PNC Infratech's Q3FY19 results (Outperformer) - Robust execution and growth visibility
Q3FY19 result highlights
- PNC reported strong Q3FY19 performance led by robust execution and strong margins. PAT came in at Rs474m (in-line), growth of 9.6% yoy on adjusted base of PY (decline of 49.1% yoy on reported base which included tax reversal worth Rs498m).
- Revenues grew 53.9% yoy to Rs7.3bn (in line) led by strong execution. EBITDA grew 54.1% yoy to Rs1bn & was above our estimate of Rs957m. EBITDA margins remained flat yoy at 14% (est: 13.5%).
- Gross standalone debt further rose by Rs1.1bn qoq to Rs4.5bn in Dec-18 due to on-going capex and higher working capital. Debt is likely to inch up further on the back of scheduled investments in HAM projects.
- Interest expenses grew 22% qoq to Rs187m (est of Rs165m).
- PNC is in advance stages of selling its Ghaziabad Aligarh project and is also in talks for selling 2 of its 7 HAM projects.
- Total equity requirement stands at Rs8.3bn of which PNC has invested Rs2.3bn while remainder is to be invested over next 2-3 years.
- PNC’s order backlog stood at Rs79.6bn (3x TTM revenues) ex of 3 new HAM projects & Nagpur-Mumbai e’way with EPC value of Rs60.6bn.
- PNC has bid for privatisation of 4 out of 6 brownfield airports of AAI. The outcome of the technical bids is likely in the next few days and that for financial bids is likely by end Feb-19.
Key positives: Strong execution and strong order backlog position.
Key negatives: Qoq increase in working capital and debt position.
Impact on financials: Upgrade of 4.9% in FY20E earnings mainly on account of upward revision in revenues.
Valuations & view
PNC not only offers a very robust growth visibility owing its large order backlog but it also continues to boost its execution capabilities by investing in men and machinery. While we remain cautious on PNC’s bid for privatization of AAI airports given the company’s inexperience in this sector, we take comfort in the strong growth and profit potential that airports offer. We will wait to see the outcome of the bidding process and PNC’s strategy on developing this business before drawing any final conclusions. We estimate 50%/31% revenue/EPS CAGR for PNC over FY18-20E. 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. Stock trades at 11.9x/9.5x FY19E/FY20E standalone earnings adjusted for Rs36/share of BOT assets value. Maintain Outperformer with TP of Rs196/share.
PNC Infratech Limited is an infrastructure construction, development and management company. The Company is primarily engaged in the areas of infrastructure projects, including highways, bridges, flyovers, power transmission lines, airport runways and other infrastructure activities. The Company's segments include EPC Contract and BOT (Toll and Annuity). It offers end-to-end infrastructure implementation solutions that include engineering, procurement and construction (EPC) services. It implements projects on various Public-Private-Partnership (PPP) formats, including Design-BuildFinance-Operate-Transfer (DBFOT), OperateMaintain-Transfer (OMT) and Hybrid models. It is involved in the construction and development of Highways, Bridges and flyovers, and Industrial area development. It focuses on road building projects in Punjab, Haryana, Tamil Nadu, Madhya Pradesh, Maharashtra, Karnataka, Rajasthan, Uttar Pradesh, Uttarakhand, West Bengal and North Eastern India.
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