Buy PNC Infratech for target price of Rs 460. Asset monetisation – a key trigger ahead: ICICI Direct

Asset monetisation – a key trigger ahead!

About the stock: PNC Infratech has established itself as a strong executor in roads and water infra segments. Additionally, superior execution capabilities via ownership of modern equipment and in-house teams enables PNC to deliver projects on-time.

• Reported 30.6% revenue CAGR in FY18-23; operating margin has largely been in the range of 13-14% and reported robust return ratios (RoCE: ~20%)

Key Investment Thesis:

• Order book strong, provides healthy revenue visibility: PNC’s order book (OB) at the end of Q1FY24, including the newly won projects (four HAM and one EPC road project worth ₹ 4083 crore), was at ~₹ 18900 crore, 2.6x book to TTM revenues. Going ahead, the company has guided for inflows worth ~₹ 10,000 crore during FY24E driven by roads projects (70%+) while remaining is likely from non-roads segments like water, railway, etc. Given the orderbook visibility, we expect healthy revenue CAGR of ~13.5% over FY23-25E to ₹ 9097 crore

• Well-placed to fund HAM projects: As of Q1FY24, the company had infused ₹ 1712 crore into its HAM projects. Going forward, it has balance equity requirement of ₹ 1228 crore to be infused over the next three to four years. Given the healthy operating cash flow generation., we expect the equity to be funded from the internal accruals. The company enjoys a healthy balance sheet with net debt to equity of 0.17x as of Q1FY24.

• Asset monetisation on the anvil: PNC is currently in discussions with potential investors to monetise its assets. Eleven HAM and one BOT project (Bareilly Almora) are under block to monetise having debt of ~₹ 6900 crore and equity of ~₹ 1700 crore (seven operational; rest likely to be operational by next three to four months). It has received non-binding offers from the interested parties. The management expects the process of monetisation (including receipt of money) to conclude by FY24-end with receipt of amount. With monetisation fructification, company’s scalability would improve drastically, going ahead.

Rating and Target Price

• PNC has exhibited healthy execution along with a stable margin trajectory. Medium term trigger is asset monetisation, which would free up capital and drive scalability.

• We assign BUY rating

• We value PNC at ₹ 460 per share, valuing its construction business at ₹ 373/share (at 12x FY25 EPS) and HAM at 1x equity invested.