However, OPM disappointed at 11.7% (lower by 241 bps y-o-y) due to Rs. 90 crore
impairment related to Ghaziabad Aligarh road project. Adjusted OPM stood at 12.7% versus
our expectation of 13.8%. Standalone net profit was up 6.8% y-o-y at Rs. 138 crore (in-line
ESG Disclosure Score NEW with estimate) owing to lower effective tax rate (24.9% vs 36.8% in Q4FY2021). Its current
order book including the recently won seven HAM projects is worth over Rs. 21,000 crore
ESG RISK RATING (3x FY2022 standalone revenues). It would be eyeing Rs. 8000-10000 crore order intake
44.62
Updated Feb 08, 2022 for FY2023, 15% y-o-y revenue growth and 13-13.5% OPM. On the asset monetisation front,
the company would be deciding in FY2023 as current valuations are not as per company’s
Severe Risk expectation.
NEGL LOW MED HIGH SEVERE Key positives
0-10 10-20 20-30 30-40 40+ Š Execution remained strong with 17% y-o-y rise in standalone revenues for Q4FY2022.
Source: Morningstar Š It received early completion bonus of Rs. 83 crore during Q4FY2022.

Company details Key negatives

Š OPM disappointed due to impairment of an asset and higher commodity prices.
Market cap: Rs. 6,370 cr
Š Asset monetization has been delayed due to lower-than-expected valuations.
52-week high/low: Rs. 396/227 Management Commentary
NSE volume: Š Revenue mix for FY23 is expected to be as follows Roads & HAM projects – Rs. 5500-6000
1.2 lakh crore, Jal Jeevan Mission projects – Rs. 1500 crore, New HAM projects – Rs. 200-300 crore
(No of shares)
and Irrigation – Rs. 200 crore.
BSE code: 539150 Š Company has 25 projects out of which 18 HAM projects amounts to Rs. 24590 crore. Out of
NSE code: PNCINFRA Rs. 2390 crore equity requirement, it has invested Rs. 915 crore till date.
Š Out of 7 HAM projects, five projects has 80% land (3G) while two projects have less than 80%
Free float: land in possession. It expects to receive appointed dates for HAM projects in Q3FY2023.
11.3 cr
(No of shares) Revision in estimates – We have fine tuned our estimates for FY2023-FY2024.

Shareholding (%) Our Call

Valuation – Retain Buy with a revised PT of Rs. 323: We believe PNC is one of the best picks
Promoters 56.1 in the road development sector on account of its strong execution capabilities, healthy balance
sheet, robust order book and prudent capital management. The company has been able to
FII 10.0 grow its order book substantially with strong project accretions during March 2022. Further, the
DII 26.8 company has strong opportunities in bagging Jal Jeevan Mission projects in UP. Additionally,
the fructification of asset divestment would further help strengthen its healthy balance sheet.
Others 7.1 We retain our Buy rating on the stock with a revised price target (PT) of Rs. 323, lowering our
valuation multiple to factor in near term headwinds with respect to volatility in key commodity
Price chart prices.
450 Key Risks
400 Delay in the execution of projects or inability to sustain OPM remain key risk to our call.
350
300
250
Valuation (Standalone) Rs cr
200
150 Particulars FY21 FY22 FY23E FY24E
100 Revenue 4,925.4 6,305.5 7,232.7 7,869.2
May-21

May-22
Sep-21

Jan-22

OPM (%) 13.7 12.5 13.2 13.2

Adjusted PAT 361.9 447.8 517.9 572.7
% YoY growth 3.5 23.7 15.7 10.6
Price performance
Adjusted EPS (Rs.) 14.1 17.5 20.2 22.3
(%) 1m 3m 6m 12m P/E (x) 17.6 14.2 12.3 11.1
Absolute -3.4 -6.3 -18.3 -3.9 P/B (x) 2.2 1.9 1.6 1.4
Relative to EV/EBIDTA (x) 9.4 8.1 6.7 6.1
-1.4 -5.7 -16.3 -11.6 RoNW (%) 13.3 14.3 14.4 13.9
Sensex
Sharekhan Research, Bloomberg RoCE (%) 13.9 15.1 15.0 14.4
Source: Company; Sharekhan estimates

May 30, 2022 54

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OPM disappoint while execution stays strong

PNC reported a 16.6% y-o-y growth in standalone net revenues at Rs. 1,917 crore for Q4FY2022 which was 9%
higher than our estimate. Revenues include a Rs. 82.7 crore bonus received for early completion of project.
Standalone OPM at 11.7% (-241bps y-o-y) was lower than our estimate of 13.8% as it made Rs. 90.33 crore
impairment of Ghaziabad Aligarh Expressway (Associate company). Hence, operating profit declined by 3.3%
y-o-y to Rs. 225 crore (7% lower than our estimate). Weak operational performance was offset by a lower
effective tax rate (24.9% Vs 36.8% in Q4FY2021) leading to 6.8% growth in standalone net profit at Rs. 138
crore which was in line with our estimate.
Healthy guidance for FY2023
The company expects a 15% y-o-y standalone revenue growth and 13-13.5% OPM for FY23. The revenue
mix for FY23 is expected to be as follows road & HAM projects – Rs. 5500-6000 crore, Jal Jeevan Mission
projects – Rs. 1500 crore, New HAM projects – Rs. 200-300 crore and Irrigation – Rs. 200 crore. It is targeting
Rs. 8000-10000 crore (including 10% related to Jal Jeevan Mission projects) order inflows for FY23. The
company bagged seven HAM projects worth Rs. 8446 crores in March 2022. The company received Rs. 11152
crore orders in FY22 taking order book to Rs. 14663 crore as on FY22. Including recently won HAM projects,
the order book would be worth over Rs. 21000 crore.
Key conference call takeaways
Š Guidance: The company expects 15% y-o-y standalone revenue growth and 13-13.5% OPM for FY23. The
revenue mix for FY23 is expected to be as follows - Roads & HAM projects – Rs. 5500-6000 crore, Jal
Jeevan Mission projects – Rs. 1500 crore, new HAM projects – Rs. 200-300 crore and Irrigation – Rs. 200
crore. It is targeting Rs. 8000-10000 crore (including 10% related to Jal Jeevan Mission projects) order
inflows for FY23.
Š Asset monetisation: The decision on asset monetisation would be taken in FY23 for five HAM and one
annuity as currently the valuations are not as per company’s expectations.
Š Industry update: During March 2022, MORTH and NHAI together awarded 5100km road projects. During
FY22, total awards stood at 12,700 km, up 22% y-o-y. Till February 2022, NHAI awarding remained subdued.
NHAI awarded 6300kms in FY22 as compared to 4818 km awarded in FY21. The shortage of labour and
sharp rise in steel and cement prices affected roads sector. Road construction for FY22 was 10457 km
compared to 13327kms in FY21. FASTag collections were up 67% y-o-y at Rs. 38000 crore for FY22.
Š Order inflows: The company bagged 7 HAM projects worth Rs. 8446 crores in March 2022. It also won
one year toll collection contract of Rs. 369 crore for Eastern peripheral expressway. During January 2022,
its JV (a 90% stake) won three rural drinking water projects of Rs. 2337 crore. The company received Rs.
11152 crore orders in FY22 taking order book to Rs. 14663 crore as on FY22. Including recently won HAM
projects, the order book would be over Rs. 21000 crore. Water project orders have been upwardly revised
to Rs. 4700 crore from Rs. 2800 crore earlier. The outstanding water related order book is Rs. 6900 crore.
Š Ghaziabad Aligarh project: The company completed divestment of the project on May 26, 2022 at a
equity value of Rs. 274.85 crore while its total value is Rs. 1370 crore. It had provided Rs. 39 crore and
Rs. 90.33 crore impairment in Q3FY22 and Q4FY22 respectively in standalone accounts. In consolidated
account, it provided Rs. 127.91 crore in Q4FY22 consolidated accounts. The company does not expect any
further impairment
Š Debt: Standalone debt is Rs. 216 crore, cash Rs. 407 crore, net cash of Rs. 191 crore and net debt to equity
of 0.06x. Consolidated debt is at Rs. 4779 crore, cash Rs. 1046 crore and net debt to equity at 1.32x. The
standalone gross debt is expected to be Rs. 200 crore by FY23 end.
Š Early completion bonus: The company received Rs. 82.68 crore early completion bonus for Purvanchal
Package V which was completed in 132 days, ahead of schedule. It would receive Rs. 37.02 crore early
completion bonus for Purvanchal package VI, which was completed in 97 days, ahead of schedule, which
will be booked in Q1FY23.

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Š Equity requirement: The company has 25 projects out of which 18 HAM projects (CoD received for 5,
Under-construction 6 and recently awarded 7) that amounts to Rs. 24590 crore. Out of Rs. 2390 crore
equity requirement, it has invested Rs. 915 crore till date. The balance Rs. 1475 crore would be invested as
follows FY23 – Rs. 400-410 crore, FY24 – Rs. 450-500 crore and FY25 – Rs. 350-400 crore.
Š Capex: The capex for FY23 would be Rs. 100-120 crore and FY24 at Rs. 75-80 crore.
Š Land status for HAM projects: Out of 7 HAM projects, five projects has 80% land (3G) while two projects
have less than 80% land in possession. It expects to receive appointed dates for HAM projects in Q3FY2023.

Results (Standalone) Rs cr
Particulars Q4FY22 Q4FY21 y-o-y % Q3FY22 q-o-q %
Net Revenue 1917.3 1644.3 16.6% 1522.0 26.0%
Other income 8.5 17.1 -50.2% 10.6 -19.5%
Total income 1925.8 1661.3 15.9% 1532.5 25.7%
Total expenses 1692.6 1411.9 19.9% 1356.5 24.8%
Operating profit 224.7 232.4 -3.3% 165.5 35.8%
Depreciation 32.1 30.0 6.9% 33.6 -4.4%
Interest 17.0 14.8 15.0% 20.8 -18.4%
Profit Before Tax 184.1 204.7 -10.0% 121.7 51.3%
Taxes 45.9 75.3 -39.0% 40.7 12.8%
PAT 138.2 129.4 6.8% 81.0 70.7%
No of equity shares 25.7 25.7 0.0% 25.7 0.0%
EPS (Rs.) 5.4 5.0 6.8% 3.2 70.7%

OPM (%) 11.7% 14.1% -241 bps 10.9% 85 bps

NPM (%) 7.2% 7.9% -66 bps 5.3% 189 bps
Tax rate (%) 24.9% 36.8% -1184 bps 33.5% -852 bps
Source: Company, Sharekhan Research

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Outlook and Valuation

n Sector view - Roads to remain one of key focus areas in the government’s infrastructure spending
The government’s infrastructure investment is pegged at Rs. 111 lakh crore over FY2020-FY2025. The road
sector is expected to witness Rs. 20 lakh crore investments in the same period. Significant investments along
with favourable government policies are expected to provide strong growth opportunities for industry players.
The road sector is recovering, with manpower strength and availability of materials nearing pre-COVID levels
post easing of lockdown restrictions in the country. The industry is expected to see strong order inflows and
an improvement in execution run-rate from Q3FY2021. Working capital issues of the companies have been
handled by proactive payments from NHAI.
n Company outlook - Expect healthy order intake to maintain revenue growth run-rate
The company expects 15% y-o-y standalone revenue growth and 13-13.5% OPM for FY23. The revenue mix for
FY23 is expected to be as follows Roads & HAM projects – Rs. 5500-6000 crore, Jal Jeevan Mission projects
– Rs. 1500 crore, New HAM projects – Rs. 200-300 crore and Irrigation – Rs. 200 crore. It is targeting Rs.
8000-10000 crore (including 10% related to Jal Jeevan Mission projects) order inflows for FY23. The current
order book of the company stands at over Rs. 21,000 crore, which provides healthy revenue visibility over the
next two years. On the asset monetisation front, the management would take a call in FY23 for five HAM and
one annuity project as currently the valuations are not as per company’s expectations.
n Valuation - Retain Buy with a revised PT of Rs. 323
We believe PNC is one of the best picks in the road development sector on account of its strong execution
capabilities, healthy balance sheet, robust order book and prudent capital management. The company has
been able to grow its order book substantially with strong project accretions during March 2022. Further, the
company has strong opportunities in bagging Jal Jeevan Mission projects in UP. Additionally, the fructification
of asset divestment would further help strengthen its healthy balance sheet. We retain our Buy rating on
the stock with a revised price target (PT) of Rs. 323, lowering our valuation multiple to factor in near term
headwinds with respect to volatility in key commodity prices.

One-year forward P/E (x) band

25

20

15

10

0
Feb-16

Feb-17

Mar-18

Mar-19

Mar-20
Jun-16

Jun-17

Dec-20

Dec-21
Jul-18

Jul-19
Oct-15

Oct-16

Oct-17

Aug-20

Aug-21
May-15

Nov-18

Apr-21

Apr-22
Nov-19

Peak 1 yr fwd P/E (x) Trough 1 yr fwd P/E (x) Avg 1 yr fwd P/E (x) 1 yr fwd P/E (x)

Source: Sharekhan Research

Peer Comparison
P/E (x) EV/EBITDA (x) P/BV (x) RoE (%)
Companies
FY23E FY24E FY23E FY24E FY23E FY24E FY23E FY24E
PNC Infratech 12.3 11.1 6.7 6.1 1.6 1.4 14.4 13.9
KNR Constructions 16.7 13.6 9.2 7.7 2.6 2.2 17.2 17.8
Source: Sharekhan Research, Standalone financials

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About company
PNC is an infrastructure construction, development, and management company, with expertise in the
implementation of projects, including highways, bridges, flyovers, airport runways, industrial areas, and
power transmission lines. The company provides engineering, procurement, and construction (EPC) services
on a fixed-sum turnkey basis as well as on an item rate basis. Quite a few of the projects it executes and
implements are on Design-Build-Finance-Operate-Transfer (DBFOT), Operate-Maintain-Transfer (OMT),
and Hybrid Annuity Models (HAM). Since its corporatisation in 1999, the company has executed 66 major
infrastructure projects spread across 13 states, of which 43 are road EPC projects. Currently, PNC has six
BOT projects (both toll and annuity) and one OMT project, all of which are operational. The company has 11
HAM projects, of which five are under construction, one project has received PCOD, one project has achieved
financial closure, and four projects are awaiting appointed dates.

Investment theme
PNC is one of the best picks in the road development sector on account of its strong execution capabilities,
healthy balance sheet, robust order book, and prudent capital management. PNC has in-house manufacturing
capabilities, which provide it the ability to execute projects on time. The company’s strong order book along
with expected order inflows during FY2023 is expected to lead to healthy earnings growth over the next two
years. The company is also looking at monetising its assets, which would further lighten its balance sheet
and free up equity capital for future projects.

Key Risks
Š Delay in the execution of projects affects net earnings.
Š Weak macro environment leading to low visibility of project tendering affects business outlook.
Š Increased interest rates, commodity prices, and tightening liquidity are inherent business risks.

Additional Data
Key management personnel
Mr. Pradeep Kumar Jain Chairman and MD
Mr. Naveen Kumar Jain Promoter
Mr. Chakresh Kumar Jain Managing Director and CFO
Mr. Yogesh Kumar Jain Managing Director
Source: Company

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 NCJ Infrastruture Pvt. Ltd. 9.65
2 Jain Yogesh Kumar 8.53
3 HDFC Asset Management Co. Ltd. 8.38
4 Jain Pradeep Kumar 8.03
5 Jain Navin Kumar 7.05
6 Jain Madhavi 7.02
7 ICICI Prudential Asset Management 4.98
8 Jain Chakresh Kumar 4.59
9 Jain Vaibhav 4.55
10 Jain Ashita 3.07
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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