Up 200% since March, this midcap EPC player has D-Street going gaga over it

NEW DELHI: Shares of rallied over 50 per cent final week, and are up 200 per cent from their March 2020 lows, however analysts consider this rally isn’t over.

They see an additional 35 per cent upside within the inventory, as the corporate’s order e book offers strong income visibility for the medium time period. Low leverage, good tempo of execution and powerful money stream monitor document place this inventory among the many prime midcap EPC (engineering, procurement and building) bets, analysts stated.

Order e book
Analysts famous PNC’s order e book stood at Rs 9,852 crore on the finish of the December quarter. But that excluded two HAM initiatives: Challakere-Hiriyur with an EPC worth of Rs 935 crore and Meerut-Nazibabad mission with a bid price of Rs 1,412 crore.

They additionally exclude two EPC initiatives of Delhi-Vadodara alignment price Rs 1,548 crore, and irrigation and water initiatives price Rs 3,766 crore.

Including these initiatives, the corporate’s order e book stands at almost Rs 18,000 crore, and elevate the order book-to-trailing 12-month income to 4.1 instances, which is prone to grow to be 100 per cent executable by April.

“This provides revenue visibility over the next three years,” ICICIdirect stated.

Under the hybrid annuity mannequin (HAM), the federal government bears 40 per cent of a mission price whereas the remaining funding comes from the contractor. It is a mixture of pure EPC and BOT (build-operate-transfer) fashions. In the EPC mannequin, a player simply executes the order e book and provides it again to the federal government, whereas within the BOT mannequin, the player has to construct, function and preserve a street mission for a selected interval, earlier than giving it again to the federal government.

For the primary 9 months of FY21 up to now, PNC Infra bagged Rs 7,700 price of orders and bade for Rs 15,000 crore price of street initiatives. The firm is anticipating to bag further orders price Rs 2,000 crore in March quarter and Rs 10,000 crore in FY22.

“A excessive share of the orderbook (44 per cent) being L1, with two HAMs and two EPC street initiatives awaiting appointed date (AD), there stays solely minor considerations and they’re anticipated to be addressed by the tip of this monetary 12 months,” stated Phillip Capital.

L1 is the bottom industrial bid designated in a monetary bid analysis.

Exceeding steerage
Nomura India stated the corporate administration had guided for 10 per cent income decline in June quarter, however now it is guiding for flattish development (excluding early completion bonus) over FY20.

“This highlights that execution pickup has been materially higher than management estimates. This follows a trend of PNC Infra exceeding its sales guidance in FY19 and FY20 as well,” it stated.

Profit for PNC Infra greater than doubled to Rs 176 crore in December quarter from Rs 67 crore the year-ago interval. Revenue rose 14 per cent YoY to Rs 1,582 crore from Rs 1,390 crore. Ebitda margin expanded to 25.7 per cent within the third quarter from 24.3 per cent within the second and 21.4 per cent within the year-ago quarter.

The firm administration stated NHAI (National Highway Authority of India) has already awarded 2,424 km within the first 9 months and is predicted to award additional 4,800-5,200 km quickly. Thus, NHAI is prone to surpass its goal of 4,500 km award in FY21.

For FY22, that focus on is prone to hit 8,500 km, which supplies incremental alternative for the corporate to bag street initiatives, analysts stated.

Financing initiatives
Analysts famous that the corporate must infuse Rs 930 crore price of fairness within the HAM initiatives and is assured of doing so through inner accruals. Out of this, it has already invested Rs 540 crore. It would want to take a position Rs 350 crore in FY22 and Rs 170 crore in FY23.

The administration is trying so as to add extra HAM initiatives to the portfolio within the mild of its sturdy money stream.

Edelweiss stated the corporate’s toll collections rebounded sharply within the December quarter, as financial exercise picked up. Total collections for the 5 key toll initiatives grew 16–42 per cent YoY. The administration is in talks with strategic buyers to monetise a few of these belongings. “This will additional enhance stability sheet power,” Edelweiss stated.

Nomura stated PNC can fund fairness necessities for HAM initiatives largely from inner accruals over FY21-23 — with out deleveraging through asset gross sales, in contrast to its friends, due a low-debt stability sheet.

“In the event of sale of an asset like the Ghaziabad-Aligarh Expressway and potentially some toll/HAM assets as targeted by the management, the ability to take further orders to support growth would increase substantially,” it stated.

Opportunities forward
PNC sees good alternative within the water section and is trying to bid in UP and neighboring states. It stated it would proceed to give attention to the street sector, diversifying into water on the identical time.

Phillip Capital stated the corporate is neatly monitoring the EPC evolution curve and diversifying its orderbook into non-roads segments, with water and irrigation now forming over 25 per cent of its general order e book.

“It has also maintained its net cash status, with a balance sheet strong enough to fund HAM equity requirements on its own,” the brokerage stated.

Analysts targets
Nomura values the inventory at Rs 364 on a FY23 EPS estimate of Rs 26.7. The inventory climbed to Rs 291 final week, however traded at Rs 272 on Monday. Nomura goal suggests 36 per cent potential upside. Phillip Capital sees the inventory at Rs 330.

“We estimate a robust 22 per cent revenue growth CAGR and 25 per cent EPS growth CAGR over FY21-23 led by a strong order backlog. Our FY22/FY23 estimates factor in slightly lower Ebitda margins at 13 per cent vis-à-vis 13.5-14 per cent, historically due to higher input prices and execution of water orders with higher share of bought-out components — nearly two-third of the order value,” Centrum Broking stated.

Centrum valued PNC’s EPC enterprise at 14 instances FY23 EPS and noticed the fairness invested in street belongings at Rs 45 per share to reach at a goal of Rs 340. IDBI Capital sees the inventory at Rs 331, Anand Rathi at Rs 312, Edelweiss at Rs 305 and ICICIdirect at Rs 300.

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