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PNC Infratech's Q2FY20 results (Outperformer) - A strong quarter

Q2FY20 result highlights

• PNC reported revenue of Rs10.7bn, +92% yoy (est of Rs8.0bn) in Q2FY20. The revenue has grown on back of strong execution on new HAM and EPC road projects.
• Adjusted EBITDA came in at Rs1.5bn, +98% yoy. EBITDA Margin for Q2FY20 was 13.8% (est of 13.5%). Note that EBITDA margin for FY19  and FY18 was 12.7%  and 14.1% respectively
• Other income during the quarter came in at Rs1.9bn including arbitration claim of Rs1.4bn received in Hapur Moradabad.
• As a result, PNC’s Q2FY20 earnings was Rs2.07bn (sharply ahead of estimate of Rs1.5bn) led by strong execution. Adjusted for arbitration claims, profit was Rs982m (vs Q2FY19 earnings of Rs351m)
• During the quarter, its received order worth Rs11bn from Lucknow Ring Road project
• PNC’s order backlog is robust at Rs99bn (2.4x book to bill ratio).  The current order book doesn’t include EPC value of ~Rs9.5bn for 4 laning of Challakere to Hariyur section of NH 150 (pending appointed date) and Rs11bn order of Lucknow ring road.
• Gross toll collection (excl annuity projects) on a like-to-like basis was flat at Rs2bn led by low traffic growth due to monsoon and floods.
• PNC had increased its guidance for revenue growth to 50-60% (from earlier 40-45%)

Key positives: Strong execution; Receipt of arbitration claims of Rs1.4bn

Key negatives: Delay in NHAI ordering for FY20E.

Impact on financials: Increase our FY20E/FY21E earnings by 19%/12% respectively to Rs3.7bn/Rs4.1bn on increase in revenue guidance

Valuations & view

PNC not only offers a very robust growth visibility owing to its large order backlog but also continues to invest in increasing its execution capabilities. We estimate 28%/19% revenue/EPS CAGR for PNC over FY19-21E on the back of strong order book. PNC’s efforts at divesting its operating BOT/HAM assets will provide cash flow for meeting its equity commitment in HAM projects and lower the debt levels currently factored by us. PNC trades at 14x/13x FY20E/FY21E standalone earnings adjusted for Rs36/share of BOT assets value. Maintain Outperformer with revised TP of Rs269/share (as we assign 1xequity invested of Rs2.8bn in HAM projects).